Albany, NY – Assemblymember Amy Paulin (D-Scarsdale) announced the passage of legislation included in the state budget which provides SALT cap tax relief for partnerships. “This is a much-needed boost for the New York economy in these difficult times,” Paulin said.
The federal Tax Cuts and Jobs Act of 2017 (the Act) eliminated the full deductibility of state and local taxes (SALT), and capped deductions at $10,000. This law disproportionately hurt states like New York, where residents’ state and local taxes often exceed $10,000. To fight back, Assemblymember Paulin authored this legislation which makes the full SALT deduction available to partnerships and other pass-through entities.
The legislation allows New York State partnerships and other pass-through business entities to elect to pay a tax to New York State, for which they would get a full federal deduction, with the tax payments offsetting the partners’ New York State income tax. This setup is fiscally neutral to New York State, but allows partners to take the full SALT deduction, which would otherwise be limited to $10,000 if the partners paid their income taxes directly to New York State.
Following the passage of the Act in 2017, several states, including New Jersey and Connecticut, passed similar laws allowing pass-through entities to pay taxes at the entity level, and receive a credit on their state income taxes to offset it, which avoids the SALT cap. On November 9, 2020, the IRS issued a notice which stated that they would allow this arrangement to apply to tax payments made on or after November 9, 2020.
“Giving relief to New Yorkers – who have been disproportionately affected by the SALT cap – has been one of my top priorities,” said Assemblymember Paulin. “This legislation provides a common-sense benefit to New Yorkers – at no cost to New York State – for the 2021 tax year.”