Frequently asked questions about the pass-through entity tax (PTET)
If a partnership elects to participate in PTET, can it choose which partners participate in the PTET tax and credit?
An eligible entity that opts in to PTET must include all partners, members, or shareholders (resident and nonresident) that are subject to tax under Article 22 when computing its PTE taxable income. In addition, the PTET credit must be allocated to all eligible credit claimants according to the guidance in TSB-M-21(1)C, (1)I, Pass-Through Entity Tax.
Can a single-member Limited Liability Company (SMLLC) make the PTET election?
The PTET election is available to a SMLLC that elects to be treated as an S corporation for New York purposes. A SMLLC treated as a disregarded entity is not eligible to make the PTET election.
What actions can tax professionals with a Power of Attorney (POA) or an EZ Rep Tax Professional account take on behalf of their clients?
Duly authorized tax professionals may electronically file most PTET-related forms and returns on behalf of a client, including filing estimated payments, extensions, and the annual PTET return. However, the annual election may not be made by a representative as they are not an authorized person.
Can a partnership or S corporation formed after the annual election deadline opt in to PTET for the calendar year?
All entities, including newly formed partnerships or New York S corporations, are not eligible to opt in to PTET after the annual election deadline has passed.
If an electing entity has more than one tax year within a calendar year, may that entity make the PTET election for each short tax year?
An entity with more than one short tax year within a calendar year is only permitted to make one election for the PTET calendar year. The election may only be made for the first short tax year which ends during the calendar year.
Example: A partnership has two short tax years of January 1, 2023 through March 31, 2023, and April 1, 2023 through December 31, 2023. The partnership may only make the PTET election for the first short tax year beginning January 1, 2023 and ending March 31, 2023 by March 15, 2023.
If an electing entity has a 52/53-week accounting period and its year-end is January 2, 2023, what is the entity’s PTET tax year?
A 52/53 week filer’s tax year is deemed to end on the last day of the calendar month nearest to the last day of the 52-53 week accounting period. Therefore, this 52/53 week filer’s tax year end is December 31, 2022; the entity may elect into PTET for 2022.
Can a PTET election be canceled?
Once an entity has made the annual PTET election, it may not be revoked. The electing entity must continue to make quarterly estimated PTET payments and file an annual PTET return for the elected tax year.
If Partnership A is owned by two partners, Partnership B and Corporation C, can Partnership A opt in to PTET?
Partnership A may opt in to PTET. It will not have any PTE taxable income or PTET credits to distribute since it does not have any partners subject to the income tax under Article 22.
If an electing PTET entity undergoes a federal F reorganization during the PTET tax year, will the PTET election remain effective for the successor entity?
The PTET election will remain effective for the successor entity. If the successor entity did not retain the original entity's EIN, they should file the PTET return using the original entity's EIN. PTE taxable income and PTET credits should be computed based upon K-1 amounts reported under the successor entity's EIN.
An individual or trust claiming a PTET credit should file form IT-653 reporting the original entity's EIN as the source of the credit.
Which taxes are offset by a PTET credit?
A PTET credit offsets all taxes computed and reported on New York State personal income tax Forms IT-201, IT-203, and IT-205. If the PTET credit exceeds the tax due for the tax year, the excess credit will be refunded without interest.
A partnership currently files group returns (Form IT-203-GR, Group Return for Nonresident Partners) on behalf of several nonresident partners. If the partnership opts in to PTET, can the partners claim the PTET credit on the group return?
Partners reporting income on Form IT-203-GR may not claim any New York State income tax credits, including the PTET credit. The nonresident partners must file individual New York State personal income tax returns (Form IT-203, Nonresident and Part-Year Resident Income Tax Return) to claim the PTET credit.
When a taxpayer claims both a PTET credit and a resident tax credit on their income tax return, in which order should the taxpayer apply the credits?
