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April 19, 2021

New York temporarily increases income tax rates on certain businesses and individuals, creates electable tax on pass-through entities, makes other tax changes

On April 19, 2021, Governor Cuomo signed the New York State (NYS) Fiscal Year 2021-22 budget bill (S.2509-C/A.3009-C) (Final Bill). The Final Bill includes various temporary tax increases and provisions affecting certain individuals, pass-through entities and corporations. The more significant provisions in the Final Bill do the following:

  • Temporarily extend the top state personal income tax rate
  • Temporarily increase the business income tax rate for certain businesses
  • Temporarily extend the business capital base tax
  • Establish an elective pass-through entity tax

This Alert summarizes changes included in the Final Bill, as well as excluded proposals.

Tax changes included in the Final Bill

Personal income tax rates (Part A of the Final Bill)

For tax years beginning on or after January 1, 2021, the top state personal income tax rate increases from 8.82% to new rates ranging from 9.65% to 10.90%. These top tax rates, which are extended through 2027, are as follows:

  • 9.65% for income over $2,155,350 (married filing joint); $1,616,450 (filing as head of household) and $1,077,550 (single/married filing separately) up to $5 million
  • 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)

For tax years beginning on or after 2028, the top state personal income tax rate decreases to 8.82% for income over $2,155,350 (married filing joint); $1,616,450 (filing as head of household) and $1,077,550 (single/married filing separately). This provision takes effect immediately and applies to tax years beginning on or after January 1, 2021.

The penalty for underpayment of estimated income tax will not apply to any installments due on or before September 15, 2021, if the underpayment results from the new income tax rates and the taxpayer makes the payments by September 15, 2021.

Increase in income tax rate for certain businesses (Part HHH of the Final Bill)

The business income tax rate for Article 9-A taxpayers (general corporations, financial institutions and S corporations) temporarily increases to 7.25% (from 6.5%), effective for tax years beginning on or after January 1, 2021 and before January 1, 2024. The increase applies to any taxpayer with a business income base of more than $5 million for the tax year. This provision takes effect immediately.

This rate increase does not apply to:

  • Taxpayers with a business income tax base below $5 million
  • Qualified New York manufacturers
  • Qualified emerging technology companies
  • Small-business taxpayers as defined under NYS Tax Law Section 210.1(f)

Extension of business capital base tax (Part HHH of the Final Bill)

The business capital base tax for Article 9-A taxpayers, which was set to phase out fully in 2021, is extended for an additional three years, except for cooperative housing corporations, qualified New York manufacturers and small businesses as discussed below. For tax years beginning on or after January 1, 2021 and before January 1, 2024, a 0.1875% rate applies.

For cooperative housing corporations and qualified New York manufacturers, the business capital base tax has completely phased out for tax years beginning on or after January 1, 2021. The tax rate for small businesses, as defined in NYS Tax Law Section 210.1(f), is 0% beginning on January 1, 2021. The business capital base tax will completely phase out for all other Article 9-A taxpayers for tax years beginning on and after January 1, 2024.

The maximum business capital base tax due continues to be $5 million (a $350,000 cap applied to qualified New York manufacturers prior to the complete phase out for these taxpayers in 2021).

Electable tax on pass-through entities (Part C of the Final Bill)

New Article 24-A provides an elective tax on a pass-through entity (PTE), which permits partners, members and shareholders of electing partnerships and S Corporations to indirectly deduct state and local taxes (SALT) paid to mitigate the impact of the federal $10,000 cap on the deduction for state and local tax paid. Article 24-A defines key terms, outlines how to make an annual PTE tax election, specifies applicable tax rates and PTE tax credits, and addresses estimated PTE tax payments, PTE tax return and payment requirements, and procedural provisions.

These provisions take effect immediately and apply to all tax years beginning on or after January 1, 2021.


