Ptet 2022

On May 31, 2023, Nebraska enacted an elective pass-through entity tax (PTET) regime. This new regime includes possible retroactive elections. Additionally, this new legislation includes reduced individual and corporate income tax rates (subject to phase-outs). What is the Nebraska PTET? Under this new regime, entities taxed as partnerships or S corporations (generally “pass-through entities”) can make an annual, irrevocable election to pay taxes at the entity level. Otherwise, the individual owners pay tax on their share of the pass-through entity’s income (with differing rules for in-state and out-of-state owners). This new PTET can allow owners to The election is generally due on or before the due date (including extensions) of the pass-through entity’s tax return. For purposes of computing the PTET, the highest Nebraska individual tax rate will apply. Excess PTET payments can be treated as an overpayment that is refunded or applied to the following tax year. Retroactivity of the Nebraska PTET Pass-through entities can retroactively elect the Nebraska PTET for the tax years from 2018 to 2023. These retroactive elections must be made by December 31, 2025. Any individual income tax refunds resulting from a retroactive PTET can be claimed by the individual partners with yet-to-be-issued forms from the Nebraska Department of Revenue. Careful consideration should be given before any retroactive election is made because any retroactive PTET payments may not necessarily be dedu...

For shareholders and partners of New York’s S corporations and partnerships, the new pass-through entity tax (PTET) regime is providing a valuable workaround to the $10,000 federal cap on state and local tax deductions. Here is what you need to know to make the election and secure tax savings for you and your pass-through entity. Electing the Pass-through Entity Tax Rate Effective for tax years beginning on or after January 1, 2021, any partnership with a New York State filing requirement or any New York State S corporation can elect to be taxed at a new PTET rate. For tax year 2021, this election must be made by October 15, 2021 through the entity’s NYS Business Online Services account. Election for tax years beginning on or after January 1, 2022 can be made online between January 1 and March 15 of the tax year in which the election is made. The graduated PTET rates are determined by the entity’s taxable income, as follows: • Up to $2,000,000 – 6.85% • $2,000,001 to $5,000,000 – 9.65% • $5,000,001 to $25,000,000 – 10.3% • Greater than $25,000,000 – 10.9% Calculating PTET taxable income differs by entity type. For S corporations, the calculation is: aggregate income, gain, loss and deduction multiplied by the New York State Allocation Rate. For partnerships, a pooled method is used to separate income that is earned by New York State residents and non-residents. Residents are treated as 100% allocation to New York while non-residents receive a share of the credit based on t...

Last month, New York announced legislation moving up the start date of the New York City (NYC) Pass-Through Entity Tax (PTET) from January 1, 2023 to January 1, 2022. In response, the New York State (NYS) Department of Taxation and Finance stated that it will be notifying taxpayers when the city’s PTET election is available. As we wait for this notification, below are answers to your questions about the NYC PTET. Who is eligible to elect into the NYC PTET? The NYC PTET is only available for partnerships and limited liability companies (LLCs) with NYC resident partners or members, and S corporations of which all shareholders are NYC residents. Nonresidents of NYC will not receive any benefit under the regime because the NYC personal income tax only applies to city residents. Are there any prerequisites to making the NYC PTET election? Yes, opting into the NYS PTET is required to be eligible for the city PTET election. The state’s 2022 election was available until September 15, 2022. However, if you missed the NYS election deadline there is currently no relief opportunity for NYC PTET. What is the NYC PTET rate and how is it calculated? NYC’s PTET is assessed at the highest individual city tax rate, 3.876%, and based on the pro rata share of the NYC resident partner’s, member’s or shareholder’s total income. The PTET payment is passed through as a NYC tax credit to the partner and is also deductible by the pass-through entity for federal tax purposes. When must an estimated ...

