New York Updates Their Passthrough Entity Tax FAQ’s Ahead of Key Payment Deadline
The New York State Department of Taxation and Finance recently updated their passthrough entity tax (PTET) FAQ’s, which could have an impact on upcoming tax payments due September 15, 2023. For those up-to-speed on the New York State and New York City PTET regime, please skip down two paragraphs to get to the “new stuff.”
The New York State PTET is an optional tax that partnerships or New York S-Corporations may elect annually to pay on certain income for tax years beginning on or after January 1, 2021. If an eligible entity elects to pay the New York State PTET, its partners, members, or shareholders that are subject to the tax under Article 22 may be eligible for a PTET credit on their respective New York State income tax returns. The following types of businesses are ineligible: single-member LLCs (unless they elect to be treated as an S-Corporation for New York purposes), sole proprietorships, trusts, non-profit corporations and corporations that are not New York S-Corporations. The annual PTET return is generally due on March 15th after the close of the electing entity’s taxable year. An extension of time to file the annual return is not an extension of time to pay any tax due. The electing entity must pay all the PTET by the original due date of the return, or penalties for failure to pay taxes due will be applied.
The New York City PTET is an optional tax that city partnerships or city resident New York S-Corporations may elect annually to pay on certain income for tax years beginning on or after January 1, 2022. A partner, member, or shareholder that is not subject to tax under Article 30, including but not limited to a corporate partner, is ineligible for the New York City PTET credit. Further, a partner that is itself a partnership is ineligible for the New York City PTET credit.
Here are some of the updated FAQ’s that caught our eye:
If a partnership elects to participate in PTET, can it choose which partners participate in the PTET tax and credit? An eligible entity that opts into the PTET must include all partners, members, or shareholders that are subject to tax under Article 22 when computing the PTE taxable income. The PTET credit must be allocated to all eligible credit claimants according to the passthrough PTET guidance issued in August 2021.
Can an entity file a zero return to revoke the New York State PTET or New York City PTET election? The New York State PTET and New York City PTET election can be revoked up until the due date of the first estimated PTET payments.
If a new entity is formed after March 15th with a short period ending December 31st, will the newly formed entity be able to make the PTET election after March 15th? The PTET election must be made by March 15th of the tax year for which it is making an election. There are currently no rules that permit a later opt-in deadline for newly formed entities.
If an electing PTET partnership undergoes a re-organization during the PTET year for Federal tax purposes, will the PTET election remain effective for the successor entity? The PTET election will remain effective for the successor entity if the successor entity is a continuation of the original entity; if the original partnership will not be filing a final return; and if all the income for the year, including income earned prior to the re-organization, will be filed on the successor entity’s tax return.
If an entity makes a payment to another tax that was intended for PTET, can the payment be transferred to PTET? An electing entity may not transfer payments between different tax types.
If an entity makes a payment to PTET that was intended for another tax, can the payment be transferred out of PTET? An electing entity may not transfer payments between different tax types.
Can PTET payments be transferred between related entities? Payments cannot be transferred between related entities or individuals.
If an entity opted into both New York State PTET and New York City PTET, are New York State PTET estimated payments that exceed the New York State PTET liability for the year applied to New York City PTET, or does it get refunded regardless of any New York City PTET due? The New York State PTET and New York City PTET payments are applied in aggregate to the New York State PTET liability and New York City PTET liability on the annual PTET return. If the total New York State PTET estimated payments exceed the New York State PTET liability on the annual PTET return, the excess will be applied to the New York City PTET liability as necessary. Similarly, if a New York City PTET estimated payments exceed the New York City PTET liability on the annual PTET return, the excess will be applied to the New York State PTET liability. Any net overpayment of New York State PTET and New York City PTET will be refunded to the entity once the annual tax return has been processed.
Can an entity amend its PTET return after it has been filed? Consent to the amendment of an original PTET return may be granted under certain circumstances. Requests to amend an entity return must be made in writing before an amended return can be filed.
Good luck with your New York State and New York City PTET payments. CLA is here to assist with any questions or concerns!
Source: New York State Department of Taxation and Finance
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