NYS Pass-Through Entity Tax Election Period is Open for 2022

The election period for pass-through entities to opt-in to the New York State Pass-through Entity Tax (NY PTET) for tax year 2022 is now open. The annual election window for 2022 closes on March 15. Beginning this year, quarterly estimated payments will be required.

Background

The New York State Pass-through Entity Tax (NY PTET) was newly enacted for the 2021 tax year. This is an optional, entity-level tax that partnerships, multi-member LLCs or S-corporations can elect.

In summary, the NY PTET allows the electing entity to be subject to income tax on the net income of the entity at the entity level, instead of at the level of the individual shareholders. The tax paid under the NY PTET is deductible for federal tax purposes and reduces the federal flow-through income allocated to the owners of the electing entity. To prevent double taxation at the state level, the owners would then receive a credit against their state income taxes in line with the NY PTET paid at the entity level.

For an in-depth discussion on this tax and its potential benefits, refer to this previously published article from our State and Local Tax (SALT) specialists.

Making the Election

The NYS Department of Taxation & Finance system is currently open to make the annual election to opt-in to the NY PTET for the 2022 tax year. The election is made online using the entity’s Business Online Services account on the New York State website, and it must be made by an authorized person. An authorized person is generally an owner or agent of the entity who has the authority to bind the entity and sign tax returns.

Eligible entities have until March 15, 2022, to make the election to opt-in to the NY PTET. The election period ending March 15, 2022, applies as follows:

• For calendar-year entities, the election will apply to the tax year ending December 31, 2022.
• For fiscal-year entities, the election will apply to the calendar year in which the fiscal year ends. For example, an S-corporation has a fiscal year of November 1, 2021, to October 31, 2022. The S-corporation can make the election between January 1, 2022, and March 15, 2022, for the 2022 PTET taxable year.

Estimates

Beginning with the 2022 tax year, entities that opt-in to the NY PTET must make quarterly estimated payments towards the NY PTET. For 2022, these payments are due on or before March 15, 2022; June 15, 2022; September 15, 2022; and December 15, 2022.

Each quarterly payment must be equivalent to 25% or more of the total “required annual payment” as defined by New York, which is the lesser of:

• 90% of the NY PTET shown on the return of the electing entity for the current taxable year; or
• 100% of the NY PTET shown on the return of the electing entity for the preceding taxable year.

If the entity did not participate in the 2021 NY PTET, for 2022 the electing entity must pay in at least 90% of the current year NY PTET.

For additional information regarding how the PTET rules may affect you, please contact your Marcum State and Local Tax professional.