April 21, 2021
The new budget allows taxpayers with up to $250,000 in income to qualify for a property tax credit if their property taxes exceed 6% of their qualified gross income.
Passthrough Entity Tax
For many taxpayers who pay state income and property taxes, their federal tax deduction has been limited to $10,000. This has resulted in the loss of significant tax deductions and therefore higher federal taxes for many New Yorkers.
To alleviate this additional tax burden, the 2022 budget includes an elective Passthrough Entity Tax (PTE). This allows owners of passthrough entities, i.e., S-corps and partnerships, to take a credit on their personal NYS tax returns for state income taxes paid by their pass-through entity.
The PTE tax is effective for tax years beginning on or after January 1, 2021. Below is the tax rate schedule.
- Taxable income of $1,999,999 or less: 6.85% of taxable income;
- Taxable income of $2 million to $5 million: 9.65% of taxable income;
- Taxable income of $5 million to $25 millions: 10.3% of taxable income;
- Taxable income over $25 million: 10.9% of taxable income.
In order to qualify, companies will need to elect to pay the tax by March 15th. Note that the election cannot be revoked after it has been made. Since the budget bill was enacted after March 15, 2021, we await further guidance for the election with regard to 2021. Furthermore, the state will permit partners and shareholders to file for a credit for taxes paid to other states if paid under their respective PTE tax regimes.
Careful consideration should be given to making the election because not all partners and shareholders are in the same tax bracket for NYS, nor do they all itemize deductions on their federal return.
As always, Perlson LLP professionals are here to help you with all of your tax needs. If you have questions or concerns about the New York State budget, please contact us at (516) 541-0022.