New York State (NYS) and New York City (NYC) have implemented optional Pass-Through Entity Taxes (PTET) to help S corporations and other pass-through entities mitigate the federal $10,000 cap on state and local tax (SALT) deductions. By electing to pay taxes at the entity level, these businesses can provide their owners with a federal deduction for state and local taxes that would otherwise be limited.

New York State PTET:

• Eligibility: Available to partnerships and New York S corporations for tax years beginning on or after January 1, 2021.
• Benefits: Electing entities pay income tax at the entity level, allowing individual partners or shareholders to claim a PTET credit on their NYS personal income tax returns. This structure effectively bypasses the federal SALT deduction cap, enabling full deduction of state taxes at the federal level.

New York City PTET:

• Eligibility: Available to city partnerships and city resident New York S corporations for tax years beginning on or after January 1, 2022.
• Benefits: Similar to the state-level PTET, the NYC PTET allows electing entities to pay city taxes at the entity level. Shareholders who are NYC residents can then claim a credit against their NYC personal income tax liability, reducing their taxable income federally and circumventing the SALT deduction cap.

Considerations:

• Election Process: The PTET election must be made annually and is irrevocable for that tax year once made. tax.ny.gov
• Nonresident Implications: Nonresident partners or shareholders do not benefit from the NYC PTET, as the credit applies only to NYC residents.
• Federal Deduction: By paying taxes at the entity level, the business can deduct these taxes federally, effectively working around the $10,000 SALT cap imposed on individual taxpayers. nysscpa.org

Electing into the NYS and NYC PTET can provide significant tax benefits by allowing S corporations to fully deduct state and local taxes at the federal level, thereby reducing overall tax liability.

Election Timing Requirements:

As of February 2025, the deadline for electing into the New York State (NYS) Pass-Through Entity Tax (PTET) for the 2025 tax year is March 15, 2025. This election must be made annually through the entity’s Business Online Services account. tax.ny.gov

However, there is proposed legislation under consideration that aims to extend the PTET election deadline to September 15 of the tax year. If enacted, this change would provide entities with additional time to assess their financial positions before making the election. taxnews.ey.com

It’s important to note that, as of now, this extension has not been finalized. Therefore, entities should plan to make their PTET election by the current deadline of March 15, 2025.

For the New York City (NYC) PTET, the election process and deadlines align with those of the NYS PTET. Eligible entities must opt in by March 15, 2025, through their Business Online Services account. tax.ny.gov

Given the potential for legislative changes, it’s advisable to consult with a tax professional or regularly check the New York State Department of Taxation and Finance website for the most current information regarding PTET election deadlines.