Last December, Gilliam Bell Moser first advised of a workaround to the $10,000 cap on federal deductions for state and local taxes enacted as part of the North Carolina Current Operations Appropriations Act of 2021. For tax years beginning after 2021, partnerships and S Corporations can make a Pass-Through Entity Tax (Taxed PTE) Election to pay North Carolina income tax at the entity level creating a deduction against pass-through federal income.
A pass-through entity (PTE) makes the Taxed PTE Election annually on its timely filed North Carolina income tax return. An electing PTE that reasonably expects a North Carolina income tax liability of at least five hundred dollars ($500) is required to pay quarterly estimated tax payments in the same manner as a C corporation. The installments are generally due on or before the 15th day of the fourth, sixth, ninth and twelfth months of the taxable year (for calendar year filers, April 15, June 15, September 15, and December 15). For 2022, North Carolina will not subject electing Taxed PTEs to interest for underpayment of estimated income tax.
Many PTEs will benefit from making the election, as pass-through owners will be able to reduce federal taxable income for the entity level tax payment. However, there will be cases where the Taxed PTE Election will not create the expected benefit and guidance in this area is still developing.
For now, Gilliam Bell Moser generally recommends that owners of PTEs continue remitting any 2022 North Carolina quarterly estimates and not reduce estimates for a potential 2022 Taxed PTE Election. Although these estimates may result in an overpayment of NC income tax should the entity make the Taxed PTE Election, any overpayments can be refunded or applied to future estimated tax requirements.
Gillam Bell Moser will continue monitoring ongoing developments related to the North Carolina Taxed PTE Election for any recommended changes to your 2022 estimate tax payments.
Contact the professionals at Gilliam Bell Moser for additional information on North Carolina’s newly enacted Pass-Through Entity Tax.