TIME SENSITIVE: Deadline for New York State Pass-Through
Entity Tax Election for $10,000 SALT Limitation Workaround is October 15, 2021
The federal limitation on the deductibility of state and local taxes (SALT) negatively impacts New Yorkers, especially the owners of pass-through entities (PTEs), e.g., partnerships and S corporations. Those owners are limited on the SALT deductions for state tax payments they’ve made that are attributable to the income from PTEs.
On April 7, 2021, the New York legislature reached an agreement with former Governor Cuomo to create a work around. The law stipulates an optional election for the business whereby the pass-through entity can elect to pay an entity-level tax at the partnership and S corporation level. The tax paid, again, is a deduction on the federal level, and then is added back on the state individual tax level for that shareholder or partner’s income. The New York State return for that partner or shareholder is entitled to a credit against the total income for the taxes paid at the entity level.
The required withholding in New York is consistent with the individual tax rates – 6.85% for amounts under $2,000,000, 9.65% for amounts over $2,000,000 and not over $5,000,000, 10.3% for income over $5,000,000 but less than $25,000,000 and 10.9% on income over $25,000,000.
The election to pay a pass-through tax is made annually, by the due date of the first estimated tax payment date. Since this program started late in 2021, the election to pay the Pass-Through Entity Tax must be made by October 15, 2021, and therefore the first-year election would not require estimated tax payments. The subsequent year’s estimated tax payments would be due March 15th, June 15th, September 15th, and December 15th of each year.
The 2021 election is due October 15, 2021 and can be made through New York State’s on line portal at the following link: Online Services account.
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.