The Final Bill defines key terms such as "eligible partnership," "eligible S Corporation," "electing partnership," "electing S Corporation," "taxpayer," "pass-through entity tax," "direct share of pass-through entity tax" and "pass-through entity taxable income."

"Direct share of pass-through entity tax" is relevant for purposes of calculating the PTE tax credit at the individual level and means "the portion of [PTE] tax calculated on [PTE] taxable income that is also included in the taxable income" of a partner, member or shareholder of an electing partnership or S corporation under Article 22. "Pass-through entity taxable income" is defined to include only those amounts derived from or connected with New York sources to the extent they are included in the taxable income of a nonresident or resident partner or shareholder subject to Article 22.

PTE tax election

The Final Bill allows any eligible partnership or S corporation to make an annual election to be taxed under new Article 24-A. The annual election must be made by the "due date of the first estimated payment under [Section 864 of Article 24-A] and will take effect for the current [tax] year." Only one election may be made during each calendar year, and the election, once made, is irrevocable. Under Section 864, the first estimated payment is due March 15.

For calendar year 2021, the election must be made by October 15, 2021. The electing partnership and the electing S corporation, however, will not be required to make estimated payments for tax year 2021.

PTE tax rates

The PTE tax will apply for each tax year at graduated rates based on the PTE's taxable income as follows:

PTE income


Not over $2 million


$2 million but not over $5 million

$137,000 plus 9.65% (over $2 million)

$5 million but not over $25 million

$426,500 plus 10.30% (over $5 million)

Over $25 million

$2,486,500 plus 10.90% (over $25 million)

PTE tax credit

The Final Bill allows a personal income tax credit for a taxpayer who is subject to tax under Article 22 and is a direct partner or member in an electing partnership or a direct shareholder of an electing S corporation. Unlike the proposals in the Governor's budget bill and the Assembly's budget bill, the Final Bill does not limit the credit to any particular percentage but rather allows a credit equal to the partner's, member's or shareholder's "direct share of the pass-through entity tax." The aggregate amount of credits is limited to the total PTE tax paid by the entity. A taxpayer may not claim a credit unless the electing partnership or election S corporation paid the PTE tax and the PTE supplies sufficient information on its tax return to identify the taxpayer (e.g., social security number or taxpayer identification number of Article 22 taxpayers who will claim the credit, even for a disregarded entity owned by that taxpayer).

In addition, the Final Bill grants New York State resident taxpayers a credit for substantially similar PTE taxes imposed by other states.

Extensions of certain sales tax exemptions related to Dodd-Frank Protection Act (Part M of the Final Bill)

The current sales and use tax exemptions on certain sales of tangible personal property or services transacted between certain financial institutions and their subsidiaries is extended for three years through 2024. For transfers made under binding contracts, the Final Bill extends the exemptions' applicability date from June 30, 2024 to June 30, 2027. This provision takes effect immediately.

Waiver of employment-location requirements for business tax credits (Part NN of the Final Bill)

The Final Bill authorizes the Commissioner of Taxation and Finance to waive the employment-location requirements for any business receiving a tax credit or other benefits under the New York tax law if the recipient can demonstrate that the requirements would have otherwise been met if not for the restrictions related to the COVID-19 state of emergency declared by the Governor of New York. This provision takes effect immediately, is deemed to have been in full force and effect on or after March 7, 2020, and will expire on the sooner of (1) the expiration date of the state disaster emergency under executive order 202 of 2020, or (2) December 31, 2021.

Corporate tax decoupling from federal opportunity zone benefits (Part DDD of the Final Bill)

The Final Bill decouples NYS's Article 9-A, Article 22 and Article 33 and New York City's General Corporation Tax, Business Corporation Tax and Personal Income Tax from federal opportunity zone benefits under IRC Section 1400Z-2 (i.e., capital gains that have been deferred or excluded, for federal tax purposes, because of investments in a qualified opportunity fund). Decoupling is accomplished through various addition and subtraction modifications to a taxpayer's tax base. This provision takes effect immediately and applies to tax years beginning on or after January 1, 2021.

