SALT Cap Workaround for S-Corporations and Partnerships

New York’s fiscal year 2023 budget contains an opportune provision that permits “resident S corporations” to get larger tax benefits under the state’s Pass-Through Entity Tax (PTET) regime.

Under the new rules, beginning with tax year 2022, S corporations in which all shareholders are New York State residents can now remit PTET on all income allocated to the resident shareholders, rather than limiting the PTET to only New York-sourced income. This law was passed about a month after the PTET election due date for tax year 2022.

Only those S corporations that had previously opted into the PTET under the old law were eligible to take advantage of the rule change, as the budget bill did not modify the PTET election due date.

Many resident S corporations with low New York income allocations had not made the PTET election in March 2022, at the request of Governor Kathy Hochul, New York has amended its PTET provisions to move the election due date to September 15, 2022, opening the door for S corporations seeking to now elect into the PTET regime.

New York PTET Election

The state is also pushing back the election due date for partnerships to September 15, 2022. Partnerships may want to evaluate whether the New York PTET could benefit their members and partners for tax year 2022. Additionally, this could be an opportunity for pass-through entities formed after the prior March 15th election deadline to opt into the tax regime. When making a valid 2022 PTET election post March 15, 2022 entities should be aware of the following:

  • If a valid 2022 PTET election is made between March 16, 2022 and June 15, 2022, an estimated payment equal to 25% of its PTET liability will need to be included with the election
  • If a valid 2022 PTET election is made between June 16, 2022 and September 15, 2022, it will need to include an estimated payment equal to 50% of its PTET liability.