In April of 2021, New York State passed an optional Pass-Through Entity Tax (PTET). The NY PTET allows pass-through entities with tax years beginning on or after January 1, 2021 to make an election to be taxed at the entity level for NYS proposed as a potential workaround of the State and Local Tax (SALT) limitations. The election is irrevocable and must be made by March 15th of the year it is to take effect.
On April 9, 2022, NYS Governor Kathy Hochul signed The New York State Budget Act for fiscal year 2022-2023 into law which included several changes to the NYS PTET.
Changes to NYS PTET for S Corporations
New legislation creates two categories of PTET for S corporations effective for tax years beginning on or after January 1, 2022: (1) electing resident S corporation and (2) electing standard S corporation.
Electing Resident S Corporations must certify that all shareholders are NYS residents. The certification for taxable year 2022 must be made by March 15, 2023; however, additional guidance is needed from NYS on how to complete the certification. For an electing resident S corporation, taxable income for determining PTET includes all items of income, gain, loss or deduction to the extent those items are included in taxable income of the resident shareholders.
Electing Standard S Corporations do not certify that all of the shareholders are NYS residents and include all items of income, gain, loss or deduction to the extent that these items are derived from New York sources. Entities that have both resident and non-resident shareholders cannot be electing resident S corporations and must be treated as electing standard S corporations.
Under prior PTET legislation, only income of New York sources was subject to PTET for all shareholders. This limited the possible benefits of the PTET for resident shareholders who reported income derived from multiple states.
New York State extends due date for 2022 election & changes to NYS PTET required estimated tax payments
The new legislation has extended the due date of the 2022 NYS PTET election from March 15, 2022 to September 15, 2022 for all pass-through entities.
As a result of the deadline extension, NYS has also made the following changes to the required estimated tax payments:
- If an election was made on or before March 15, 2022, the March 15th and June 15th estimates must both equal 25% of the required annual payment.
- If an election is made after March 15, 2022 and before June 15, 2022, an estimated payment equal to 25% of the required annual payment must be made with the election.
- If an election is made on or after June 15, 2022 and before September 15, 2022, an estimated payment equal to 50% of the required annual payment must be made with the election.
- If an election is made on September 15, 2022, an estimated payment equal to 75% of the required annual payment must be made with the election.
For estimated PTET purposes, the required annual payment of electing resident S corporations is calculated the same as an electing standard S corporation.
The recent change in legislation amends Section 612(b)(3) of Tax Law Article 22 which requires income taxes be added back to NYS adjusted gross income to the extent that they are deductible in determining federal AGI and not credited against federal income tax. The new legislation clarifies that the term “income taxes” does not include any PTET to the extent these taxes are added back. This change clears up any confusion and confirms there is no double addback at the individual level for any PTET.
If you have any questions regarding the changes in NYS PTET, please contact one of our professionals or call 315.424.1120.
As a certified public accounting firm located in Syracuse, New York, Grossman St. Amour CPAs PLLC has been in business for decades. The firm provides businesses and individuals with accounting, audit, taxation, business formation and valuation, financial planning, investment consulting, and fraud examination and deterrence services. For more information about how Grossman St. Amour CPAs PLLC can be of service to you, contact our professionals.