Nonrefundable credits for individuals are generally applied before refundable credits. The resident tax credit is non-refundable and must be applied before the PTET credit, which is fully refundable.
Who is eligible to claim a disregarded entity’s PTET credit?
An individual, estate, or trust that is subject to tax under Article 22 and required to report a disregarded entity’s tax information on its tax return is treated as a direct partner, member, or shareholder of the PTET entity that gave the disregarded entity a PTET credit; the individual, estate, or trust is eligible to claim the disregarded entity’s PTET credit.
Are trusts eligible for the PTET credit?
Other than a trust that is disregarded for tax purposes, a trust that is a direct partner, member, or shareholder in an electing entity is allowed a PTET credit on its personal income tax return (Form IT-205, Fiduciary Income Tax Return). The trust cannot distribute any PTET credit it receives to its beneficiaries.
Are grantor trusts that are partners, members or shareholders in an electing entity, and who file Form IT-205 where the income and tax liability flows through to the grantor, eligible to claim the PTET credit?
Grantor trusts are considered disregarded entities and therefore not eligible to claim a PTET credit. Instead, the individual grantor is considered the direct partner or member of the electing entity and is eligible to claim the PTET tax credit on their personal income tax return.
A partnership plans to opt in to PTET and pay the tax at the entity level. The partnership has two partners: Individual A and New York S corporation B. Can New York S corporation B claim a PTET credit?
An S corporation is not eligible to claim a PTET credit at the corporate level because it is not subject to tax under Article 22. Only a direct partner, member, or shareholder subject to tax under Article 22 that is issued a federal Schedule K-1 by the electing entity based on the partner’s, member’s, or shareholder’s direct ownership in the electing entity may claim a PTET credit. When computing a pass-through entity’s taxable income, an electing entity must exclude all income that flows to corporate partners, including S corporations. If the partnership opts in to PTET, only the income that flows to Individual A is included in the partnership’s PTE taxable income. Additionally, only Individual A receives a PTET credit from the partnership.
Partnership X plans to opt in to PTET and pay the tax at the entity level. Partnership X has two partners: Individual A and New York S corporation B. New York S corporation B has individual shareholders. Should New York S corporation B or Partnership X opt in to PTET?
For the individual shareholders to be eligible for the credit, New York S corporation B must opt in to PTET. The S corporation calculates its PTE taxable income based on items of income, gain, loss, or deduction that flow through to the shareholders for New York State personal income tax purposes, including any amounts the S corporation received as a corporate partner. Partnership X must also opt in to PTET to distribute a credit to Individual A.
A partnership makes special allocations to some partners. How does the partnership compute PTE taxable income and the PTET credit pools?
If the partnership made special allocations, it must make appropriate adjustments to take into account those allocations in order to fairly represent the partners’ incomes. PTE taxable income and the PTET credit pools must reflect the relative contributions of each partner to the overall PTE taxable income and PTET paid. Note: Special allocations include guaranteed payments. See question below for more information.
If the partnership did not make any special allocations of income or loss, compute PTE taxable income and PTET credits per TSB-M-21(1)C, (1)I, Pass-Through Entity Tax, which assumes no special allocations were made.
PTET must be allocated among nonresident and resident pool members by the eligible taxpayer’s profit and loss ownership percentage within the pool. If a non-equity partner receives guaranteed payments from a partnership but does not have any profit or loss percentage, are the guaranteed payment included in PTE taxable income, and can the non-equity partner receive a PTET credit?
Guaranteed payments which are taxable by New York at the individual partner level must be included in PTE taxable income to the same extent. The partner will be allocated PTET credit related to these guaranteed payments.
Computing PTE taxable income and PTET credits as defined in TSB-M-21(1)C, (1)I, Pass-Through Entity Tax, assumes the partners have no special allocations of income or loss. For purposes of computing PTE taxable income and the PTET credit, special allocations include guaranteed payments because these types of payments function similarly to special allocations. If special allocations are made, the partnership must make appropriate adjustments to reflect these allocations to fairly represent the partners’ incomes.
