On August 25, 2021, the New York State Department of Taxation and Finance issued the department’s initial round of guidance (Technical Memorandum, TSB-M-21(1)C, (1)I) addressing the recently enacted optional pass-through entity tax (PTET) that partnerships and New York S corporations may elect to pay for tax years beginning on or after January 1, 2021.
This new pass-through entity tax is the latest state workaround to the SALT (State & Local Tax) cap.
This guidance is significant because there is a tax savings opportunity for corporations in New York but there is an upcoming October 15 election deadline. The election must be made by March 15 for each year after 2021.
The new legislation requires that a company or corporate representative make this election through NYS’s online services account. Therefore, UHY is ready to closely advise clients as they set up their own online account
Under the PTE tax, any entity taxed as a partnership or New York S Corporation may elect into the New York PTE tax system. Through this process, the entity will be voluntarily electing to pay an entity-level income tax on at least a portion of its profits allocated to individual investors (not corporations or other partnerships) at graduated rates starting at 6.85% on taxable income of $1 or more and increasing to up to 10.9% on incomes in excess of $25 million.
Based on current guidance, these payments may need to be made by December 31, 2021. Given the timing we encourage those potentially impacted by the new PTET to begin planning immediately in order to address cash flow and tax planning issues in order to benefit from a program that could provide lucrative tax savings.
The PTET is intended to be revenue neutral and provide a partial work around for the federal SALT cap, i.e., the $10,000 limitation on the deduction of an individual’s state and local income taxes, as enacted in the Tax Cuts and Jobs Act of 2017.
UHY has a significant client base in New York to whom this guidance applies. We are well versed in the tax issues facing corporations and their owners in the state. Our team brings UHY’s “Next Level of Service” which includes decades of industry and technical expertise to provide you with fast, efficient and professional tax services.