New York adopts PTE tax for New York City; makes state PTE changes

April 14, 2022 | Authored by RSM US LLP

TAX ALERT | April 14, 2022

Authored by RSM US LLP

On April 9, 2022, New York Gov. Kathy Hochul signed Senate Bill 8009C/Assembly Bill 9009C into law (the Budget), which includes the enactment of a New York City pass-through entity tax (NYC PTET) program and changes to the New York State pass-through entity tax (NYS PTET) program enacted last year. A highlighted description of the new and amended programs follows below.

New York City PTET

Effective for tax years beginning on or after Jan. 1, 2023, an optional NYC PTET is available to any partnership that files a New York State partnership return or for S corporations where all of the shareholders are residents of New York City. The tax is in addition to all other current taxes including the Unincorporated Business Tax and the General Corporation Tax.

For partnerships, the tax is imposed on all of the unapportioned and unallocated pro-rate share of income attributed to New York City residents, and only city residents are permitted a credit for such taxes. For S corporations, all of the income of the shareholders (who must all be New York City residents) are included in the tax base. The tax rate is 3.876%.

Like the NYS PTET program, an annual election must be made by the first estimate due date (March 15 of the tax base year), and quarterly estimated payments are required. The tax return is due March 15th of the year after the tax year ends.

New York City residents of electing entities are entitled to a credit against their city personal income tax liability. Similar to the state program, the amount of the NYC PTET credit is added back in computing the individuals’ state income.

New York State PTET amendments

As originally enacted, the NYS PTET program uses different tax bases for partnerships and S corporations. For partnerships only, the tax base includes’ the resident partner’s share of total income regardless of allocation/apportionment to New York State. Under the new provisions effective for the 2022 tax year, an S corporation that only has New York State resident shareholders will include all of the shareholder’s income in the S corporation’s tax base, similar to partnerships, assuming all proper certifications are made timely.

For the 2022 tax year, the S corporation must file a certification with its return that it meets the requirements of an electing resident S corporations. In future years, the certification must be filed with the election (the election for 2022 was due March 15, 2022). Such S corporations are now referred to as “electing resident S corporations” – all other S corporations are referred to as “electing standard S corporations.” For electing standard S corporations, only New York-sourced income subject to the personal income tax (Article 22) is included in the pass-through entity’s tax base.

Additionally, for New York personal income tax purposes, the amount of NYS PTET credit claimed by partners, members, or shareholders of electing entities on their New York income tax returns is only required to be added back once, under section 612(b)(43), using Form IT-225, New York State Modifications. The Budget amended section 612(b)(3) to include new subsection (c), which states “income taxes,” for the purposes of determining personal income tax, do not include the NYS PTET to the extent it is added back under section 612(b)(43). The amendment also provides that “income taxes” do not include other state pass-through entity taxes that are substantially similar to the NYS PTET, and are added back under section 612(b)(43), using Form IT-225. The changes are retroactive for tax years beginning on or after Jan. 1, 2021.

State and city modifications

The Budget also clarified that the NYS PTET, and newly enacted NYC PTET, are required to be added back on the General Corporation Tax and Banking Corporation Tax returns in computing New York City income. The changes are retroactive for tax years beginning on or after Jan. 1, 2021.

Takeaways and considerations

New York State and New York City are examples of jurisdictions with pass-through entity tax programs that continue to evolve and expand to maximize the federal benefit. It is anticipated that further guidance will be issued by the state and city to further define the scope of the respective programs.

Understanding whether a pass-through entity election results in a benefit requires modeling and detailed analysis of all the risks and opportunities involved. Especially in large, multi-state pass-through entities, a pass-through entity tax election may provide tax savings for select members, while increasing tax on other members, thus producing an unintended result. A pass-through entity must conduct thorough due diligence to understand how and whether the election is ultimately beneficial.

Taxpayers should carefully plan and consider all aspects of a pass-through entity election before choosing to elect. In 2022 and through the date of this article, both New Mexico and Utah have adopted a pass-through entity tax effective for 2022 and Virginia for 2021. Taxpayers with questions about electing into a pass-through entity tax should consult a state and local tax adviser.

This article was written by Harlan Kwiatek , Robert Zonenshein and originally appeared on Apr 14, 2022.
2022 RSM US LLP. All rights reserved.

The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit for more information regarding RSM US LLP and RSM International. The RSM(tm) brandmark is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.

Dopkins & Company, LLP is a proud member of RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.

Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise, and technical resources.

For more information on how the Dopkins & Company, LLP can assist you, please call us at 716.634.8800.

For more information, contact

Albert A. Nigro CPA, CVA

Albert A. Nigro CPA, CVA is a partner in the Tax Advisory Group of Dopkins & Company, LLP. As the leader of Dopkins CAAS team, he focuses on developing solutions for clients to help them improve their finance and accounting functions through re-engineered processes, digital transformation and optimal utilization of talent.

Do What You Love.
Love What You Do.

It’s about balance. The variety and quality of the clients, along with access to the latest technology and business information keeps the work interesting.

Learn More
Three Dopkins Employees

Opportunity Awaits

Take your career to the next level at Dopkins

Learn more