NY PTE Tax Ptet

NY Pass-Through Entity Tax (PTET) — Article 24-A

• PTET overview — The New York State Pass-Through Entity Tax (PTET) under Tax Law Article 24-A (§§ 860–866) is an elective entity-level tax that serves as the SALT-cap workaround for eligible partnerships and S-corporations. Eligible entities: partnerships (including LLCs taxed as partnerships) and New York S-corporations; excludes sole proprietors, single-member LLCs disregarded for federal tax, publicly traded partnerships, and any entity required to file under Article 9-A as a C-corp. The annual election is irrevocable for the year and must be made by March 15. PTET rates are graduated from 6.85% (first $2M of PTE taxable income) up to 10.90% (over $25M). Quarterly estimates are due March 15, June 15, September 15, and December 15 (note December, not January). An "electing resident S-corporation" election is available where 100% of S-corp income (not just New York-source) is taxed if all shareholders are New York residents. Owners claim a refundable PTET credit on their personal NY return (Form IT-653), and must add back the deducted PTET on Form IT-225. Tax year 2025. (Tax Law Article 24-A §§ 860–866)

1. Scope

1.1 What this skill covers

• Skill coverage scope — This skill handles preparation, review, and advisory work for the New York State Pass-Through Entity Tax (PTET) under Article 24-A of the New York Tax Law (§§ 860 through 866), enacted by Part C of Chapter 59 of the Laws of 2021 (S.2509-C/A.3009-C) effective for tax years beginning on or after January 1, 2021, and continuing through tax year 2025 and beyond under the technical amendments enacted in Part MM of Chapter 59 of the Laws of 2022 and subsequent legislation. The skill addresses: Eligibility determination; Annual election mechanics; The resident vs standard S-corporation election; PTE taxable income computation; Graduated rate schedule — 6.85%, 9.65%, 10.30%, and 10.90% brackets; Quarterly estimated payments — March 15, June 15, September 15, December 15 due dates; Annual return filing — Form IT-204 (partnerships) and CT-34-SH (S-corps) supplements; PTET annual return; PTET credit Schedule K-1 attachments; Owner-level refundable credit — Form IT-653 PTET credit and Form IT-225 (S-201 addition) add-back; NYC PTET overview — refers out to a dedicated NYC PTET skill; Federal treatment — entity-level deduction under IRS Notice 2020-75; Interaction with the New York resident credit for taxes paid to other states under Tax Law § 620. (Tax Law Article 24-A §§ 860–866; Part C Ch. 59 Laws of 2021 (S.2509-C/A.3009-C); Part MM Ch. 59 Laws of 2022)

1.2 What this skill does NOT cover

The following are out of scope and must be routed to a more specialized skill or to a credentialed reviewer: C-corporation entity-level tax — corporations subject to Article 9-A are not eligible to make a PTET election. Sole proprietors and disregarded single-member LLCs — not eligible entities; the sole-prop owner pays personal NY tax under Article 22 directly. Such taxpayers should be routed to us-sole-prop-bookkeeping and ny-income-tax. The New York City PTET (Article 24-B) — a separate election with its own thresholds, its own rate schedule (a flat 3.876% in current law), and applicable only to entities whose owners include individuals who are New York City residents. Use the NYC PTET skill (when published) or refer to the credentialed reviewer. MCTMT and other entity-level surcharges — not part of PTET. Combined partnership reporting and tiered partnership PTET aggregation rules — partnerships that are themselves partners in upper-tier partnerships introduce additional complexity (TSB-M-22(1)C, (1)I) that should be referred for credentialed review. Trust and estate beneficiaries — partial coverage; the credit flows through, but the trust-level mechanics are out of scope. PTET assessment, audit, or refund disputes — handled by tax controversy counsel. Years before 2025 — although the regime has been in effect since 2021, this skill is written for tax year 2025. Earlier years used identical structure but consult the year-specific rate confirmation.

1.3 Why PTET exists — the SALT cap workaround

• SALT cap workaround rationale — The Tax Cuts and Jobs Act of 2017 (P.L. 115-97) imposed a $10,000 cap on the federal itemized deduction for state and local taxes (SALT) paid by individuals (IRC § 164(b)(6)). New York responded by enacting Article 24-A, allowing pass-through entities to pay state income tax at the entity level. Because the tax is paid by the entity (a partnership or S-corp), it reduces federal taxable income at the entity level under IRC § 164 as an ordinary trade-or-business expense — not subject to the $10,000 individual cap. The IRS blessed this structure in Notice 2020-75, which confirmed that "specified income tax payments" made by a partnership or S-corporation to a state are deductible at the entity level and not subject to the $10,000 SALT cap at the owner level. The mechanics: the entity pays PTET, deducts it federally, the lower federal taxable income flows through to owners (saving federal tax), and the owners then claim a refundable PTET credit on their NY personal return for the tax paid by the entity. The state collects the same tax it would have collected from the owners directly; the owners get an offsetting credit; and the federal benefit is the net of the entity's federal deduction minus the owner's federal add-back (because the credit reduces state tax, which would have been an itemized deduction). The economic benefit is roughly: PTET × (owner's federal marginal rate) × (the portion of state tax that previously would have been wasted because of the $10,000 cap). For high-income New York-resident owners of profitable pass-throughs, this often saves $10,000–$50,000 of federal tax per year. (P.L. 115-97; IRC § 164(b)(6); IRS Notice 2020-75)

2. Eligibility — Who Can Elect

2.1 Eligible entities

• Eligible entities — Under Tax Law § 860(g), an "eligible partnership" means any partnership (including a limited partnership, limited liability partnership, or LLC treated as a partnership for federal tax) that is required to file a New York partnership return under Tax Law § 658(c). An "eligible S-corporation" means any New York S-corporation (an entity that has made a federal S-corp election under IRC § 1362 and a New York S-corp election under Tax Law § 660). In practical terms: General partnerships, limited partnerships, LLPs — eligible if they have any New York-source income or any New York-resident partners and are required to file a NY partnership return. Multi-member LLCs taxed as partnerships — eligible (treated as partnerships for both federal and NY purposes). New York S-corporations — eligible. A federal S-corp that has not elected NY S-corp status is taxed as a NY C-corp under Article 9-A and is NOT eligible to make a PTET election. The NY S-corp election (Form CT-6) is a prerequisite. Multi-member LLCs taxed as S-corporations — eligible (treated as S-corps for both federal and NY purposes), provided the NY S-corp election is in effect. (Tax Law § 860(g); § 658(c); § 660; IRC § 1362)

