NYC Pass-Through Entity Tax Retroactive to January 1st, 2022

After months of talk in Congress, the New York State legislator has decided to make the Pass-Through Entity Tax (PTET) Retroactive to January 1^st, 2022. This decision was tied into the nexus bill that was signed a couple of weeks ago by Governor Hochul. Part of the nexus bill involved changing the effective date of the city’s PTET.

Why January 1^st, 2022? It Already Passed

Many may become confused as to why this is being passed retroactively.  This is because, when New York State originally announced a provision for the Pass-Through-Entity Tax in 2021, it was made effective in NYC for 2023, whereas it was effective for the state in 2022.  After the announcement, there was a lot of chatter about why the provision was only given a prospective effective date since the change should overall be net neutral to the State and City government.

Estimated Tax Payments

Accountants and advisors state-wide are going to have to work diligently over these next coming days. Figuring out how to elect into the PTET, and the handling of 2022 estimated tax payments will be a scramble as professionals help their NYC clients who are impacted.

Qualification

To qualify for the PTET, taxpayers must have a state selection in place by September 15^th, 2022. In addition, the new legislation also requires taxpayers to still make estimated tax payments to New York City for 2022, even if an election was made or will be made. This is the same style of payment system that New York State had in 2021, which was the first year of the PTET in the state.

Waiting for Additional Guidance

The only statement made by the NYC tax department says, “The PTET is an optional tax that partnerships or New York S-Corporations may annually pay on certain incomes for tax years beginning on or after January 1, 2021.”

Wrap-Up

Although the deadline is rapidly approaching, there has not been a lot of guidance released by the state tax department. Keeping an open line with your accountant and advisor at this time is of great importance, as they will assist you in determining whether electing the PTET this year is the correct decision for your partnership or S-Corporation.