New York LLC Tax Elections — S-Corp & PTET

Tax elections are particularly valuable for New York LLC owners because of the high combined state/city tax rates. Two elections deserve special attention: the S-corporation election and New York's Pass-Through Entity Tax (PTET) election. For the complete picture, see our NY LLC tax guide.

S-Corporation Election

How it works: File Form 2553 with the IRS. Your LLC is still an LLC legally, but taxed as an S-corp. Split income between W-2 salary (payroll taxes apply) and distributions (no self-employment tax).

NY-specific benefits:

• Saves 15.3% SE tax on distributions (federal benefit)
• Reduces MCTMT liability (based on payroll, not total income)
• Works well with the PTET election for maximum savings

When it makes sense in NY: Given the high combined tax rate in NY (federal + state + potentially city), the S-corp savings are magnified:

• Single NYC member with $150K+ net profit: save $10,000-$15,000/year
• Must file NY Form CT-3-S (NY S-Corp Franchise Tax Return) in addition to federal 1120-S

NY-specific requirement: File Form CT-6 with the NY Tax Department to elect NY S-corp status (separate from the federal Form 2553 election). Both elections are required.

Pass-Through Entity Tax (PTET) Election

This is the most important NY-specific tax strategy for LLC owners.

New York enacted the PTET (Tax Law Article 24-A) allowing eligible partnerships and S-corps to pay state income tax at the entity level. This is a workaround for the federal $10,000 SALT deduction cap.

How it works:

1. The LLC elects PTET treatment with the NY Tax Department
2. The LLC pays NY income tax at the entity level (rates match individual rates: 6.85%-10.9%)
3. The LLC gets a deduction for the PTET payment on its federal return (not subject to SALT cap)
4. Members receive a credit on their personal NY return for their share of PTET paid

Net effect: LLC income tax is effectively deducted on the federal return without being limited by the $10,000 SALT cap. For LLC members in high tax brackets, this saves substantial federal income tax.

Example: LLC member with $500K in NY LLC income, 35% federal bracket:

• Without PTET: state tax paid personally, limited to $10,000 SALT deduction
• With PTET: LLC pays ~$40,000 in PTET (deductible at entity level), member gets $40,000 NY credit, federal taxable income reduced by ~$40,000, federal savings: ~$14,000

Eligibility: Multi-member LLCs (taxed as partnerships) and S-corp elected LLCs. Single-member disregarded entities are NOT eligible — you must either have multiple members or elect S-corp status.

Election deadline: March 15 of the tax year (made annually)

Combined Strategy: S-Corp + PTET

For NY LLC members with $100K+ net profit:

1. Elect S-corp (saves self-employment tax on distributions)
2. Elect PTET (makes state tax deductible at entity level, bypassing SALT cap)
3. Combined savings: $15,000-$50,000+ annually depending on income level

FAQ

Can a single-member LLC use the PTET election?

Only if it elects S-corp status. As a disregarded entity, single-member LLCs are not eligible. Once you elect S-corp (Form 2553 federal + CT-6 state), the entity becomes eligible for PTET.

When must I make the PTET election?

Annually by March 15 of the tax year. The election is made on the NY Tax Department's online portal. It must be renewed each year.

Does the PTET election change my NY state tax liability?

No — the total NY tax paid is the same. It is just paid at the entity level (with a credit to the member) instead of the member level. The benefit is entirely federal — the entity-level deduction bypasses the $10,000 SALT cap.

Is there a minimum income where PTET makes sense?

The PTET benefits LLC members whose state/local tax exceeds the $10,000 SALT cap. For a NY member paying more than $10,000 in state/local taxes (which is anyone with ~$140K+ in income), the PTET provides federal savings.