2.2 Ineligible entities

• Ineligible entities — Sole proprietorships — no entity to make the election. Single-member LLCs disregarded for federal tax — same reason; the LLC is invisible for tax purposes and the owner files Schedule C directly. C-corporations (entities taxed under Article 9-A) — by statutory exclusion. Publicly traded partnerships — excluded from PTET (TSB-M-21(1)C, (1)I). Entities that have not made a NY S-corp election despite being federal S-corps — these are taxed as NY C-corps and cannot elect PTET. The NY S-corp election (Form CT-6) must be in place for the same tax year. (TSB-M-21(1)C, (1)I)

2.3 Tax-exempt and partial-year owners

• Tax-exempt partners — The presence of tax-exempt partners (e.g., charities, pension trusts) does not disqualify the entity from making a PTET election, but the PTET credit on behalf of a tax-exempt partner is generally not usable by the partner. Practitioners typically structure around this by carving the tax-exempt partner out of the PTET base via the partnership agreement, or by treating the PTET as a separate distribution to taxable partners only. This requires partnership-agreement support and should be reviewed.

2.4 Single-shareholder S-corp eligibility

• Single-shareholder S-corp eligibility — A single-shareholder New York S-corporation is eligible. This is one of the most common PTET use cases: the freelance professional who has elected S-corp status, has high net income, and wants to convert most of the state tax wedge into a federal deduction at the entity level. As long as the entity is a NY S-corp (not a NY C-corp), one shareholder is enough.

3. Election Mechanics

3.1 Who can make the election

• Authorized person requirement — Under Tax Law § 861(a), the election must be made by an "authorized person" of the entity. For a partnership, an authorized person is any member, partner, owner, or other individual with authority to bind the entity or sign returns. For an S-corp, an authorized person is any officer, manager, or shareholder with authority to act on the corporation's behalf (typically the president, treasurer, or sole shareholder for a single-shareholder S-corp). The election is made online through the entity's New York State Department of Taxation and Finance Business Online Services account. Paper election is NOT permitted. The election form on the Online Services system requires: The entity's NY EIN (Employer Identification Number) and/or NY Tax ID; Confirmation of the entity type (partnership or S-corp); For S-corps: confirmation that the NY S-corp election (Form CT-6) is in effect for the same tax year; For S-corps: separate selection of "standard" vs "electing resident S-corporation" status (see Section 4); An attestation by the authorized person. (Tax Law § 861(a))

3.2 Deadline — March 15

• PTET election deadline (calendar-year entity, TY2025) — March 15, 2025 date (No extension of the election deadline even if the entity files an extended return; for fiscal-year entities, the deadline is the 15th day of the third month of the entity's tax year. No such extension was in effect for TY2025 absent further administrative action.) (Tax Law § 861(a))

3.3 Irrevocability

• Irrevocability of PTET election — Once made, the PTET election is irrevocable for the tax year. The entity cannot withdraw the election after March 15. This is a critical consideration because: The entity must make estimated payments throughout the year based on the election. If the entity has a loss for the year, no PTET is owed but the election still applies and the entity must file a $0 PTET return. If the entity's income materially changes, the rate bracket may shift, but the election itself cannot be undone. Practitioners should pressure-test the decision before electing: confirm the entity expects positive PTE taxable income, confirm all owners want the credit on their personal returns (vs the alternative of taking state tax as an itemized deduction subject to the $10,000 cap), and confirm there are no tiered-partnership complications.

3.4 Annual election — no carryover

• No carryover of election — The PTET election does NOT carry over from year to year. Each tax year requires a fresh election by March 15. Forgetting to re-elect is a common error; practitioners should add the March 15 election to the firm's annual compliance calendar for every PTET client.

3.5 Late election relief

• No late election relief — There is no statutory late-election relief for PTET. Unlike federal late-S-corp-election relief under Rev. Proc. 2013-30, New York does not currently provide a remedy for missed PTET elections. The election is gone for that year and the entity reverts to no PTET (owners pay personally and lose the SALT cap workaround for that year).

4. Resident vs Standard S-Corporation Election

4.1 The two flavors of S-corp PTET

• Standard vs Electing Resident S-corp PTET — S-corporations electing PTET have two sub-elections available, made on the same Online Services election form: 1. Standard New York S-corporation PTET — the entity computes PTET on its New York-apportioned income only (i.e., the portion of S-corp income that is sourced to New York under Article 9-A apportionment principles, modified for Article 22 purposes). This is the default for any S-corp that has out-of-state activity or non-resident shareholders. 2. Electing Resident New York S-corporation PTET — under Tax Law § 860(h) and § 861(b-1), if all of the S-corporation's shareholders are New York residents for the entire tax year, the entity may elect to compute PTET on 100% of its income (federal taxable income with NY modifications), not just the New York-apportioned share. (Tax Law § 860(h); § 861(b-1))

4.2 Why the resident-S election matters

• Rationale for resident-S election — For a New York S-corp owned by one or more New York residents, the federal SALT cap applies to all state tax the owners pay, regardless of where the income was sourced. New York residents are taxed on their worldwide income under Article 22, so they pay New York tax on 100% of S-corp income even if some of that income was earned in another state (subject to the resident credit for taxes paid to other states under § 620). Without the resident-S election, the standard PTET would tax only the New York-apportioned portion of S-corp income at the entity level — leaving the non-apportioned portion to be taxed at the individual level (subject to the SALT cap) with no offsetting federal deduction at the entity. The resident-S election captures 100% of the income at the entity level, maximizing the federal deduction. (Tax Law § 620)

