NYS Tax Changes Affect Pass Through Entities and their Owners; Corporations & Individual Taxpayers
New York, NY — April 15, 2021
State of New York Tax Law Changes Affecting Pass Through Entities and their Owners; Corporations Franchise Taxes & Individual Taxpayers signed into Law by the Governor April 6, 2021
Pass-through entity tax (PTET)
In general, the imposition of tax at the partnership or S Corporation level and allowing a credit for the individual partner's /shareholder pro rata share of the tax paid.
Applies to tax years beginning on or after January 1, 2021, with the PTET tax return due—for partnerships and S corporations—by March 15th of the following tax year for both calendar year and fiscal year entities. For fiscal year entities, the return is due on or before March 15th following the close of the calendar year that contains the final day of the entity's tax year.
Estimated tax payments are made on the 15th day of March, June, September, and December, regardless of whether the entity has a calendar or fiscal year end.
The pass-through entity must elect, irrevocable, for that year into the PTET annually by the due date of the first estimated tax payment (March 15 for calendar year filers) . A PTET return cannot be amended absent permission by the State Tax Commissioner.
The PTET is imposed on the entity.
Each partner/shareholder would be liable only for their direct share of the tax, and not for the entire amount due by the entity. The entity would pay the PTET only with respect the distributive share of its income attributable to the personal income tax filers. The income that would be subject to New York State income tax for the specific partner or shareholder that would be paid by the entity on the "New York source" amounts. For New York State residents, the PTET would be paid by the PTE on their entire income from the PTE.
Resident and nonresident taxpayers would be entitled to a credit, to applied against their New York State individual income tax liability, for their share of the PTET that was paid on their behalf and is required to be add back to their income an amount equal to the amount of the credit. If the PTET credit for an individual exceeds that person's New York State individual income tax due, the excess would be available as an overpayment-credit or as a refund (without interest).
The PTET tax rates range over several brackets, commensurate with many of the individual income tax brackets, with the initial PTET bracket set at 6.85% for PTET taxable income of less than $2 million, to as high as 10.90% on PTET taxable income exceeding $25 million.
Corporate franchise tax rate changes
For tax years beginning on or after January 1, 2021 and before January 1, 2024, the rate applicable to entire net income would increase from 6.5% to 7.25% where the taxpayer's business income base exceeds $5 million. All income would be subject to the 7.25% rate where the $5 million business income base is exceeded.
The highest combined New York State and City tax rate on corporations would be 18.275% (7.25% New York State plus 2.175% Metropolitan Transit Authority plus 8.85% New York City (9% for large financial institutions).
New York State (not New York City) reinstated the Alternative tax on Capital and imposed the tax rate of 0.1875% on maximum of $5,000,000 business capital for tax years beginning after 2020 and prior to January 1, 2024.
Individual income tax changes
For the calendar tax years—2021-2027—the top marginal tax rate for New York State individual income taxes would temporarily rise from the current 8.82% on income over $2,155,350 to as high as 10.90% for New York taxable income in excess of $25 million.
In addition, there are two new marginal rate brackets for joint filers:
9.65% for joint filers with New York taxable income in excess of $2,155,350 but not more than $5 million; a .83% increase from current rate.
10.30% for joint filers with New York taxable income in excess of $5 million but not greater than $25 million; a 1.48% increase from the current rate.
The same tax rate increases for single filers would basically commence at commensurate lower thresholds than those for joint filers.
If you have any questions, please email or call your Perelson Weiner partner.
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