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 New York enacts pass-through entity tax election as SALT deduction workaround

December 22, 2022 / 2 min read

New York’s pass-through entity tax will allow certain partnerships and New York S corporations an annual election to pay income tax on behalf of its owners. The election must be made by October 15 for tax year 2021.

In direct response to the $10,000 cap on the state and local tax deduction added by the Tax Cuts and Jobs Act in 2017, many states have enacted laws to allow pass-through entities (PTE) an election to pay income tax at the entity level rather than the individual owner level. The election is meant as a “workaround” to the $10,000 cap. Notice 2020-75, issued by the Internal Revenue Service in November 2020, appears to endorse these workarounds. New York is one of many states to enact this regime.

Election for 2021 tax year: Due Oct. 15, 2021

Beginning Jan. 1, 2021, New York’s pass-through entity tax (PTET) will allow partnerships, except publicly traded partnerships, and entities that are treated as S corporations for New York purposes an annual election to pay income tax on behalf of its owners. The election is generally required by March 15 of the tax year to which the election would apply. However, the election must be made by October 15 for tax year 2021.

Taxpayer considerations for evaluating and determining whether the PTE is beneficial include, but aren’t limited to, the following:

Beginning in 2022, New York City taxpayers can now opt-in to the NYC PTET. For a more detailed explanation of the PTET, we recommend reviewing the examples provided in New York Technical Memorandum TSB-M-21(C), (1)I.

Plante Moran’s state and local tax specialists have experience with New York’s PTE, as well as the PTE regime in other states, and can assist businesses with determining the impact of a PTE. Please contact Plante Moran’s state and local tax team to see if your business can benefit from the New York PTET election.

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