4.3 Requirements for the resident-S election

• Requirements for resident-S election — Under Tax Law § 660(i) and § 861(b-1): All shareholders must be New York residents for the entire tax year. A single non-resident shareholder (even for a partial year) disqualifies the entity from the resident-S election. A separate resident-S election is required in addition to the standard PTET election. The entity must make both on the Online Services form. The resident-S election interacts with Tax Law § 660 (NY S-corp election) — the entity must already be a NY S-corp. If a non-resident shareholder is admitted mid-year, the resident-S election fails and the entity reverts to standard S-corp PTET for that year. This is irrevocable in the sense that the entity cannot retroactively become a standard PTET filer; the entity must amend its PTET return to reflect the apportioned income only. (Tax Law § 660(i); § 861(b-1))

4.4 Practical recommendation

• Practical recommendation on resident-S election — For NY S-corps with all-NY-resident shareholders, the resident-S election is almost always beneficial because it expands the entity-level federal deduction. The exception is when the S-corp has very little out-of-state income (in which case the two regimes produce nearly identical results) or when the entity expects to admit a non-resident shareholder mid-year (in which case the election fails).

4.5 Partnership equivalent

• No resident-S distinction for partnerships — Partnerships do NOT have a resident-vs-standard distinction. The PTET taxable income for a partnership always includes: The full distributive share of New York-resident partners (because they are taxed on worldwide income). The New York-apportioned distributive share of non-resident partners (because they are only taxed on NY-source income). This is a built-in feature of the partnership PTE-taxable-income definition under § 860(h) and is not separately elected. See Section 5.1 for details. (Tax Law § 860(h))

5. PTE Taxable Income Calculation

5.1 Partnerships — the two-part definition

• PTE taxable income for partnerships — Under Tax Law § 860(h), the PTE taxable income for an electing partnership is the sum of: 1. For each New York-resident individual partner — the partner's distributive share of the partnership's income, gain, loss, and deduction, to the extent included in the partner's New York adjusted gross income (NYAGI) and without applying the Article 22 apportionment factor (because residents are taxed on worldwide income). 2. For each non-resident individual partner — the partner's distributive share of New York-source income, gain, loss, and deduction, computed under Tax Law § 631 and § 632, which apply the partnership's New York apportionment factor to the partner's distributive share. 3. For trust and estate partners — generally treated similarly to non-resident individuals unless the trust is a NY resident trust. 4. Corporate partners are EXCLUDED — corporate partners do not contribute to PTE taxable income because corporations are not eligible for the personal-income-tax-based credit under Article 22. Their share of partnership income is taxed through Article 9-A as usual. (Tax Law § 860(h); § 631; § 632)

5.2 S-corporations — the standard formula

• PTE taxable income for standard S-corp PTET — For a standard (non-resident-electing) New York S-corp under Tax Law § 860(h), the PTE taxable income is: The S-corp's New York-source income (computed under Article 9-A apportionment principles, with Article 22 modifications), allocated to shareholders. In practice, this means the entity computes its NY-source income at the entity level (using the single sales factor apportionment under Article 9-A § 210-A) and the entire NY-source amount is the PTET base. (Tax Law § 860(h); Article 9-A § 210-A)

5.3 S-corporations — the resident-S formula

• PTE taxable income for resident-S election — For an electing resident S-corp, the PTE taxable income equals the S-corp's federal taxable income (with NY modifications under Tax Law § 612), without any apportionment, because all shareholders are residents and are taxed on worldwide S-corp income. This is the key economic benefit of the resident-S election: 100% of income, not just NY-apportioned. (Tax Law § 612)

5.4 New York modifications

• NY modifications to PTE taxable income base — The PTE taxable income base starts with federal partnership income (Form 1065) or federal S-corp income (Form 1120-S) and applies New York-specific modifications under Tax Law §§ 612 and 615 (for individuals, applied at the entity level for PTET purposes). Additions (Tax Law § 612(b)): Interest income on bonds of other states and their political subdivisions (S-201 etc.); Federal taxes on certain items. The PTET itself is NOT added back at the entity level (this would be circular); the add-back occurs at the owner level (Section 8.4). Subtractions (Tax Law § 612(c)): Interest income on US obligations; New York 529 plan contributions (limited; for owner-level only, not entity); Pension and IRA exclusions (owner-level only). For most freelance / professional-services S-corps and partnerships, the entity-level modifications are minor. The base is essentially federal ordinary business income, sometimes adjusted for state-bond interest. (Tax Law §§ 612, 615)

5.5 Separately stated items

• Separately stated items inclusion — Separately stated items (capital gains, dividends, charitable contributions, § 179, etc.) generally pass through and are included in PTE taxable income to the extent they constitute distributive share income for resident partners or NY-source income for non-resident partners. The Department's guidance in TSB-M-21(1)C, (1)I (as amended) confirms that separately stated items are included in the PTET base. (TSB-M-21(1)C, (1)I)

5.6 Guaranteed payments

• Guaranteed payments inclusion — Guaranteed payments to partners under IRC § 707(c) are included in the partnership's PTE taxable income (they are part of the partner's distributive share for PTET purposes even though they are not technically distributive share for federal purposes). This is a New York-specific rule under § 860(h)(1) and TSB-M-21(1)I. For a partner-level practical effect: the recipient partner reports the guaranteed payment on their NY personal return and claims a PTET credit attributable to the guaranteed payment. (IRC § 707(c); Tax Law § 860(h)(1); TSB-M-21(1)I)

6. Rate Schedule

6.1 The graduated rates

PTET graduated rate schedule (Tax Law § 862)

Bracket	PTE Taxable Income	Rate
1	$0 to $2,000,000	6.85%
2	$2,000,001 to $5,000,000	9.65%
3	$5,000,001 to $25,000,000	10.30%
4	Over $25,000,000	10.90%

• Graduated bracket application — Note: The rates apply on a graduated basis (like federal income tax brackets) — not a cliff. An entity with $2,100,000 of PTE taxable income pays 6.85% on the first $2,000,000 and 9.65% on the next $100,000, not 9.65% on the entire $2,100,000. (Tax Law § 862)

