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New York State and New York City Pass-Through Entity Tax Updates

On April 7, New York Governor Kathy Hochul signed the state’s 2022-2023 budget into law, which includes several updates relevant for New York pass-through entities (PTE). Assembly Bill A 9009C/Senate Bill S8009C modifies the existing New York State Pass-Through Entity Tax (SPTET) program, passed last year, as well as introduces a New York City Pass-Through Entity Tax (CPTET) program for NYC residents. Here’s what you need to know: 

New York State Pass-Through Entity Tax Update 

Under the original SPTET law, the eligible tax-base for S-Corporations only applied to New York sourced income, which provided a limited benefit to S-Corporation shareholders. The new SPTET legislation, effective for the 2022 tax year, will eliminate source-limitation for S corps with only New York resident shareholders. This will allow PTEs to give their shareholders bigger federal tax deductions and state tax credits. To qualify for this benefit, the S-Corporation will have to file a certification with its election that states all shareholders are New York residents. 

S-Corporations that plan on making such a certification will need to consider the increased estimated tax payment requirements and be sure to have paid in 75% of the required annual payment by September 15, 2022. 

New York City Pass-Through Entity Tax Information to Know 

Starting in 2023, New York City residents will be able to benefit from a new City Pass-Through Entity Tax (CPTET) program, which provides the same federal tax benefits for City taxes paid on flow-through income that are available for state taxes paid on flow-through income. This election is available for any partnership required to file a New York State partnership return and New York S-Corps with only New York City resident shareholders – however, neither the partnerships nor the S-Corps are required to conduct any business in New York City. Their CPTET tax base is all of the income of the partnership or S-Corp, un-apportioned.  

If the pass-through entity chooses to make this election, it must be done by March 15 of the year for which the CPTET is going to apply. Elections can only be made by authorized members of eligible tax-partnerships or authorized officers of eligible S-Corps. The CPTET tax rate is 3.876% and CPTET estimates are due quarterly, on March 15, June 15, September 15 and December 15. 

The new law has also clarified that in calculating income subject to the City’s General Corporation Tax, the SPTET and CPTET are required to be added back in computing City taxable income.  

Key Takeaway 

These PTET updates and additions are intended to help business owners operating in New York state and New York City. If a PTE chooses to make the elections mentioned, their shareholders could benefit by reducing their taxable income and claiming certain benefits not previously offered. For more information and to see if your entity is eligible to benefit from these elections, contact a member of the Janover tax team today. 

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