New York: Guidance Issued on Elective Pass-Through Entity Tax Regime

Recently, the New York Department of Taxation and Finance issued long-awaited guidance, TSB-M-21(1)(C), (1)I, on the new optional Pass-Through Entity Tax (PTET). Recall, the new PTET applies to tax years beginning on or after January 1, 2021, with the PTET tax return due – for partnerships and S corporations – by March 15^th of the following tax year for both calendar year and fiscal year entities. Despite the same due date for fiscal and calendar year taxpayers, a fiscal year taxpayer does not recompute income on a calendar year basis. Instead, its PTE taxable income must be computed for the fiscal year that ends within the PTET calendar year. For the 2021 tax year the election, which is irrevocable, must be made by October 15, 2021. For tax years beginning on or after January 1, 2022, the election must be made online on or after January 1, but no later than March 15.  There are no estimated payments of PTET required for 2021, but partners and ‘S’ shareholders must continue to pay their quarterly New York personal income tax for 2021, irrespective of the PTET election. However, personal income tax estimated payments are not considered prepayment of PTET and may not be applied to PTET liabilities.   The TSB confirms that an electing entity can choose to make optional estimated payments prior to December 31, 2021; the online estimated tax application for the PTET will be available by December 15, 2021.  Beginning with the 2022 tax year, estimated tax payments will be due on the 15^th day of March, June, September, and December, regardless of whether the entity has a calendar or fiscal year end.

The guidance confirms that the PTET annual election application is now available, and “authorized persons” (a term not found in the legislation) can opt into the PTET on behalf of an eligible entity. The TSB includes a list of “authorized persons” for S Corporations and partnerships. The TSB also provides guidance on calculating PTET income for electing S Corporations and partnerships, computing PTET credits (which is done by first splitting income into a “resident pool” and a “nonresident pool) and claiming those credits. Additional PTET guidance will be posted on the Department’s new PTET webpage as it becomes available. Please contact Russ Levitt, Aaron Shafer, or Brad Wilhelmson with questions on the New York PTET.