6.2 PTET formula

• PTET computation formula — PTET = (First $2,000,000 × 6.85%) + (Next $3,000,000 × 9.65%) + (Next $20,000,000 × 10.30%) + (Excess over $25,000,000 × 10.90%). For an entity with PTE taxable income of $X where $X ≤ $2,000,000: PTET = $X × 6.85%. For $2,000,000 < $X ≤ $5,000,000: PTET = $137,000 + ($X − $2,000,000) × 9.65%. For $5,000,000 < $X ≤ $25,000,000: PTET = $426,500 + ($X − $5,000,000) × 10.30%. For $X > $25,000,000: PTET = $2,486,500 + ($X − $25,000,000) × 10.90%. (Tax Law § 862)

6.3 Comparison to NY individual rates

• Comparison to individual rates — The PTET rates closely track (but do not perfectly match) the top brackets of the NY Article 22 individual income tax. The PTET top rate of 10.90% is the same as the top NY individual rate (10.90% on income over $25M for single filers under § 601). The lower brackets are slightly higher than the equivalent individual brackets, which is intentional — the PTET is designed to be "no worse than" the personal tax in nearly all cases, while the entity-level federal deduction provides the savings. (Tax Law § 601)

6.4 No minimum tax, no fee

• No minimum tax or filing fee — There is no minimum PTET (an entity with $0 PTE taxable income pays $0 PTET). There is no separate PTET filing fee. The PTET is purely a function of PTE taxable income times the graduated rates.

7. Estimated Payments

7.1 Quarterly due dates

• Quarterly estimated payment due dates — Under Tax Law § 864 and 20 NYCRR § 158.10 (as adopted), an electing entity must make quarterly estimated PTET payments on the following dates for a calendar-year filer: March 15 of the tax year (Q1 — also the election deadline); June 15 of the tax year (Q2); September 15 of the tax year (Q3); December 15 of the tax year (Q4). CRITICAL: The Q4 estimate is due December 15, NOT January 15. This is different from the federal Form 1040-ES schedule (which has the Q4 estimate due January 15 of the following year). Practitioners must update their internal calendars: the NY PTET Q4 is in December. (Tax Law § 864; 20 NYCRR § 158.10)

7.2 Required installment amount

• Required installment calculation — The required installment for each quarter is 25% of the entity's "required annual payment," defined as the lesser of: 90% of the current year's PTET liability, or 100% of the prior year's PTET liability (only available if the entity made a PTET election for the prior year and the prior year was a full 12-month year). For an entity making its first PTET election, only the 90% current-year safe harbor is available — there is no prior-year safe harbor option in the first year.

7.3 Underpayment penalty

• Underpayment penalty rate — If the entity fails to make the required installments, an underpayment penalty applies under Tax Law § 685. The penalty is computed at the federal short-term rate plus 7.5% (per Tax Law § 1096), applied to the underpayment for the period from the installment due date to the earlier of the date paid or the original due date of the return. (Tax Law § 685; § 1096)

7.4 Payment method

• Payment method for estimates — Estimated payments are made online through the entity's NY Department of Taxation and Finance Business Online Services account. Payments may be made by ACH debit or ACH credit. No paper voucher is accepted for PTET estimates.

7.5 Practical estimation approach

For a stable, profitable entity that elected PTET in the prior year, the simplest approach is to pay 25% of last year's PTET each quarter (the 100% prior-year safe harbor). This locks in penalty protection regardless of current-year fluctuations. For a first-year electing entity or one with materially different current-year income, the practitioner should: 1. Estimate current-year PTE taxable income (use most recent projection or trailing-12-months annualized). 2. Apply the graduated rate schedule to compute estimated annual PTET. 3. Divide by 4 and pay each quarter. 4. Revise after Q2 if income projections have materially changed.

7.6 Overpayments

• Handling of overpayments — If the entity overpays during the year (estimates exceed final PTET liability), the overpayment is refunded with the annual PTET return (or applied to the next year's first installment, at the entity's election). However, the entity should not delay paying estimates to "use up" prior overpayments — the safe-harbor requirement is checked installment-by-installment.

8. Annual Return

8.1 PTET annual return

• PTET annual return deadline and extension — The entity files an annual PTET return through the Online Services Web File system. There is no paper PTET return. The annual return reconciles the PTET liability for the year, accounts for the quarterly estimates paid, and computes the balance due or refund. The annual PTET return is due on March 15 of the year following the tax year (e.g., March 15, 2026 for the 2025 tax year), with an automatic six-month extension available through Form PTET-EXT (or its Web File equivalent), extending to September 15. Note that an extension extends the return filing deadline only — any balance of PTET owed must still be paid by March 15 to avoid late-payment penalties, and the annual PTET election for the NEXT year must still be made by March 15 of that next year (the extension does not extend the next year's election deadline).

8.2 K-1 attachments — informing owners

• K-1 PTET credit reporting — The entity is required to issue PTET credit information to each partner or shareholder on the entity's New York K-1 equivalent: Partnerships — Form IT-204-IP (New York Partner's Schedule K-1), which has a PTET credit line that reports the partner's share of the entity's PTET. Form IT-204 (the partnership return) reports the PTET in aggregate. S-corporations — Form CT-34-SH (Shareholders' Information Schedule), which similarly reports each shareholder's share of the entity's PTET. The credit is allocated to each owner based on their distributive share of PTE taxable income (not based on their ownership percentage if those differ — e.g., for special allocations under IRC § 704(b)).

8.3 Coordination with the entity's regular return

• PTET return separate from regular entity return — The PTET annual return is separate from the entity's regular partnership return (Form IT-204) or S-corp informational return (Form CT-3-S). The PTET return reports only PTET-related items; the IT-204 and CT-3-S continue to report the entity's full income, deductions, and partner/shareholder allocations as usual, with supplemental schedules (IT-204-IP, CT-34-SH) reporting the PTET credit information to owners.