Other changes included in the Final Bill

In addition to the previously mentioned changes, the Final Bill also does the following:

  • Modifies and enhances credits related to childcare services under the Excelsior Job Program and the Employer Provided Child Care credit (Part D of the Final Bill)
  • Extends the empire state film production and post-production credits through 2026 (Part F of the Final Bill)
  • Extends the alternative fuel tax exemptions through September 1, 2026 (Part EE of the Final Bill)
  • Extends the farm workforce retention credit through 2024 (Part FF of the Final Bill)
  • Extends the credit for hiring a qualified veteran through 2022 (Part II of the Final Bill)
  • Extends tax credits available under the economic transformation and facility redevelopment program through 2026 (Part JJ of the Final Bill)
  • Increases, for small projects (i.e., qualified rehabilitation expenditures of $2.5 million or less), the tax credit for rehabilitating historic property (Part CCC of the Final Bill)
  • Creates the restaurant-return-to-work tax credit program (Part PP Sub. A of the Final Bill)
  • Creates the New York City musical and theatrical production tax credit (Part PP Sub. B of the Final Bill)
  • Establishes the COVID-19 pandemic small-business recovery grant program (Part VV of the Final Bill)
  • Extends the sales-and-use-tax exemption for certain food and drinks sold from vending machines through May 31, 2022 (Part SS of the Final Bill)
  • Provides, for real property tax purposes, that the assessed value of certain solar or wind energy systems is determined by a discounted cash-flow approach that includes an appraisal model and solar or wind energy system discount rates (Part X of the Final Bill)
  • Taxes and regulates sports wagering and mobile sports wagering (Part Y of the Final Bill)
  • Provides guidance on the collection of taxes on medallion taxicabs and the congestion surcharge when a technology service provider collects the trip record and fare on behalf of a taxicab or HAIL vehicle owner (Part R of the Final Bill)
  • Modifies registration requirements for tax return preparers or facilitators (Part S of the Final Bill)

Tax proposals that did not make it into the Final Bill

Governor, Assembly and Senate proposals1 that were included in their respective stand-alone budget bills but were not in the Final Bill include:

  • Capital gains taxes
  • An 18% business tax surcharge
  • A delay in the middle-class tax cuts
  • Mezzanine debt, preferred equity investments and the mortgage recording tax
  • Pied-a-Terre provisions
  • Increased filing fees for limited liability companies and partnerships
  • Increases in estate taxes
  • Allowing the NYS Department of Taxation and Finance to appeal adverse decisions by the Tax Appeals Tribunal


Given that the Final Bill was signed into law on April 19, 2021, these changes will be considered a second-quarter event for financial statement purposes for New York calendar-year taxpayers.

Taxpayers should also consider the tax rate increases when calculating 2021 estimated tax payments. While the Final Bill provides estimated tax payment relief to individuals, it does not include similar relief for corporate tax purposes.

Partnerships and S Corporations may want to consider making the NYS PTE tax election. The primary consideration in whether to make this election is the partner and shareholder federal tax benefit versus the amount of estimated NYS PTE tax paid. Other considerations include federal tax changes, anticipated transactions, amount of NYS-source income, partner and shareholder NYS PTE credits, and/or NYS resident credits.


Contact Information
For additional information concerning this Alert, please contact:
State and Local Taxation Group
For general/non-financial New York State taxpayers:
   • David Schmutter (
   • Sam Cohen (
For financial institutions that are New York State taxpayers:
   • Karen Ryan (
   • Matthew Musano (
   • Allen Schaefer (
For real estate, hospitality, construction industry taxpayers:
   • Dale Kim (
   • Douglas Upton (
For general state tax policy considerations:
   • Scott Roberti (
   • David Sawyer (


1 These proposed budget provisions were described in Tax Alert 2021-0618.