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ARTICLE · 17 MAY 2021

New York State Introduces Elective Pass-Through Entity Tax

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S corporations and partnerships should be aware of a new election that may allow them to reduce the federal income tax of their New York individual owners.

United StatesTax
Stephen P. Foley
Stephen P. Foley
Benjamin Snow
Benjamin Snow
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S corporations and partnerships should be aware of a new election that may allow them to reduce the federal income tax of their New York individual owners. New York State's budget for the fiscal year 2022, which was signed into law on April 19, 2021, includes an elective pass-through entity tax (the PTE Tax) with an offsetting credit to the individual owner's state income tax.

The PTE Tax is designed to circumvent the 2017 Tax Cuts and Jobs Act's limitation on the deductibility of state and local taxes. Given IRS Notice 2020-75, which clarified that both elective and mandatory state pass-through entity taxes remained fully deductible at the federal level, it appears the PTE tax presents opportunities for pass-through entity owners who pay New York taxes, but there are also potential issues to consider.

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