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The New MA Pass Through Entity Excise Tax: Take Action Before Year End

December 17, 2021

Attention Massachusetts taxpayers…are you up to speed on the new pass-through entity excise tax? You may have to make payments before December 31. Read on.

Massachusetts taxpayers may need to take action before year end regarding the PTE excise tax. Let’s explore the new tax and if it applies to you.

What is the MA pass through entity excise tax?

The MA PTE excise tax is an elective tax (for tax years starting on or after January 1, 2021) on the income of passthrough entities that can be deducted on the entities’ Federal return with a corresponding 90% of the allocable tax paid available as a credit on the individual’s MA tax return.

The PTE tax is deductible without limitation on the entity return, thereby avoiding the $10K state tax limitation that currently applies to individuals. The PTE tax is elected on the entity's' tax return when filed. It is an annual election that covers all of the "qualified members". Once made, it is irrevocable.

When was it passed?

The statute was enacted by the legislature on September 30, 2021, overriding the Governor’s earlier veto. As of November 30, 2021, MassTaxConnect (the state’s online tax payment portal) is allowing taxpayers to make estimated tax payments for 2021 (80% of the ultimate tax liability is required to be paid by January 15th, otherwise underpayment penalties will apply). The MA DOR has published a FAQ related to the new tax and has made several notable updates since it was first published.

Key things you should note: has published FAQs about the excise tax—found here Here are some things of which you should be aware:

  1. Calendar-year entities considering electing the MA PTE will need to pay an estimate (as best as you can currently project with perhaps a little cushion) on or before December 31st to ensure that the tax is deductible on the 2021 Federal tax return. This applies to both accrual basis and cash basis taxpayers.
  2. The estimate is based upon the full amount of tax that will ultimately be due with the filing of the return. Previous payments made during the year such as quarterly estimated payments made by owners, non-resident withholding tax estimates or composite tax estimates are not taken into account. To the extent that this will ultimately result in an overpayment, refunds will be available when the respective return is filed.
  3. Not all states allow a corresponding credit to their residents for the pass-through entity tax paid (Maine, for example).
  4. General tax principles will govern the allocation of the MA-PTE deduction to shareholders (per share, per day) and partners/members (substantial economic effect).
  5. The entity and its' ultimate owners overall tax situation should carefully be considered before deciding if the election would be advantageous. Having multi state activity, non-eligible owners (C-Corporations) with a significant ownership stake, or owners with losses from other sources could significantly impact the benefit of making the election.
  6. Eligible passthrough entities are Partnerships, S-Corporations and LLCs (not taxed as C-Corporations). The FAQ that was published by the DOR has added Trusts (that are subject to the MA personal income tax) to the list of eligible entities.

How to pay through MassTaxConnect

MassTaxConnect is open for business and currently accepting estimated payments. To pay, you will need to add 63D Entity Level Tax as a tax type on MassTaxConnect. The payment has to be made electronically, no checks will be accepted. As stated previously, action will need to be taken before the end of the year!

Questions? Contact us.

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