8.4 Owner-level reporting and add-back

• Owner three-step reporting process — When an owner receives their IT-204-IP or CT-34-SH showing PTET allocated to them, they take three steps on their personal NY return (Form IT-201 for residents, IT-203 for non-residents): 1. Claim the refundable PTET credit on Form IT-653 (Pass-Through Entity Tax Credit), which carries to Form IT-201 Line 71 (refundable credits). 2. Add back the federally deducted PTET on Form IT-225 (New York State Modifications), as addition modification EA-219 (now relabeled in 2024+ as S-219 in some publications, but the substantive addition is unchanged) — the partner/shareholder's distributive share of the PTET that was deducted at the entity level on the federal return. This is required because New York does not allow a state tax deduction for a tax that was used to compute a state credit (a double benefit prohibition). 3. Track the PTET basis adjustment — the PTET paid at the entity level reduces the federal ordinary business income that flows through to the owner. This is automatic in the K-1 — no separate adjustment. The net economic effect to the owner: their federal taxable income is lower by their share of PTET (federal deduction at entity level); their New York taxable income is unchanged (because the add-back restores the deduction for NY purposes); their New York tax is offset by the refundable PTET credit (Form IT-653); and the federal deduction is the net SALT-cap workaround benefit. (Form IT-653; Form IT-225; Form IT-201; Form IT-203)

9. Owner-Level Credit (Form IT-653)

9.1 Refundable credit

• Refundable nature of PTET credit — The PTET credit under Tax Law § 606(kkk) is refundable — meaning if the credit exceeds the owner's NY tax liability for the year, the excess is refunded in cash (not just carried forward). This is a critical feature because the credit is essentially a passthrough of the entity's tax payment back to the owner, and the owner should receive full economic credit even if their personal NY tax is low. (Tax Law § 606(kkk))

9.2 Form IT-653

• Form IT-653 requirements — Form IT-653, "Pass-Through Entity Tax Credit," is the form on which the owner claims the credit. The form requires: Identification of each electing entity (name, EIN); The owner's PTET credit amount for each entity (from IT-204-IP or CT-34-SH); The total PTET credit, which flows to Form IT-201 (resident return) or Form IT-203 (non-resident/part-year return) on the refundable credits line. If an owner has PTET credits from multiple entities, each is listed separately on IT-653. (Form IT-653)

9.3 No carryback or carryforward

• No carryback or carryforward of credit — The PTET credit is taken in the year the entity-level PTET was paid (i.e., the year for which the entity made the election). Because the credit is fully refundable, there is no need for a carryforward — any excess is refunded. There is no carryback.

9.4 Non-resident owners

• Non-resident owner PTET credit — Non-resident partners and shareholders are also entitled to the PTET credit on their NY non-resident return (Form IT-203). The credit is limited to the partner's share of the PTET paid on their behalf, which (for a non-resident) is computed only on their NY-apportioned share of income. A non-resident generally cannot claim a PTET credit larger than their NY-source tax liability before credits, but because the credit is refundable, an excess is still refunded. Practical note: a non-resident with no other NY-source income other than the PTE will still receive the PTET credit refund. This is one reason the PTET election is attractive to entities with both resident and non-resident owners — every owner benefits. (Form IT-203)

9.5 Other states' residents claiming a resident credit

• Cross-state resident credit for NY PTET — A non-resident owner of a NY PTET-electing entity may be entitled to a "resident credit for taxes paid to another state" on their home state's personal income tax return for their share of the NY PTET. The availability of this credit depends entirely on the home state's rules. As of 2025: States that allow a resident credit for PTET paid by a NY entity: most states with personal income tax, but with detailed conditions (e.g., New Jersey under N.J.S.A. § 54A:4-1, Connecticut under CGS § 12-704). The pass-through must generally be documented and the owner must claim the PTET as if it were tax paid by the owner. States that do NOT allow the credit: some states do not recognize entity-level state tax as a tax paid by the owner. This is highly fact-specific and should be referred to the owner's home-state advisor.

9.6 NY resident credit for taxes paid to other states (the other direction)

• NY § 620 credit for other states' PTETs — Conversely, a NY resident with income from an out-of-state pass-through (where the other state has its own PTET) may be entitled to claim a NY resident credit under Tax Law § 620 for the other state's PTET attributed to the NY resident's share. The Department's TSB-M-22(1)I as amended in 2023 confirmed that NY residents can claim a § 620 credit for many (but not all) other states' PTETs, subject to the standard § 620 rules (the credit is limited to the lesser of the other state's tax on the same income or NY's tax on that same income). This means that a NY resident who is an owner of, say, a New Jersey PTE that pays NJ BAIT (New Jersey's PTET equivalent) can claim: A credit on their NY personal return under § 620 for the NJ BAIT attributed to them, AND A separate credit (if applicable) on the same federal return for the NY PTET paid by any NY-electing entity they also own. The two credits are independent and do not stack against the same tax base. (Tax Law § 620; TSB-M-22(1)I (as amended 2023))

10. NYC PTET — Overview and Refer-Out

10.1 What it is

• NYC PTET definition — The New York City PTET is a parallel city-level election under Tax Law Article 24-B, enacted in 2022 and effective for tax years beginning on or after January 1, 2022, applicable to entities whose owners include individuals who are New York City residents. It is administered by the New York State Department of Taxation and Finance (not by NYC) but the proceeds go to New York City. (Tax Law Article 24-B)

10.2 Eligibility for NYC PTET

• NYC PTET eligibility requirements — To make a NYC PTET election: The entity must already have made a New York State PTET election for the same year. The entity must have at least one partner or shareholder who is a New York City resident individual. The NYC PTET is, in effect, a top-up to the state PTET that captures the additional NYC Article 30 personal income tax (around 3.876% at the top bracket) that would otherwise be paid by the NYC-resident owners directly.

10.3 Rate (NYC PTET)

• NYC PTET flat rate — 3.876% percent of city PTE taxable income (For tax years 2023 and later; computed similarly to the state PTET base but limited to the share allocable to NYC-resident owners and NYC-source income.) (Tax Law Article 24-B)

10.4 Election and payment mechanics

• NYC PTET election/payment mechanics — The NYC PTET election is made on the same Online Services election form as the state PTET, but as a separate item. Like the state PTET, it is: Annual and irrevocable. Due by March 15. Paid quarterly on March 15, June 15, September 15, and December 15.

