June 11, 2024

Understanding Your Eligibility for New York’s Pass-Through Entity Tax (PTET): Key Points for the Upcoming Tax Season

By John Bonk, Partner, National Co-Leader - State & Local Tax & Tri Hoang, Director, Tax & Business Services

Understanding Your Eligibility for New York’s Pass-Through Entity Tax (PTET): Key Points for the Upcoming Tax Season State & Local Tax

The New York Department of Taxation and Finance recently released new guidance regarding the elective pass-through entity tax (PTET) for eligible partnerships and S corporations, which will apply from the 2021 tax year onwards.

Key Points

PTET Election and Filing Extension

  • The annual PTET return is typically due by March 15th, following the end of the taxable year.
  • Electing entities may file for a 6-month extension to submit the return via the Business Online Services account.

Note: The extension only applies to the filing date, not the tax payment deadline. To avoid penalties, full PTET payment must be made by the original due date.

Additional PTET Payments

  • Taxpayers can make additional PTET payments after filing a valid extension, up until the extended return due date or the PTET annual return filing date, whichever is earlier.
  • Payments made after the original due date are subject to penalties and interest, and payments are not allowed once the annual return is filed.

Filing of Extension

  • PTET entities must file extensions electronically through their Business Online Services account.

PTET Credit Eligibility

  • The updated guidance specifies that only direct partners of an electing entity can claim the PTET credit.
  • Trusts, except those disregarded for tax purposes, may claim the PTET credit on fiduciary income tax returns but cannot distribute it to beneficiaries.
  • Corporate partners and partnerships are not eligible to claim or distribute PTET credits.

Credit Amount and Claiming

  • The PTET credit is equal to the claimant’s direct share of PTET paid by the electing entity.
  • Credits from multiple sources are aggregated, with any excess treated as an overpayment.
  • To claim the credit, eligible claimants must attach Form IT-653 to their personal income tax returns. Group return forms IT-203-GR and IT-203-S cannot be used for the PTET credit.

Addition Modification Requirement

  • Claimants must adjust their New York state personal income tax return to include an addition modification equal to the PTET credit claimed.

Separately, recently, legislation has been introduced (e.g., Assembly Bill A8451A / Senate Bill S8115B) to replace the deadline for eligible taxpayers to make the NYS and NYC PTET elections from March 15th to September 15th of the taxable year. The bills received support in the Assembly and Senate committees and are currently placed on a floor calendar for voting consideration.