New York State PTET elections are due on or before October 15, 2021, and late elections will not be honored. Taxpayers must file their own elections through their online accounts. Practitioners may not make elections on a taxpayer’s behalf. If a taxpayer has issues accessing their online accounts (e.g., lost login credentials), it may take several days for the Department to issue the taxpayer a reset link. It is unlikely that a last-minute request to reset access to the account will be granted in time to make the election.
If a taxpayer has not established an online account, it may take several days to get an account set up. Taxpayers are required to submit information to the Department in order to verify the account and account holder(s). The Department is advising that taxpayers who need to set up an account start the process on or before October 8, 2021, to make sure that the account is set up in time to make the election.
Once an account is set up and a taxpayer has access, the process of making the election generally takes about 10 minutes. It is better to log in now and make the election so there is still time to resolve online account issues. Taxpayers who wait until the last minute to make the election and encounter account access/set-up issues may find themselves unable to make the election for the 2021 tax year – and those taxpayers will lose the benefit.
The New York Department of Taxation recently released long awaited guidance on the state’s SALT workaround, otherwise known as the pass-through entity tax (PTET). The election for the PTET is available for tax years beginning on or after January 1, 2021. The guidance provides insight on election eligibility, how to make the election, how to calculate the tax, and includes a Technical Memorandum (TSB-M-21(1)C, (1)I) with additional guidelines.
Some of the highlights from this guidance includes:
State PTE tax legislation and proposals have been on the rise since the passage of the TCJA, and it’s expected to continue to trend upward with the release of IRS Notice 2020-75. What is unique about New York’s legislation in contrast with other states with pass-through entity taxes, is that the PTET election could still be advantageous for partnerships that are conducting significant business outside New York but have New York resident partners with minimal or no New York source income.
While we will continue to monitor New York Department of Taxation and Finance’s further guidance on this, businesses should weigh the potential benefits along with the risks in determining the right course of action. Since several different factors will play a role in businesses considering making elections into entity-level taxes, it is crucial all the various considerations are modeled out.