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:
- How to make the election? The Pass-Through Entity Tax (PTET) Annual Election Web application is now available per the guidance. An authorized person can opt in to the PTET on behalf of an eligible entity through the entity’s Business Online Services account.
- When to make the election? An entity may opt in to the PTET on behalf of an eligible partnership or S corporation for the 2021 taxable year no later than October 15, 2021. Also, the election for tax year 2022 is due March 15, 2022.
- Irrevocable? The election to opt in to the PTET must be made online on an annual basis and is irrevocable. (Note: Once elected, it cannot be revoked).
- Estimated Payments:
- 2021 Estimates: The electing pass-through entity will not be required to make estimated payments for 2021. As such, PTE owners are still be required to make estimated payments without taking into account of the PTE credit.
- Federal tax deduction considerations: For taxpayers who may be required to make a PTE tax payment by December 31, 2021 in order to take the SALT deduction for federal tax purposes, will be provided the option to make estimated tax payments. New York’s webpage explains that an online estimated tax application for the PTET will be available by December 15, 2021.
- Annual Return: Per guidance, an electing entity must file an annual PTET return using the online return application to report the information required under Article 24-A for the PTET taxable year.
- Extension: An electing entity can request a six-month extension of time to file through its Business Online Services account. The extension is an extension of time to file the annual return; it 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 are applicable.
- Resident State Credit for PTET Paid: If there are nonresidents owners, it is important to consider the election to pay tax at the PTE level may result in the loss of resident credit for taxes paid for New York nonresidents. States may not permit their residents to use resident credits for the nonresident PTE-level tax imposed on pass-through income in New York. Therefore, it’s important to consider the potential loss of a resident credit, resulting in possible double state taxation.
Let’s Talk About PTET
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.
contact Withum’s State and Local Tax Group for a deeper discussion.
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