The state of New York has recently made amendments to its PTET laws by creating a new S-Corporation category for entities for all resident tax shareholders. Before the amendment, a PTET could only claim a PTET tax deduction and credit on NY source income.
Beginning in tax year 2022, the new legislation definition of an electing S-Corporation is amended to include either an electing “resident S-corporation” or “standard S-corporation.” A resident S- corporation requires that all of its shareholders are residents of New York. Resident S-corporation taxable income includes the sum of all items of income, gain, loss, or deductions to the extent included in the taxable income of the resident shareholders providing a potentially greater benefit for resident shareholders. Standard S-Corporation taxable income includes only the sum of all items of income, gain, loss, or deduction sourced to New York which was the same as the pre-amended version. For 2022 tax year only, entities must file a certification with its tax return for “electing resident S-corps.” In future years, the certification must be filed with the annual state NY PTET election.
The new legislation also established a new tax law Article 24-B creating an optional New York City pass-through entity tax (NYC PTET) effective for the 2023 tax year. The NYC PTET is calculated using a flat rate percentage of 3.876. Eligible partnerships/limited liability companies include entities with a New York State tax return filing obligation and have at least one partner/member that is a New York city resident individual. Eligible S-Corporations include entities with a New York State tax return filing obligation and all shareholders are residents of New York City. The New York City PTET election is irrevocable as is the New York State election and must be made by the first estimate due date on March 15. NYC PTET credit is only available for New York city residents, so careful consideration must be analyzed before making any elections. Additional guidance may be issued in the upcoming months for the New York State and City PTET programs.
In April 2022, New York governor signed Senate Bill 8009C/Assemble Bill 9009C amending the original New York pass-through entity tax (PTET) program. Effective retroactively for calendar year 2021, new Subsection 612(b)(3)(C) clarified that New York PTET, or any other state pass-through entity tax, should not be added back to income at the individual level to the extent it is added back on the business level confirming no double taxation of addbacks.
For more information & updates please visit the New York State Department of Taxation and Finance website: https://www.tax.ny.gov/bus/ptet/.
