On April 9th, 2022, New York Governor Kathy Hochul signed the state’s Fiscal Year 2022-23 budget bill. Among the various tax provisions in this historic bill, there are two noteworthy changes to the New York PTE tax.
- Under the original PTE tax law, the tax base for S corporations included only New York source income. The same source-limitation applied to partnerships subject to the PTE tax, but only with respect to their nonresident partners. With this new legislation, and effective for the 2022 tax year, the source-limitation will go away for S corporations with only resident shareholders.
- To qualify for this benefit, the PTE will have to file a certification (with its SPTET filing for 2022; then with its SPTET election for post-2022 tax years) that all shareholders are residents. Accordingly, S corporations with only New York resident shareholders get to pay more tax through the S corporations and give their shareholders bigger federal tax deductions and bigger state tax credits.
- Starting in 2023, PTEs can elect to pay a New York City PTE and New York City resident partners and shareholders can enjoy the same federal tax benefits for the New York City taxes paid on flow-through income that are available for the New York State taxes paid on flow-through income.
- The NYC PTE tax is available only through an annual election, and the election deadline is March 15 of the year for which NYC PTE tax is going to apply. The election is available for partnerships required to file a New York State tax return (that includes any partnership with a New York State resident partner), and New York S corporations with only New York City resident shareholders.
Please reach out to your LMC professional with any questions you may have regarding these changes to the New York PTE tax.