10.5 Owner-level credit (NYC)

• NYC PTET credit claim — NYC residents claim the NYC PTET credit on Form IT-653 (the same form as the state credit), with a separate column for the NYC portion. The credit is refundable. (Form IT-653)

10.6 Refer-out

This skill provides only an overview of the NYC PTET. A dedicated NYC PTET skill (when published) covers the full Article 24-B mechanics. For NYC PTET work, refer to that skill or to a credentialed reviewer who handles NYC tax.

11. Federal Treatment

11.1 IRS Notice 2020-75

• IRS Notice 2020-75 provisions — In November 2020, the IRS issued Notice 2020-75, which announced the IRS's position that "specified income tax payments" made by a partnership or S-corporation to a state in lieu of tax that would otherwise be imposed on the partners or shareholders are deductible by the entity in computing its non-separately stated taxable income, and are NOT subject to the $10,000 SALT cap at the owner level. This was the green light that allowed every state to enact a PTET (or PTET-equivalent) regime. New York's Article 24-A was enacted in 2021 in direct response to Notice 2020-75 and conforms to the structural requirements of the notice (the tax must be imposed on the entity, the entity must pay it, and the credit must be claimed by the owners on their personal return). (IRS Notice 2020-75)

11.2 Federal deduction at the entity level

• Federal deduction line items — The PTET is deducted on the entity's federal return: Partnerships (Form 1065) — deducted on Line 14, "Taxes and licenses," as an ordinary trade-or-business expense, reducing the partnership's federal ordinary business income. S-corporations (Form 1120-S) — deducted on Line 12, "Taxes and licenses," reducing the S-corp's federal ordinary business income. The deduction is taken in the year the PTET is paid by the entity, generally on a cash-basis principle (regardless of the entity's overall accounting method, the IRS position in Notice 2020-75 and subsequent guidance treats PTET as paid when actually paid). Quarterly estimates paid during the tax year are deductible in that year; the Q4 estimate paid by December 15 is deducted in the same year (one of the planning reasons NY moved Q4 to December — to ensure the estimate is paid and deducted in the tax year). (IRS Notice 2020-75; Form 1065 Line 14; Form 1120-S Line 12)

11.3 Owner-level treatment

• Owner federal treatment (no double deduction) — The reduction in non-separately stated income flows through to the owners on their federal K-1, reducing the owner's federal taxable income proportionally. The owner does NOT separately deduct the entity's PTET on their personal federal return — the deduction is taken once, at the entity level. Attempting to deduct it again at the owner level would be double-counting.

11.4 Section 199A / QBI considerations

• QBI reduction from PTET — The PTET reduces qualified business income (QBI) for purposes of the IRC § 199A deduction, because the PTET reduces non-separately stated income. For owners eligible for the QBI deduction, this means a small reduction in the QBI deduction (20% of the PTET amount). The economic benefit of the federal SALT cap workaround is therefore reduced slightly by the QBI haircut, but in most cases the federal marginal rate × PTET still vastly exceeds the QBI offset. (IRC § 199A)

11.5 Self-employment tax

• SE tax interaction for partnerships — For partnerships only: the PTET reduces the partners' distributive share of trade-or-business income, which reduces the partner's net earnings from self-employment under IRC § 1402. This produces an additional SE tax savings for general partners (or LLC members treated as general partners). For S-corps, there is no SE tax because S-corp shareholders are not subject to SE tax on their distributive share. (IRC § 1402)

12. Worked Examples

12.1 Example 1 — Single-shareholder NY S-corp, all-NY-resident, resident-S election

Facts: Entity: ACME LLC, a multi-member LLC taxed as a federal S-corp and a NY S-corp. (Election Form CT-6 in effect.) Sole shareholder: Anna Resident, full-year NYC resident. 2025 federal taxable income (Form 1120-S, Line 21): $400,000. All income is from consulting services, partially performed in NY and partially performed remotely for clients in Texas and Florida. NY-apportioned income (if standard S-corp PTET): $250,000. All-NY income (if resident-S elected): $400,000. Election decision: Because Anna is a full-year NY resident and the only shareholder, the entity is eligible for the resident-S election. The resident-S election captures $400,000 at the entity level vs $250,000 under standard PTET. The federal deduction is therefore on $400,000 (multiplied by the PTET rate), which is the larger federal benefit. The entity elects (a) standard NY PTET, and (b) resident-S sub-election. Both are made by March 15, 2025 on Online Services. State PTET computation: PTE taxable income (resident-S basis) = $400,000. PTET = $400,000 × 6.85% = $27,400. (The full $400,000 is in the first bracket, so the entire amount is taxed at 6.85%.) NYC PTET computation: Because Anna is a NYC resident, the entity also elects NYC PTET on the city PTE taxable income of $400,000. NYC PTET = $400,000 × 3.876% = $15,504. Total entity-level state-and-city PTET: $27,400 + $15,504 = $42,904. Quarterly estimates: Each Q estimate = $42,904 ÷ 4 = $10,726. Paid March 15, June 15, September 15, December 15, 2025. Federal benefit: The $42,904 PTET is deducted on Form 1120-S Line 12. The S-corp's federal ordinary business income drops from $400,000 to $357,096. Anna's federal K-1 ordinary business income is $357,096. If Anna's federal marginal rate is 35%, the federal tax savings from the entity-level deduction is approximately $42,904 × 35% = $15,016. (Slightly reduced by QBI haircut; net benefit is roughly $13,000–$14,000.) Anna's NY return: Anna reports the K-1 income on Form IT-201 (Resident return). Anna's IT-225 Form has addition modification S-219 (or successor designation) of $42,904 to add back the federally deducted PTET (combined state and city). Anna's NY taxable income is therefore the same as if no PTET had been paid (no NY tax reduction at the income-tax-base level). Anna's NY tax before credits is computed normally on her income. Anna claims a $27,400 NY State PTET credit and a $15,504 NYC PTET credit on Form IT-653, totaling $42,904 in refundable credits. Net NY tax due ≈ NY tax before credits − $42,904. If Anna had no other NY tax credits, this typically results in a refund equal to the difference between her NY tax before credits and $42,904, depending on her other income. Net economic benefit: Federal savings ≈ $13,000–$15,000. State tax: roughly the same as without PTET (the credit reimburses Anna for the entity's payment). Net benefit: ~$13,000–$15,000 of federal tax savings per year that would otherwise be lost to the SALT cap.

