New York State’s fiscal year budget for 2023 contains attractive tax savings for resident S corporations with regard to the state’s Pass-Through Entity Tax (PTET).  Under the new law, which began in tax year 2022, S corporations whose shareholders are all New York State residents will no longer have to limit their PTET computation to New York-sourced income. They can now remit the PTET on all income that is allocated to their resident shareholders. 

Under the new law, New York has created two classes of S corporations for purposes of the PTET computation.  They are:

• The Electing Resident S corporations
• The Electing Standard S corporations

Nothing has changed for the Electing Standard corporations.  Its PTET is still based only on New York source income.  The Electing Resident S corporations, which have certified that all of their shareholders are residents of New York, will benefit from the new law.  For 2022 only, the Certification is due March 15, 2023.  New York State will be releasing guidance on how the Certification should be made. 

It is important to note that this law was not passed until after the PTET election due date of March 15, 2022 (for tax year 2022).  This excluded certain S corporations from taking advantage of the new rule change. Only corporations that had previously opted into paying PTET under the old law were eligible for the new law change.  The new law left resident S corporations with low New York source income at a disadvantage. Taxpayers could not have anticipated the law change, and therefore did not make the PTET election on March 15, 2022. They were thus ineligible for the new law changes. 

At Governor Hochul’s request, the election due date for 2022 has been changed to September 15, 2022.  Governor Hochul has recently signed the PTET changes into law.

Extending the election due date for S corporations also extends the election due date for partnerships.  Partnerships should now consider whether or not the amended New York PTET law could benefit their members and partners for tax year 2022.  Therefore, pass-through entities that were formed before March 15^th now have the opportunity to opt into the new law changes. 

Other PTET law amendments to pay attention to include:

• For Resident S corporations that elected to pay the PTET by March 15^th : 
• Their June 15^th estimate will be based upon the old New York allocation rules.
• Their September 15^th payment will need to be 75% of their estimated PTET liability under the new resident shareholder allocation rules.
• For S corporations or partnerships that are using the new law change to make a valid 2022 PTET election between March 15^th and before June 15^th :
• They will need to make an estimated payment of at least 25% of their PTET liability at the time they make their election.
• For S corporations or partnerships that are using the new law change to make a valid 2022 PTET election between June 15^th and before September 15^th :
• They will need to make an estimated payment of at least 50% of their PTET liability at the time they make their election.
• For S corporations or partnerships that make the election on September 15, 2022:
• They will need to make an estimated payment of at least 75% of their PTET liability at the time they make their election.
  
  

If you have any questions about the PTET law changes or PTET in general, please contact your Perlson LLP professional at (516) 541-0022.

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