On April 9, 2022, New York passed tax legislation (A9009-C S8009-C) that made significant changes to the NYS Pass-Through Entity Tax (“NY PTET”) and established a NYC Pass-Through Entity Tax (“NYC PTET”).
New York State Modifications:
Electing Resident S Corporations:
The legislation created a new S-corporation category for entities with ALL New York resident shareholders. Effective for tax years beginning on or after January 1, 2022, S corporations can make an election to certify that they are an “electing resident S corporation”. The election certifies that all shareholders are residents of New York. Without the election, S corporations are deemed to be an “electing standard S corporation”.
Electing resident S corporations can now remit PTET on ALL income allocated to NY resident shareholders (i.e. resident shareholders are taxed on their pro rata share of S corporation income wherever derived). Under prior law, only NY sourced income was eligible for the PTET. S corporations with non-resident shareholders (an electing standard S corporation) base the elective tax on income sourced to NY State. The election must be made by March 15th of the applicable tax year. Under special transition relief for 2022, the certification that the S corporation has only NYS resident shareholders for 2022 must be made by March 15, 2023. The NY State Pass Through Entity tax is required to be added back to NY taxable income as a modification only one time.
New York City PTET Election
Effective for tax years beginning on or after January 1, 2023, the legislation also created an elective New York City PTET (Tax Law Article 24-B). The New York City PTET is similar to the state’s PTET. The election is annual and must be made by March 15th of each appliable tax year (i.e. due by March 15, 2023 for tax year 2023). To make the election, partnerships doing business in the city must have at least one member that is a New York City resident and all shareholders of S corporations doing business in the city must be New York City residents. The NYC PTET rate is 3.876%. The elective tax is in addition to other entity taxes such as Unincorporated Business Tax (UBT) and General Corporation Tax (applicable to S corporations). The NYC Pass Through Entity tax return is due on or before March 15th of the following year (with applicable extensions allowed).
The New York City PTET is paid in four equal installments as estimated taxes (March 15th, June 15th, September 15th and December 15th).
Resident owners of eligible entities that make the election in New York City are entitled to a refundable credit equal to their direct share of the New York City PTET to offset their New York City individual income tax liability.
Please reach out to your Prager Metis Advisor with any questions.