The deadline to elect into New York’s entity-level tax workaround to the federal SALT cap is October 15, 2021.
This election can alleviate the loss of the SALT deduction suffered by many New York taxpayers as a result of the federal SALT cap, whether they are New York residents or non-residents. The SALT cap is the limit on a person’s ability to deduct state and local taxes in excess of $10,000 for U.S. federal income tax purposes for tax years beginning after December 31, 2017 and before January 1, 2026, imposed as part of the Tax Cuts and Jobs Act of 2017.
As a result of losing a significant portion of this deduction, many taxpayers in states with high income taxes and real property taxes, like New York, saw their federal income taxes go up after 2017. To protect their taxpayers from having to shoulder an arguably disproportionate share of the tax burden resulting from the Tax Cuts and Jobs Act of 2017, many states, including New York, have recently enacted SALT cap workarounds.
New York’s pass-through entity tax (PTET) is one such SALT workaround. It allows individuals with income from pass-through entities – such as LPs, LLCs, and S Corps – to mitigate the loss of their SALT deduction on the income earned through these entities by having these entities opt to pay a federally deductible PTET, which is then creditable against their New York personal income tax liabilities. New guidance regarding the PTET was released on August 25, 2021, which this webinar will discuss.
Particularly Affected Industries
New York’s PTET regime has particular relevance for individuals working in two industries – funds and the entertainment industry.
Funds are generally structured as pass-through entities – both the fund itself and the management company engaged by the fund. Moreover, New York’s PTET regime could benefit fund principals regardless of the direction in which they ride Metro North in the morning (e.g., New York residents working at funds in Greenwich, Connecticut or New York non-residents working at funds in Manhattan). Similarly, talent in the entertainment industry often works through pass-through entities (loan-out S Corps) that may be eligible to participate in New York’s PTET regime.
In short, this webinar will provide an overview of New York’s PTET, explain the interaction between New York’s PTET and other states’ workaround regimes, discuss how the PTET applies to tiered pass-through entity structures, and highlight some key issues for fund managers and talent. It will also discuss the new guidance as noted above.
If you have specific questions about New York’s PTET, please send them to us in advance, and we will attempt to cover them in the presentation.
Michael A. Bloom, Partner, Venable LLP
Walter R. Calvert, Partner, Venable LLP
Christopher N. Moran, Associate, Venable LLP