New York State first enacted the Pass-Through Entity Tax Credit (“NY PTET”) for tax years beginning on or after January 1, 2021. The NY PTET was applicable to Partnerships and S Corporations who elected into the NY PTET regime. Unfortunately, for many NY residents of S Corporations, they did not receive the full benefit intended by the NY PTET.
The NY PTET base during 2021 for S corporations was limited to New York source income after apportionment. This meant that even though NY residents of the S Corporation would include 100% of their income from the S Corporation in their NY return, they would only receive the NY PTET benefit on the amount of income allocated to NY based on apportionment. To the extent there was income considered to be non-NY at the S Corporation level the NY resident shareholder would receive no NY PTET benefit on that income.
On April 8, 2022, the New York Assembly and Senate passed the Fiscal Year 2023 budget
. As part of the budget, effective for tax years beginning in 2022, there are now two classes of S Corporations for purposes of the NY PTET calculation. The two classes are the New York Resident S Corporation (“RSC”) and the Standard S Corporation (“Standard”).
The NY PTET is unchanged for Standard S Corporations. However, for RSCs, New York and non-New York source income is now permitted to be included in the NY PTET tax base.
This is a welcome change for NY resident shareholders as it has the potential to increase the NY PTET, the shareholders’ credit for PTET, and the shareholder’s federal tax savings. The RSC must certify that all shareholders are New York State residents at the time of electing into the NY PTET regime.
For tax years 2023 and forward, the certification required will be made with the NY PTET election (March 15,2023, for the 2023 tax year.) For 2022, S corporations will have until March 15, 2023, to certify.
For 2022 only, the RSC is required to make the first and second estimated tax payments based only on New York source income. Then the RSCs are required to “catch up” and pay 75% of estimated taxes based on both New York source and non-New York source income by September 15, 2022.
In addition, New York has extended the deadline for make the Pass-Through Entity Election from an initial deadline of March 15th to September 15th for the 2022 tax year.