By Scott Lewis, CPA, MSA
On April 19, 2021, New York Governor Cuomo signed the New York State Fiscal Year 2021-22 budget bill. It included several temporary tax increases on individuals and procedural changes on how individual state taxes can be paid through pass-through entities. There are two main provisions in this article that we want to bring to your attention.
1. A Temporary Extension on the Top State Personal Income Tax Rates

For the tax years beginning on or after January 1, 2021, the top state personal income tax rate has increased from 8.82% to new higher rates ranging from 9.65% to 10.90%. These top tax rates, which are extended through 2027, are as follows:
- 9.65% for income ranging from $1,077,550 to $2,155,350 (depending on filing status);
- 10.30% for income over $5 million to $25 million (for all filing statuses);
- 10.90% for income over $25 million (for all filing statuses);
These higher rates will stay in effect until January 1, 2028.
For taxpayers making estimated state tax payments, any penalties on underpayments for 2021 will not apply on any installments before September 15, 2021, the third quarter of 2021. They will need to be adjusted accordingly for the fourth quarter estimated tax payment due on January 15, 2022.
2. Establishment of an Elective Pass-Through Entity Tax (PTE)

Following the lead from other high tax states such as New Jersey and Connecticut, the bill provides an elective tax on a pass-through entity (PTE), which allows partners, members, and shareholders (including disregarded entities) of electing partnerships and S Corporations to indirectly deduct state and local taxes (SALT). These amounts have been limited at the individual federal level due to the $10,000 cap on the itemized deduction for state and local taxes paid.
These provisions take effect immediately and apply to all tax years beginning on or after January 1, 2021.
The new law, under new Article 24-A allows any eligible partnership or S corporation to make an annual election to pay this entity-level tax. The annual election must be made by the due date of the first estimated payment (March 15 for calendar year taxpayers). One election may be made during each calendar year, and the election, once made, is irrevocable. For the 2021 tax year only, the election must be made no later than October 15, 2021, and no estimated taxes are required to be filed. After that, the first estimated quarterly payment is generally due on March 15.
The amounts to be paid with the PTE tax paid are based on a direct share of the pass-through taxable income. This taxable income is defined as including only sums derived from or connected with New York sources to the extent they would be included in the taxable income of a nonresident or resident partner or shareholder.
The PTE tax will apply for each tax year at amounts based on the NY taxable income of the PTE, with graduated rates from 6.85% on income up to $2 million and increasing to 10.90% and a flat amount of $2,486,500 on income over $25 million.
At the individual state taxpayer level, a personal income tax credit is now allowed for a taxpayer who is subject to New York tax based on the above parameters and is a direct partner or member in an electing partnership or a direct shareholder of an electing S corporation. This credit will be equal to their direct share of the pass-through entity tax. The aggregate amount of credits for all individuals will be limited to the total PTE tax paid by the applicable entities. A taxpayer may not claim a credit unless the electing partnership or electing S corporation paid the PTE tax and the PTE supplies sufficient information on its business tax return to identify the taxpayer (e.g., social security number or taxpayer identification number of the ultimate taxpayers who will claim the credit, even for a disregarded entity owned by those taxpayers).
As noted above, this new PTE tax credit as well as the increased tax rates go into effect for the 2021 taxable year and should be addressed as soon as possible. If you have any questions on how this impacts you or your pass-through businesses, please click HERE to contact us.