Governor Cuomo signed the New York State Fiscal Year 2021-2022 budget bill on April 19, 2021. Included in this bill is New York State’s version of a pass-through entity (PTE) tax. New York is the final state in the tri-state area to pass such legislation. Similar to New Jersey’s version, eligible entities need to make an annual election in order to utilize the PTE tax. Effective immediately for tax years beginning on or after January 1, 2021, the new election is in line with IRS Notice 2020-75 which permits such elective PTE mechanisms to help individual taxpayers avoid the $10,000 SALT cap on itemized deductions.
Any eligible partnership or S corporation may make an annual election for the PTE tax. The annual election must be made by the due date of the first estimated tax payment and will take effect for the current tax year. Only one election may be made during each calendar year and once made, the election is irrevocable. Elections for calendar year 2021 must be made by October 15, 2021 and electing entities are not required to make estimated tax payments for the 2021 tax year. Elections for 2022 and beyond must be made by the date of the first estimated tax payment.
The applicable tax rates for the PTE tax are graduated based on the PTE’s taxable income. The rates are as follows:
|Not over $2 million||6.85%|
|$2 million but not over $5 million||$137,000 plus 9.65% (over $2 million)|
|$5 million but not over $25 million||$426,500 plus 10.30% (over $5 million)|
|Over $25 million||$2,486,500 plus 10.90% (over $25 million)|
Individual taxpayers will be allowed to take a credit equal to the partner’s, member’s or shareholder’s direct share of the pass-through entity tax. A credit may only be claimed if the electing partnership or S corporation paid the PTE tax and provides adequate information on its return to identify the taxpayer who will be claiming the credit.
In addition to New York States PTE tax, the budget bill also allows New York State resident taxpayers a credit for substantially similar PTE taxes enacted by other states.
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