12.2 Example 2 — Two-partner LLC taxed as partnership, mixed-residency

Facts: Entity: Builder Bros LLC, a multi-member LLC taxed as a federal partnership. Two equal 50/50 partners: Brian Brooklyn, full-year NY resident, NYC resident. Tom Texan, full-year Texas resident. 2025 partnership federal ordinary business income: $1,000,000. 50/50 distributive share: Brian = $500,000, Tom = $500,000. NY-apportioned portion of partnership income: $600,000 (60% NY apportionment factor under single-sales-factor). NY-apportioned distributive share to Tom: $300,000 (50% of $600,000). Brian (as a NY resident) is taxed by NY on his full $500,000 distributive share. Election decision: The partnership is eligible for NY PTET. Partnerships do not have the resident-S election distinction; the partnership PTE taxable income automatically includes resident partners' full distributive share and non-resident partners' NY-apportioned share. The partnership elects by March 15, 2025. State PTE taxable income calculation: Resident partner (Brian): full distributive share = $500,000. Non-resident partner (Tom): NY-apportioned distributive share = $300,000. Total state PTE taxable income = $500,000 + $300,000 = $800,000. State PTET computation: PTE taxable income $800,000 falls in the first bracket (up to $2,000,000). State PTET = $800,000 × 6.85% = $54,800. Allocation of PTET credit: Brian's share of PTET credit (in proportion to his contribution to PTE taxable income): $500,000 / $800,000 × $54,800 = $34,250. Tom's share of PTET credit: $300,000 / $800,000 × $54,800 = $20,550. NYC PTET (Brian only): Because Brian is a NYC resident, NYC PTET is available on Brian's NYC PTE taxable income. NYC PTE taxable income (Brian only, full distributive share): $500,000. NYC PTET = $500,000 × 3.876% = $19,380. This is paid by the entity and credited to Brian on his IT-653. Federal benefit: State PTET $54,800 + NYC PTET $19,380 = $74,180 total entity-level deduction. The partnership deducts $74,180 on Form 1065 Line 14, reducing federal ordinary business income from $1,000,000 to $925,820. Each partner's federal K-1 income drops proportionally. Brian's federal K-1 income: $462,910 (50% of $925,820). Tom's federal K-1 income: $462,910. Brian's federal benefit (assume 35% marginal rate): He saved approximately $74,180 × 50% × 35% = $12,981 federal tax (on his half of the federal deduction). Plus he avoids SALT cap on his share of NY tax that was paid via PTET. Tom's federal benefit (assume 35% marginal rate, Texas has no income tax so SALT cap is less binding for him but still partially binding): He saved approximately $74,180 × 50% × 35% = $12,981 federal tax. Tom can also claim a $20,550 NY PTET credit on Form IT-203 (non-resident NY return); because Tom is a Texas resident, his NY tax before credit is limited to NY-source income, and the credit is refundable, so Tom typically receives a refund of his entire NY PTET allocation.

12.3 Example 3 — High-income S-corp hitting multiple brackets

Facts: Entity: BigConsult Inc., a NY S-corp. Two equal 50/50 shareholders, both NY residents. 2025 federal taxable income: $6,000,000. All income earned from clients globally; 100% of services performed in NY office. NY-apportioned income: $6,000,000 (100%). Resident-S election made (both shareholders are NY residents). State PTET computation: PTE taxable income (resident-S basis) = $6,000,000. This spans three brackets. Bracket 1 (first $2M @ 6.85%) = $137,000. Bracket 2 ($2M to $5M, i.e., $3M @ 9.65%) = $289,500. Bracket 3 ($5M to $25M, i.e., $1M in this case @ 10.30%) = $103,000. Total State PTET = $137,000 + $289,500 + $103,000 = $529,500. Quarterly estimates: Each Q estimate = $529,500 ÷ 4 = $132,375. Allocation to shareholders: Each 50/50 shareholder receives $264,750 of state PTET credit on Form CT-34-SH. Federal benefit: $529,500 deducted on Form 1120-S Line 12 reduces S-corp's federal ordinary business income by $529,500. Each shareholder's federal K-1 income drops by $264,750 (50% of $529,500). Assuming both shareholders are at the 37% top federal marginal rate, each saves approximately $264,750 × 37% = $97,958 per shareholder in federal tax — total federal savings of $195,915 to the two shareholders, almost entirely attributable to the PTET regime (this is the SALT-cap workaround at scale). NYC PTET (if both shareholders are also NYC residents): NYC PTET on $6,000,000 PTE taxable income = $6,000,000 × 3.876% = $232,560. Combined State + NYC PTET = $529,500 + $232,560 = $762,060. Combined federal deduction at 37% federal marginal rate provides additional ~$86,047 of federal savings (on the NYC portion), bringing total federal savings for the two shareholders to roughly $282,000. Net economic benefit: The two shareholders save approximately $282,000 in federal tax that they would otherwise have paid because of the SALT cap. Their NY State and NYC tax is essentially unchanged (the PTET is credited back to them on Form IT-653 with the add-back on IT-225). The entity must, however, manage the cash flow of paying $762,060 of combined State + NYC PTET in quarterly installments throughout 2025 — a meaningful working-capital consideration.