The election period for pass-through entities to opt-in to the New York State Pass-through Entity Tax (NY PTET) for tax year 2022 is now open. The annual election window for 2022 closes on March 15. Beginning this year, quarterly estimated payments will be required. Background The New York State Pass-through Entity Tax (NY PTET) was newly enacted for the 2021 tax year. This is an optional, entity-level tax that partnerships, multi-member LLCs or S-corporations can elect. In summary, the NY PTET allows the electing entity to be subject to income tax on the net income of the entity at the entity level, instead of at the level of the individual shareholders. The tax paid under the NY PTET is deductible for federal tax purposes and reduces the federal flow-through income allocated to the owners of the electing entity. To prevent double taxation at the state level, the owners would then receive a credit against their state income taxes in line with the NY PTET paid at the entity level. For an in-depth discussion on this tax and its potential benefits, refer to this previously published Making the Election The NYS Department of Taxation & Finance system is currently open to make the annual election to opt-in to the NY PTET for the 2022 tax year. The election is made online using the entity’s Business Online Services account on the New York State website, and it must be made by an authorized person. An authorized person is generally an owner or agent of the entity who has the aut...

For tax years beginning on or after January 1, 2021 and before January 1, 2026, certain California Pass-Through Entities (PTEs) can annually elect to pay a 9.3% entity-level state tax on qualified net income. Consenting qualified partners and shareholders in turn receive a state credit for their share of the Pass-Through Entity Tax (PTET), which is also deductible for federal tax purposes and thereby reduces their overall personal income tax. Qualified partners and shareholders include individuals, fiduciaries, estates, and trusts subject to California personal income tax, as well as disregarded single member limited liability companies that are owned by an individual, fiduciary, estate, or trust subject to California personal income tax. Beginning January 1, 2022, a PTE must adhere to a special procedure in order to be eligible to make the PTET election. See the FAQs below for more information. Q: What is different about the 2022 California PTET election compared with the procedure used in 2021? A: In 2021, a PTE made its PTET election on, and remitted the applicable tax with, its timely filed income tax return. For 2022, a similar election must be made on the timely filed PTE return. However, prior to the 2022 tax return’s filing, an estimated PTET payment must be made. Q: When must this PTET payment be made? A: For tax years 2022 through 2025, an electing California PTET must make two payments. The first payment (for the greater of 50% of the PTET paid for the prior yea...

If you are considering making a PTET election effective for 2022, there are some key year-end considerations to think about right now. What is a PTET Election? In 2017, Congress passed the Tax Cuts and Jobs Act, limiting an individual’s federal deduction for state and local taxes. In response, states have enacted elections, known as Pass Through Entity Tax (PTET) elections, creating an entity level tax on partnerships and S corporations (generally Pass Through Entities, or PTEs). These PTETs can be fully deductible at the entity level (thus avoiding the limitation on the state and local tax deduction). As of today, In November of 2020, the IRS issued Notice 2020-75, announcing its intent to promulgate regulations clarifying the deductibility of payments by partnerships and S corporations for state and local income taxes. However, because the limitation on state and local tax deductions is set to sunset in 2025, further guidance does not appear to be a top priority for the IRS, meaning taxpayers may lack further clarity on many issues. For instance, it is currently unclear whether a PTE with purely investment activities can elect to pay a PTET and claim an ordinary deduction on its federal income tax return. 2022 PTET Payments Required before Year-End All PTEs making a PTET election should estimate and pay their 2022 PTET liabilities prior to the tax year-end. Specifically: • Cash basis PTEs must make payments during 2022 to claim the state tax deduction on their 2022 retur...

In response to the Federal Tax Cuts and Jobs Act (TCJA), many states now allow a pass-through entity (PTE) to pay the tax at the entity level as opposed to the individual level to avoid the $10,000 limitation imposed by the TCJA. Although many states passed legislation allowing for pass-through entity tax (PTET) elections, Are all PTEs eligible to make a PTET? Owners of partnerships, LLCs taxed as partnerships, and S corporations are generally able to make a PTE election in the states that allow PTETs. However, solely being a PTE doesn’t automatically qualify the owners to make the election. The statutes vary by state, and a PTE could be ineligible solely if one of its owners isn’t a qualified member (such as a C corporation). Other types of owners could further disqualify the PTE, such as trusts or other PTE owners. These rules can be overly burdensome when dealing with tiered business structures where the ultimate owners vary from individuals, C corporations, LLCs, and trusts. Before making the election, it’s important to understand the entire make-up of the PTEs’ owners to determine if they’re eligible to make the election and what, if any, benefits will be received. How does PTEs make a PTET election? Requirements to elect PTET treatment vary by state. If the election isn’t made in a timely manner or is made incorrectly, any benefit the owners may have received may be lost. Taxpayers that want to elect PTET treatment will need to understand and follow state-based proce...

