The NYC PTET (Pass-Through Entity Tax) is a state-level tax introduced in 2021 to help mitigate the impact of the federal $10,000 SALT cap (State and Local Tax deduction limit) imposed by the Tax Cuts and Jobs Act (TCJA). The PTET is designed for pass-through entities (such as partnerships, LLCs, and S corporations) to elect to pay New York State income taxes at the entity level, which allows individual owners to deduct the tax on their federal returns, effectively bypassing the SALT cap.
While the PTET tax rate itself is set by New York State, it does have implications for New York City residents and businesses that are part of pass-through entities. Here’s a breakdown of the PTET tax rate and its relevance to NYC.
NYC PTET Tax Rate Overview
The PTET rate in New York State is around 6.85% for eligible pass-through entities. However, New York City does not have a separate PTET rate. Instead, the NYC PTET tax rate is essentially tied to the New York State rate, as pass-through entities in the city follow the state’s tax structure.
How It Works for NYC Residents
For New York City residents who are part of a pass-through entity that elects to participate in the PTET:
- The entity itself pays the PTET, and the individual partners, members, or shareholders are able to receive a corresponding credit on their personal income tax returns for the state taxes paid by the entity.
- The tax rate is the same for NYC residents as for those living elsewhere in New York State, but NYC residents will still be subject to the city’s own income tax in addition to the state-level PTET.
Eligibility and Elections for PTET
Pass-through entities (such as partnerships, LLCs, and S corporations) can elect to participate in the PTET program, allowing them to pay the state tax at the entity level. This election is typically made annually and must be submitted to the New York State Department of Taxation and Finance.
Tax Credit for Individuals
After the PTET is paid at the entity level, individual partners or shareholders can claim a credit for the taxes paid on their personal New York State tax returns. This is particularly beneficial for high-income earners because it enables them to deduct the PTET payments on their federal returns, helping to offset the impact of the SALT cap.
Conclusion
The NYC PTET tax rate follows the New York State PTET rate of approximately 6.85%. While New York City does not impose a separate PTET, the city’s residents who are part of pass-through entities can benefit from the state’s PTET program by claiming a credit on their personal tax returns. This provides significant tax relief for NYC residents, particularly those subject to the federal SALT cap.
