New York Pass-Through Entity Tax

The State of New York recently passed a new pass-through entity tax as a work-around for the State and Local Tax Deduction cap of $10,000.

The New York Pass-Through Entity tax is an annual voluntary elected tax for partnerships and S-Corporations for tax years beginning with 2021. The tax is paid by the pass-through entity and deductible on the entity’s return, thereby reducing the entity’s taxable income. In addition, the individual owner of the pass-through entity receives a refundable tax credit on their New York State tax return for their proportionate share of the tax paid by the entity.

The tax is calculated a bit differently depending on whether you are a partnership or S-Corporation. Taxes are calculated on New York source income for S-Corporations, however for Partnerships, taxes are calculated on New York source income for non-resident individual partners and all income for New York resident individual partners no matter where that income is sourced. Tax rates range from 6.85% – 10.9%.

This is a voluntary annual election that the pass-through entity can make and there are certain requirements that go with the election. For 2021, the election deadline is October 15, 2021 and there are no estimates required to be paid. For years after 2021, the election deadline is March 15th and estimates are required to be paid on the 15th of March, June, September and December. An annual return is due on March 15th of the year following the calendar year-end, but may be extended 6 months for filing, but not for payment.

More guidance will be issued by New York Department of Taxation and Finance in the near future.

Please contact our office if you have questions about how this change will affect you and your business.