Can guaranteed payments paid to nonresident foreign partners for services performed outside the United States be included in the PTET?
Guaranteed payments to partners are included in PTE taxable income to the same extent they are taxable by New York at the individual partner level.
Can retirement payments to nonresident partners that are protected from nonresident state taxation by Section 114 of Title 4 of the United States Code be included in the PTET base?
Retirement payments that are not taxable by New York at the individual partner level are not included in PTE taxable income.
If one of the pools (resident or nonresident) is negative, will the overall PTE taxable income only be that of the positive pool (and not be reduced by the negative pool’s PTE taxable income)?
Total PTE taxable income of a partnership consists of the income of both nonresident and resident pools. A net loss within one pool will offset income in the other pool for purposes of calculating total PTE taxable income. Limitations related to negative pools as described in TSB-M-21(1)C, (1)I, Pass-through Entity Tax, are only applicable to the distribution to eligible partners of the total PTET paid. Partners in the negative pool will not receive any PTET credit.
If Partnership A is owned by individual partners B and C, Partnership D, and S corporation E, how is PTE taxable income computed?
PTE taxable income is computed including only amounts that flow through to individual partners B and C that are taxable under Article 22. Income flowing to a Partnership D and S corporation E is not included in PTE taxable income.
If an electing upper-tier partnership receives income from a lower-tier partnership that elected in to PTET, can the upper-tier partnership include the lower-tier partnership’s income in PTE taxable income?
The upper-tier partnership would include in PTE taxable income any amounts flowing to partners that are subject to tax under Article 22, including any income received from a lower-tier partnership.
When a taxpayer claims a PTET credit on their personal income tax return, what amounts must the taxpayer add back?
The amount of the PTET credit claimed by the partners, members, or shareholders on their New York income tax returns must be added back only once, at the individual level, using addition modification A-219, Pass-through entity tax (PTET) deduction addback (IT-653, Pass-Through Entity Tax Credit) on Form IT-225, New York State Modifications. For more information on this addition modification, see the instructions for Form IT-225.
What PTET taxes must be added back on Form IT-225?
Tax Law section 612(b)(3) requires an addback of any income taxes claimed as a federal deduction in the current year less any amount added back under § 612(b)(43).
Example 1: An electing entity overpays its estimated taxes and receives a refund.
In 2022, an electing entity makes estimated payments of $100,000 for the 2022 PTET year. On March 15, 2023, the taxpayer files their 2022 PTET return and computes actual PTET due of $80,000. $80,000 is allocated to the eligible partners or shareholders as PTET credits. The electing entity receives a refund of $20,000 as an overpayment. The refund is issued in 2023.
The eligible partners or shareholders must add back on their 2022 IT-225, their share of $80,000 under § 612(b)(43), which is the amount of PTET credits claimed on their Article 22 tax returns.
The electing entity must add back on its 2022 IT-225, $20,000 under § 612(b)(3), which is the amount of federal deduction for the current year not added back under § 612(b)(43). This modification will flow through to the partners, members, or shareholders.
Example 2: An electing entity underpays its estimated taxes and pays the balance due with the PTET return.
In 2022, an electing entity makes estimated payments of $80,000 for the 2022 PTET year. On March 15, 2023, the taxpayer files their 2022 PTET return and computes actual PTET due of $100,000. The $20,000 underpayment is paid with the return. $100,000 is allocated to the eligible partners or shareholders as PTET credits. The additional $20,000 payment is treated as a deductible payment for the electing entity for federal purposes in 2023.
The eligible partners or shareholders must add back on their 2022 IT-225, their share of $100,000 under § 612(b)(43). Nothing is added back for tax year 2022 under § 612(b)(3) by either the partners or shareholders or by the entity.
Example 3: An electing entity underpays its estimated taxes and pays the balance due with the PTET return.