The election period for pass-through entities to opt-in to the New York State Pass-through Entity Tax (NY PTET) for tax year 2022 is now open. The annual election window for 2022 closes on March 15. Beginning this year, quarterly estimated payments will be required. Background The New York State Pass-through Entity Tax (NY PTET) was newly enacted for the 2021 tax year. This is an optional, entity-level tax that partnerships, multi-member LLCs or S-corporations can elect. In summary, the NY PTET allows the electing entity to be subject to income tax on the net income of the entity at the entity level, instead of at the level of the individual shareholders. The tax paid under the NY PTET is deductible for federal tax purposes and reduces the federal flow-through income allocated to the owners of the electing entity. To prevent double taxation at the state level, the owners would then receive a credit against their state income taxes in line with the NY PTET paid at the entity level. For an in-depth discussion on this tax and its potential benefits, refer to this previously published Making the Election The NYS Department of Taxation & Finance system is currently open to make the annual election to opt-in to the NY PTET for the 2022 tax year. The election is made online using the entity’s Business Online Services account on the New York State website, and it must be made by an authorized person. An authorized person is generally an owner or agent of the entity who has the aut...

For tax years beginning on or after January 1, 2021 and before January 1, 2026, certain California Pass-Through Entities (PTEs) can annually elect to pay a 9.3% entity-level state tax on qualified net income. Consenting qualified partners and shareholders in turn receive a state credit for their share of the Pass-Through Entity Tax (PTET), which is also deductible for federal tax purposes and thereby reduces their overall personal income tax. Qualified partners and shareholders include individuals, fiduciaries, estates, and trusts subject to California personal income tax, as well as disregarded single member limited liability companies that are owned by an individual, fiduciary, estate, or trust subject to California personal income tax. Beginning January 1, 2022, a PTE must adhere to a special procedure in order to be eligible to make the PTET election. See the FAQs below for more information. Q: What is different about the 2022 California PTET election compared with the procedure used in 2021? A: In 2021, a PTE made its PTET election on, and remitted the applicable tax with, its timely filed income tax return. For 2022, a similar election must be made on the timely filed PTE return. However, prior to the 2022 tax return’s filing, an estimated PTET payment must be made. Q: When must this PTET payment be made? A: For tax years 2022 through 2025, an electing California PTET must make two payments. The first payment (for the greater of 50% of the PTET paid for the prior yea...

Last month, New York announced legislation moving up the start date of the New York City (NYC) Pass-Through Entity Tax (PTET) from January 1, 2023 to January 1, 2022. In response, the New York State (NYS) Department of Taxation and Finance stated that it will be notifying taxpayers when the city’s PTET election is available. As we wait for this notification, below are answers to your questions about the NYC PTET. Who is eligible to elect into the NYC PTET? The NYC PTET is only available for partnerships and limited liability companies (LLCs) with NYC resident partners or members, and S corporations of which all shareholders are NYC residents. Nonresidents of NYC will not receive any benefit under the regime because the NYC personal income tax only applies to city residents. Are there any prerequisites to making the NYC PTET election? Yes, opting into the NYS PTET is required to be eligible for the city PTET election. The state’s 2022 election was available until September 15, 2022. However, if you missed the NYS election deadline there is currently no relief opportunity for NYC PTET. What is the NYC PTET rate and how is it calculated? NYC’s PTET is assessed at the highest individual city tax rate, 3.876%, and based on the pro rata share of the NYC resident partner’s, member’s or shareholder’s total income. The PTET payment is passed through as a NYC tax credit to the partner and is also deductible by the pass-through entity for federal tax purposes. When must an estimated ...