SALT Workarounds Continue As New York
Extends the Program to New York City
With the restriction of state and local tax paid being included as part of the $10,000 tax limitation on personal income tax returns, many states have implemented tax programs to help taxpayers that are business owners of pass-through entities receive a federal tax reduction by using a pass-through entity tax program to assist in circumventing the above limitation.
Starting in 2022, New York City has added itself to the list to provide a benefit for those business owners who live in New York City. New York State has put in place an optional tax for New York City Partnerships and New York City resident S Corporations. This tax will work similarly to the NYS Pass Through Entity Tax (“PTET”) providing a federal deduction on the business level, to reduce the shareholder or partner federal taxable income.
Who Qualifies
Eligible City Partnerships – Generally, any partnership (or LLC treated as such for federal tax purposes) that has elected to participate in the NYS PTET program and has at least one partner or member that is a city resident.
Eligible city resident S Corporation – Generally, any New York S Corporation (or LLC treated as such for federal purposes) that has elected to participate in the NYS PTET program and has ONLY city resident individual shareholders.
Making the Election
The irrevocable election is made annually, on or before March 15, 2023. This election will be done via the NYS online Services portal when it is made available to the public. Keep in mind, the entity must have already made its election for NYS PTET by September 15, 2022.
Additional Information
The tax is based upon 3.876% of the NYC pass-through entities taxable income which translates to a tax savings based upon the federal deduction on this tax.
Estimates are not required in the first year of election (2022) but will begin in 2023 similarly to NYS PTET.
The information presented here should not be construed as legal, tax, accounting, or valuation advice. No one should act on such information without appropriate professional advice and after a thorough examination of the particular situation.