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New York State Makes Important Updates to Pass-Through Entity Tax

Extends election due date to September 15, 2022 and creates new opportunity for certain S corporations

On May 6th, 2022 Governor Hochul signed a bill extending the due date to elect into New York State’s pass-through entity tax (PTET) regime until September 15, 2022 for the 2022 tax year.  While this extension provides welcome relief for eligible partnerships and S corporations that failed to meet the original March 15th deadline, those taking advantage of the extension should note that they must meet certain payment requirements in order for their election to be valid.  In addition to the most recent bill, a bill passed earlier in 2022 created a new category of S corporations, “resident S corporations”, that may benefit from a revised PTET calculation resulting in a larger tax deduction as outlined below.

Eligible partnerships and S corporations making an election into PTET under the extended deadline are still required to make estimated PTET payments to the NYS Department of Tax and Finance throughout the 2022 tax year. If an eligible partnership or S corporation files their PTET election between March 16th and June 15th, 2022, the entity must make an estimated tax payment equivalent to 25% of their annual PTET tax with their election. Any eligible partnership and S corporation that files a PTET election between June 16th and September 15th, 2022 must make an estimated tax payment equivalent to 50% of their annual PTET tax with their election.  Failure to make these payments with an election will nullify the election and the entity will not be eligible to participate in the PTET program for 2022.

As a reminder, the PTET program allows eligible partnerships and S corporations to pay tax at the entity level to provide state tax deductions that may otherwise be disallowed at the owners’ level.   Previously, electing partnerships calculated their PTET on all income allocated to New York resident owners plus all New York source income of nonresident owners, while S corporations could only calculate their PTET on the New York source income apportioned to owners.  Under the 2022 rules, an S corporation owned solely by New York residents will be classified as a resident S corporation.  Similar to partnerships, resident S corporations will calculate their PTET on all income allocated to the New York resident owners regardless of where it is sourced.  As a result of this new rule and the extended election deadline, S corporations qualifying as resident S corporations that previously didn’t elect into PTET due to low New York source income may want to reconsider an election into the program.

It is important to remember that an authorized representative, not a tax professional, of an eligible partnership and S corporation must make an election to file the PTET tax every year on the entity’s NYS online account. Once the election has been made for a tax year it cannot be revoked and any payments must be withdrawn electronically from the entity’s bank account. You can read our previous article about how to make the election here.

If you have any questions or think you may benefit from making a PTET election, please consult your TBC advisor.