New York Enacts City Pass-Through Entity Tax

New York has established a city-level pass-through entity tax for tax years beginning on or after January 1, 2022. The New York City pass-through entity tax is an optional tax that partnerships or New York S corporations may annually elect to pay on certain income.

If an eligible city partnership or eligible New York S corporation elects to pay the NYC PTET, its partners, members, or shareholders may be eligible to receive a credit for their share of the entity-level tax, reducing their NYC personal income taxes.

Who is eligible for the New York City Pass-Through Entity Tax

The PTET is available for any eligible city partnerships and resident S Corporations, including Limited Liability Companies (LLC). An authorized person of the eligible city partnership or s-corporation must make the election to participate. Authorized persons are outlined below.

Partnerships

Partnerships that are eligible include any business that files a New York partnership tax return with at least one partner, member, or owner who is a New York City resident individual. The partnership may not be a publicly traded partnership. An authorized person of a partnership that may elect the business to participate in the NTC PTET includes any member, partner, owner, or another individual with authority to bind the entity or sign returns.

S Corporation

S Corporations that are eligible include any business that files a New York S-Corp tax return of which all shareholders are New York City resident individuals. An authorized person of an S-Corp that may elect the business to participate in the NTC PTET includes any officer, manager, or shareholder who is authorized under the state or under the corporation’s documents to make the election.

Benefits and Specifications of the New York City Pass-Through Entity Tax

Nonresidents of NYC will not receive any benefit from the pass-through entity tax program because the NYC personal income tax credit only applies to city residents. Those who will benefit from this program are businesses and partners, members, and shareholders of the business who live in NYC. The PTET allows entities to pay state income taxes at the entity level. If a business elects to pay the NYC PTET, the business pays the income taxes upfront so the partners, members, and shareholders who live in NYC do not have to pay entity taxes out of their own pocket.

Businesses must have opted into the New York State PTET to be eligible for the city PTET. The deadline to opt-in for tax years beginning on or after January 1, 2022, and ending before January 1, 2023, was September 15, 2022. For tax years beginning on or after Jan. 1, 2023, the election can be made beginning Jan. 1, 2023, and the deadline is March 15, 2023.

New York City Pass-Through Entity Tax Rate

The NYC PTET is equal to 3.876% of the NYC PTE taxable income.

Estimated NYC PTET payments

An electing entity is not required to make any estimated tax payments for the 2022 year. However, any optional payments must be made prior to December 31, 2022. For the PTET tax year of 2023, estimated payments are required. Each quarterly payment should be an amount equal to at least 25% of the required annual payment for the taxable year

Entities must use the state’s online Web File application to make PTET payments. Both authorized persons and tax professionals may make estimated PTET payments on behalf of the entity.

To make an estimated PTET payment:

• Log in to the entity’s Business Online Services account.
• Select the services menu in the upper-left corner of the business’ Account Summary homepage.
• Choose PTET web file from the Corporation tax or Partnership tax expanded menu, then select Pass-through entity tax (PTET) estimated payment.

Taxpayers whose business is an electing entity may claim the credit on Form IT-653, Pass-Through Entity Tax Credit, and attach it to their New York State personal income tax return.