12.4 Example 4 — First-year electing entity, no prior-year safe harbor

Facts: Entity: NewVenture LP, a new partnership formed in 2025. Two partners, both NY residents. 2025 projected federal partnership ordinary business income: $1,500,000. All NY-source income. No prior year (first year of operation). Election decision: Election made by March 15, 2025. Note: the entity has no prior-year PTET history, so the only safe harbor is the 90%-of-current-year safe harbor — the partnership must accurately project current-year PTE taxable income to estimate quarterly payments. Estimation approach: Estimated PTE taxable income = $1,500,000. Estimated State PTET = $1,500,000 × 6.85% = $102,750. 90% of estimated annual PTET = $92,475. Required quarterly installment = $92,475 ÷ 4 = $23,119. The partnership pays $23,119 each quarter on March 15, June 15, September 15, and December 15, 2025. If actual 2025 PTE taxable income comes in higher (say $1,800,000), the partnership owes additional PTET on the annual return — no underpayment penalty applies as long as the quarterly estimates met the 90% threshold. If 2025 income comes in lower (say $1,000,000), the partnership has overpaid. The overpayment is refunded with the annual return or applied to 2026 first-quarter estimates (at the partnership's election).

13. Practitioner Checklist

When advising a client on NY PTET: 1. Confirm entity eligibility. Partnership or NY S-corp? (Check Form CT-6 for S-corp election.) Sole proprietor or disregarded SMLLC = not eligible. 2. Confirm all owners are aware and consent. PTET affects every owner's federal and NY tax return. Get written consent from all owners before electing. 3. For S-corps with all-NY-resident shareholders, consider the resident-S election. It captures 100% of income at the entity level vs only the NY-apportioned portion. Almost always beneficial. 4. Confirm March 15 election deadline is met. The election cannot be made late. Add to firm's annual compliance calendar. 5. Plan quarterly estimates (March 15, June 15, September 15, December 15). Confirm cash flow availability, especially for the Q4 December estimate (often coincides with year-end bonus and other large cash outflows). 6. Consider NYC PTET if any owner is a NYC resident. Separate election on the same Online Services form, but distinct. 7. At year-end, prepare the annual PTET return (Web File). Reconcile to quarterly estimates and compute balance due or refund. 8. Prepare IT-204-IP (partnership) or CT-34-SH (S-corp) to inform each owner of their PTET credit allocation. 9. At owner-level return preparation: File Form IT-653 to claim refundable PTET credit. File Form IT-225 with addition modification S-219 (or current label) to add back federally deducted PTET. For NY residents with out-of-state PTE income, evaluate the resident credit under § 620 for other states' PTETs. 10. Document the planning analysis. PTET produces material federal tax savings; document the entity's election, the quarterly payment schedule, and the owner-level credit allocation for audit support.

14. Provenance

This skill is based on the following primary sources, current as of November 2025: Statutes (New York Tax Law): Tax Law § 860 — Definitions (eligible partnership, eligible S-corporation, PTE taxable income, etc.). Tax Law § 861 — Election to be subject to PTET; March 15 deadline; irrevocability. Tax Law § 862 — Tax imposed; graduated rate schedule (6.85%, 9.65%, 10.30%, 10.90%). Tax Law § 863 — Allocation and apportionment. Tax Law § 864 — Payment of tax; estimated payments (March 15, June 15, September 15, December 15). Tax Law § 865 — Filing of return; annual reconciliation. Tax Law § 866 — Procedural rules; coordination with Article 22. Tax Law § 606(kkk) — Owner-level refundable PTET credit. Tax Law § 620 — NY resident credit for taxes paid to other states (interaction with other-state PTETs). Tax Law § 660 — NY S-corp election (prerequisite for S-corp PTET). Tax Law § 660(i) — Resident-S sub-election for NY S-corps with all-NY-resident shareholders. Tax Law § 685 — Underpayment of estimated tax penalty (applies to PTET underpayments via § 864). Tax Law §§ 612, 615 — NY modifications applied to PTE taxable income base. NYC equivalent: Tax Law Article 24-B (§§ 867–871) — NYC PTET (refer-out). Regulations and administrative guidance: 20 NYCRR § 158 series — PTET regulations (election, computation, payments, returns). TSB-M-21(1)C, (1)I — Initial PTET technical memorandum (NYSDTF, August 25, 2021). TSB-M-22(1)C, (1)I — Updated PTET memorandum addressing 2022 amendments (including resident-S election). TSB-M-23(1)I — Update addressing NY resident credit interaction with other states' PTETs. NYSDTF PTET FAQ (online; updated periodically). Department of Taxation and Finance "Pass-through entity tax (PTET)" web pages and Online Services election guide. Federal: IRS Notice 2020-75 — Federal blessing of entity-level state tax deductions; PTET not subject to $10,000 SALT cap. IRC § 164(b)(6) — $10,000 SALT cap on individual itemized deductions (TCJA 2017). IRC § 1402(a) — Definition of net earnings from self-employment (interaction with partnership PTET deduction). IRC § 199A — QBI deduction (slight haircut from PTET deduction at entity level). IRC § 1362, § 1366 — Federal S-corp election and pass-through. Forms (referenced; not reproduced): Form IT-653 — Pass-Through Entity Tax Credit (owner-level refundable credit). Form IT-225 — New York State Modifications (PTET add-back, modification S-219 or successor). Form IT-201 — NY Resident Income Tax Return. Form IT-203 — NY Non-Resident and Part-Year Income Tax Return. Form IT-204 — NY Partnership Return. Form IT-204-IP — NY Partner's Schedule K-1 (with PTET credit line). Form CT-3-S — NY S-Corporation Franchise Tax Return. Form CT-34-SH — NY S-Corporation Shareholders' Information Schedule (with PTET credit line). Form CT-6 — NY S-Corp Election (prerequisite for S-corp PTET). PTET Annual Return — Filed via Web File (no paper form). PTET-EXT — Extension request for annual PTET return. Tax year: 2025. Verification status: This skill is marked verified_by: pending. It must be reviewed and signed off by a New York-licensed CPA, Enrolled Agent, or attorney admitted in New York before being used for client deliverables. The author of this skill makes no representation about the current state of NYSDTF administrative practice; practitioners must verify current-year rates, deadlines, form numbers, and modification codes against the NYSDTF website before relying on this document. Last updated: 2025-11-15. End of skill.

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