In 2022, an electing entity makes estimated payments of $80,000 for the 2022 PTET year. On March 15, 2023, the taxpayer files their 2022 PTET return and computes actual PTET due of $100,000. The $20,000 underpayment is paid with the return. $100,000 is allocated to the eligible partners or shareholders as PTET credits. The additional $20,000 payment is treated as a deductible payment by the electing entity for federal purposes in 2023. Additionally, in 2023, the entity makes $50,000 in estimated PTET payments for 2023. The entity claims a total federal tax deduction for 2023 of $70,000.
On March 15, 2024, the entity files its 2023 PTET return and computes actual PTET due of $50,000. No refunds are issued and no additional payments are made with the return. $50,000 is allocated to the partners or shareholders as 2023 PTET credits.
The eligible partners or shareholders must add back on their 2023 IT-225, $50,000 under § 612(b)(43). Nothing is added back for 2023 under § 612(b)(3) by either the partners or shareholders or by the entity, since the $20,000 additional payment for 2022 was added back on the 2022 Article 22 tax returns under § 612(b)(43).
What pass-through entity taxes paid to other states must be added back on an individual's IT-225?
All pass-through entity taxes paid by an electing entity to taxing jurisdictions other than New York on behalf of partners, members or shareholders must be added back at the individual level. Any tax paid for which a Resident Tax Credit (RTC) is claimed must be added back on the individual’s IT-225 under § 612(b)(43) using modification code A-220. Any remaining deductions must be added back under § 612(b)(3) using modification code A-201.
The entity must provide each partner, member, or shareholder a statement including the individual’s share of all taxes paid to each taxing jurisdiction other than New York on behalf of the Article 22 taxpayer. These taxpayers must use this information to determine the proper modifications on their IT-225.
What pass-through entity taxes are added back when the electing entity computes PTE taxable income?
For PTE taxable income computation purposes only, an entity must add back all pass-through entity taxes paid and deducted for federal purposes in the current year, including taxes paid to New York or to other jurisdictions.
If an entity opts in to the pass-through entity tax (PTET), but does not owe any PTET, does it need to file a return?
Yes, any entity that opts in to PTET must file an annual return for the PTET year, even if the entity does not owe any PTET for the year.
If an entity overpays its PTET estimated payments, how can it receive a refund?
Any entity that overpays its PTET payments can request a refund on its annual return.
If an entity files IT-370-PF, Application for Automatic Extension of Time to File for Partnerships and Fiduciaries, or CT-5.4, Request for Six-Month Extension to File New York S Corporation Franchise Tax Return, does that provide an extension of time to file a PTET annual return?
No, the PTET deadline may only be extended by filing an online Extension of Time to File Annual PTET Return using the taxpayer’s online services account by March 15 following the close of the PTET year.
I received a notice about my PTET filing status. How do I respond to the notice?
Taxpayers should respond to PTET notices by logging in to their Online Services account at https://www.tax.ny.gov/online/ and selecting Respond to Department Notice.
Can an entity amend its PTET return after it has been filed?
Tax Law § 865(f)(2) authorizes the Tax Commissioner to consent to the amendment of an original PTET return in appropriate circumstances. Requests to amend an entity return must be made in writing before an amended return can be filed.
An entity seeking to file an amended PTET return must request permission in advance by sending a letter to:Office of Processing and Taxpayer Services – Pass-Through Entity TaxW A Harriman CampusAlbany NY 12227-0850
Or via fax: (518) 435-8679 Attn: PTET
The letter must include:
- the entity name;
- the entity’s taxpayer ID number;
- the PTET tax year;
- a detailed description of the reason for the request, including the reason for the amendment, the specific incorrect information and the new information;
- a signature of an owner, officer, previously authorized POA, or other responsible person;
- identification of signors relationship to the entity;
- the best daytime phone number; and
- a valid e-mail address.
Department staff will contact you for further instructions.