On August 17, 2023, the New York State Department of Taxation and Finance updated its website to include new and updated information issued in connection with the New York State Pass-Through Entity Tax (PTET).  The law creating the PTET was enacted in New York in 2021 and allows eligible partnerships and S corporations to elect to pay tax on certain forms of pass-through income on behalf of its partners, members, or shareholders, who may then be eligible for a corresponding credit on their individual NYS income tax returns.  These most recent updates could potentially affect both NYS and NYC PTET returns and payments coming due September 15, 2023.

The summary below is not an exhaustive list of additions and updates.  Taxpayers may visit https://www.tax.ny.gov/bus/ptet/ and corresponding PTET webpages for additional information, worksheets for calculating PTET, an updated list of Frequently Asked Questions (FAQs), and a current list of states with substantially similar pass-through entity tax (for which individual and fiduciary taxpayers may be permitted a resident tax credit on their NYS income tax returns).

Making the Election and Filing Returns, and Payment of Tax

The PTET election must be made by a person authorized to do so on behalf of the entity, and for the 2022 tax year must be made by the due date of the 2022 tax return (with extensions).  For subsequent tax years, the election must be made no later than March 15 of the current taxable year.  For example, a company with a tax year that began on January 1, 2023, must file their 2023 election no later than March 15, 2023. No provision exists for late elections by entities formed after March 15.

The PTET election must be made annually, and may be revoked, if done prior to the due date of the first PTET estimated payment.  Taxpayers are advised that it is not permissible to file a “zero” return in order to make a revocation—all items of income must still be accurately reported.

An electing entity must file an annual PTET return on or before March 15 (a six-month extension to file may be requested).  Once the annual return is submitted, no changes may be made.  If changes must be made to the information reported on a PTET return, a request may be made to amend the return, and will be granted at the discretion of the NYS Tax Commissioner.  Written requests must be made prior to the filing of an amended return (by either mail or fax), and no later than one year after the extended due date of the originally filed return.

Payment of Tax and Claims for Credits

An extension of the deadline to file an annual PTET return does not extend the deadline for PTET payments.  Additionally, no additional PTET payments may be made after the filing of the annual return.

Taxpayers claiming a PTET credit must do so in the same year that the PTET annual return is filed.  For example, credits for taxes paid and applied to a 2023 PTET annual return must be claimed on a 2023 individual or fiduciary return, regardless of the dates the PTET payments were made.  Individual and fiduciary taxpayers who have already filed returns for the year may file amended returns to claim the credit.

Overpayments of PTET may not be carried over and applied to subsequent tax years.  However, NYS and NYC payments are both applied to the total PTET liability—an overpayment of the NYS PTET will be applied to an underpayment of NYC PTET, and vice versa.  Any net overpayments of PTET will be refunded.

New York City PTET

Entities opting into the NYS PTET may also make a separate election to pay NYC PTET.  Partners, members, and shareholders subject to NYC personal income tax may be eligible for a corresponding tax credit on their individual tax returns.  City resident individuals, trusts, and estates may be eligible for the credit, however, trusts that are not disregarded entities for tax purposes may not distribute the credit to beneficiaries.

Payments of the Metropolitan Commuter Transportation Mobility Tax (MCTMT) on behalf of non-resident partners must still be made by filing IT-2658 and may not be reduced by anticipated PTET tax credits.

There are a number of reasons why electing to pay NYS PTET is beneficial for pass-through entities and their individual and fiduciary owners.  As late elections are not permitted and the ability to amend PTET annual returns is not guaranteed, great care should be taken to note all filing deadlines and accurately calculate annual PTET payments.  Please contact your Dermody, Burke & Brown advisor if you would like to discuss the PTET election and payment of tax bypass-through entities, and corresponding income tax credits.

The information reflected in this article was current at the time of publication.  This information will not be modified or updated for any subsequent tax law changes, if any.