On May 5, 2022, New York Gov. Kathy Hochul signed Senate Bill 8948/Assembly Bill 10080, extending the period for entities to elect into the New York State pass-through entity tax (PTET) program from March 15, 2022 to Sept. 15, 2022 for tax year 2022 only. The extension applies to all eligible pass-through entities.
New York State due date extension for 2022
On April 9, 2022, New York enacted a number of taxpayer-friendly changes to its NYS PTET program, including the creation of a new category of qualifying New York S corporations with only New York resident shareholders (electing resident S corporations). Electing resident S corporations are subject to the NYS PTET without regard to sourcing or apportionment of income. However, because the due date for electing into the program for 2022 had passed (i.e., March 15, 2022), S corporations that could have benefited from this change were not able to elect into the NYS PTET. New York’s revised election allows such S corporations, in addition to other qualifying entities that failed to meet the deadline, to elect into the 2022 program by Sept. 15, 2022. The extension applies to the 2022 tax year only. Elections for 2023 remain due March 15, 2023.
Estimated payment requirements
The amendments specify that an election made after March 15, 2022 require specified estimated payments to be made in order for the election to be valid. The law requires electing partnerships or S corporations to make an estimated payment of 25% of the required annual payment if the election is made prior to June 15, 2022 or 50% if the election is made after June 15, 2022 and before Sept. 15, 2022. These payments do not replace the quarterly payments that would otherwise normally be due on their respective due dates (i.e., June 15, Sept. 15 and Dec. 15).
For an electing resident S corporation that made an election on or before March 15, 2022, the entity is required to make an estimated payment by June 15, 2022 representing at least 25% of the required annual payment as if such electing resident S corporation was an electing standard S corporation. However, all electing resident S corporations are required to have paid at least 75% of the required annual payment by Sept. 15, 2022 as an electing resident S corporation.
Takeaways and considerations
New York has provided pass-through entities another six months to elect into the PTET program. Taxpayers, and in particular, New York S corporations with only New York residents, should consider whether to participate in the revised NYS PTET program.
Understanding whether a pass-through entity election results in a benefit requires modeling and detailed analysis of all the risks and opportunities involved. Especially in large, multi-state pass-through entities, a pass-through entity tax election may provide tax savings for select members, while increasing tax on other members, thus producing an unintended result. A pass-through entity must conduct thorough due diligence to understand how and whether the election is ultimately beneficial.
Taxpayers should carefully plan and consider all aspects of a pass-through entity election before choosing to elect. In 2022 and through the date of this article, Kansas, New Mexico and Utah have adopted a pass-through entity tax effective for 2022 and Virginia for 2021. New York City has also adopted an election effective beginning in 2023. Taxpayers with questions about electing into a pass-through entity tax should consult a state and local tax adviser.