SALT Strategies

Owners of Pass-Through Entities Electing the NY PTE Tax – Your NY Personal Estimated Tax Payments Must Be Calculated Without a PTET Credit

Estimated Tax LI - Owners of Pass-Through Entities Electing the NY PTE Tax - Your NY Personal Estimated Tax Payments Must Be Calculated Without a PTET Credit

New York State (NYS) second quarter Personal Income Tax Estimated Payments are due on June 15, 2021. This year, for owners, partners and shareholders of Pass-through Entities (PTE) that are considering electing to be subject to New York State’s Pass-through Entity Tax (PTET), there’s an important wrinkle in the calculation of these estimated payments.

As discussed in our previous posts, PTE owners of electing PTEs that elect to be subject to the PTET receive a credit for their portion, a complex fact sensitive calculation, of the PTET paid by the electing PTE. Those affected owners of PTEs electing to be subject to the NYS PTET must calculate their 2021 NYS Personal Income Tax Estimates as if they will not be receiving any credit for their portion of the PTET.

As you are aware, Personal Income Tax Estimated Payments are generally required to be made by partners of electing eligible partnerships or by shareholders of electing eligible S corporations making the PTET election. As set forth in § 8(b) of Part C of Governor Cuomo’s 2021-22 NYS Budget {“The Budget”}:

For taxable year 2021, taxpayers under article 22 of the tax law who are partners, members or shareholders of electing partnerships and electing S corporations shall continue to make estimated tax payments as required by such article, calculated as if they were not entitled to the tax credit allowed by subsection (kkk) of section 606 of the tax law, as 10 added by section two of this act. – i.e. the PTET credit.

Therefore, partners and shareholders of PTEs that anticipate making a PTET election for 2021 should continue to calculate and remit their 2021 NYS Personal Income Tax Estimated Payments without regard to their share of the credit for the PTET that will be paid by their respective electing eligible partnership or S corporation.

Duplicate Payments for Owners of PTEs That Elect for NYS PTE Tax

According to The Budget’s PTET provision, separate and apart from the Personal Income Tax Estimated Payments, eligible PTEs that have elected to be subject to the PTET will not be required to remit NYS PTET estimated tax payments in 2021.

As a result of the State’s PTET provisions applicable to 2021 (and as with the New Jersey BAIT in 2020), those owners of electing eligible PTEs will be required to effectively make duplicate tax payments of their 2021 NYS taxes as a result of the State not permitting a credit for the PTET in determining the PTET owners’ Personal Income Tax Estimates as follows:

  1. Their 2021 Personal Income Tax Estimated payments without regard to their potential PTET credits as mentioned above, plus
  2. Secondly, the electing PTE will be required to make a PTET payment for the 2021 tax year.

The duplicate or overpayments resulting from the State’s current Personal Income Tax Estimated Tax Payment provisions for 2021 should be refundable or creditable to future tax years on the PTE owners’ NYS personal income tax returns.

To date, my research has not identified any mechanism or NYS form for electing entities to elect to be subject the PTET nor to remit their PTET tax payments. However, the State has indicated that it is working on both and that such procedures and/or forms may be available during this summer.

If the State establishes a mechanism for electing PTEs to remit their PTET prior to December 31, 2021, owners of eligible electing PTEs that remit their NYS PTET payment on or before December 31, 2021 should receive a Federal tax deduction for the NYS PTET paid.

June 15th Estimated Tax Wake Up Call

Just as our days get longer, more balmy and beckoning all of us to get out and relax, owners of PTEs that will elect to be subject to New York PTET should heed this Wake Up Call. Such PTE owners should be aware of the aforementioned NYS Personal Income Estimated Tax potential pitfall.

In addition, such electing PTE owners and their advisors should consider the cash flow implications arising from the requisite duplicate payments for their 2021 tax year. Contact us if you require assistance calculating you and/or your businesses estimated quarterly tax payments.

Read: New York’s Pass-through Entity Tax – Potential Lower Federal Tax Benefits to S Corporation Shareholders

Read: New York’s Budget Decouples From Federal Opportunity Zone Tax Benefits – Is It a Big Swing and Miss for New York Taxpayers?

Read: Batter up – The NYS 2021-22 Budget – Is It a Home Run or Strike Out for New York State Taxpayers and Businesses?