At the discretion of the Commissioner of the NY Department of Taxation and Finance, electing PTEs may apply for an extension of up to six months to file and pay the PTET. However, see below for discussion of the election and estimated payment provision applicable only to the 2021 tax year. Annual returns for calendar year filers are due by March 15 following the close of the taxable year, and annual returns for fiscal year filers are due by March 15 following the close of the calendar year that contains the final day of the entity’s taxable year. PTEs must make the irrevocable election to be subject to the PTET annually by March 15 of the tax year for which the election is made. The PTET applies to tax years beginning on or after January 1, 2021. This deduction was solidified by IRS Notice 2020-75, in which the IRS notified taxpayers that it would allow the deduction of state and local income taxes paid by PTEs, and that this deduction would not be taken into account when applying the SALT cap limitation to individual owners of PTEs. With the enactment of the new PTET, partners, members, and shareholders of electing partnerships, LLCs, and S corporations will essentially be allowed a deduction from federal taxable income for NYS PTE tax paid on their share of flow-through income from the PTE.
The idea behind the tax structure is that if income tax is paid at the entity level, it should be fully deductible by the entity for federal income tax purposes and not limited by the SALT cap, which does not apply to business entities.Ī deduction for state or local taxes paid at the PTE level reduces the amount of net income flowing through to individual partners, members, and shareholders, effectively giving them the benefit of an above-the-line deduction of state and local taxes that is not limited by the SALT cap. NYS’s PTET was designed as a workaround to the $10,000 federal limitation on the state and local tax deduction (SALT cap) imposed by the 2017 Tax Cuts and Jobs Act. The new PTET is expected to result in federal income tax savings for taxpayers who are owners of an electing pass-through entity and subject to NYS personal income tax. The bill includes an elective Pass-Through Entity Tax (PTET) under new Article 24-A of the Tax Law, which gives partnerships, limited liability companies (LLC) taxed as partnerships, and S corporations (collectively, PTEs) the option to pay income taxes at the entity level for income passed through to individuals, while the individual partners, members, or shareholders of the electing entity receive a corresponding tax credit for their share of PTET paid. On April 20, 2021, New York State (NYS) Governor Andrew Cuomo signed the NYS Fiscal Year 2022 Budget into law. New York’s Elective Pass-Through Entity Tax Effective January 1, 2021 New York State Enacts New Pass-Through Entity Tax
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