February 13, 2020: .By Kent L. Schwarz, Esq. and Shefali M. Kotta, Esq.
On January 13, 2020, Governor Murphy passed the Pass-Through Business Alternative Income Tax Act (“NJ PBAIT”) into law. In doing so, New Jersey joins a growing number of states that have also enacted similar legislation regarding entity-level tax on pass-through entities in an effort to mitigate the adverse effects brought on by the $10,000 state and local tax (“SALT”) deduction cap for federal income tax purposes.
NJ PBAIT establishes an elective, entity-level tax to be paid by pass-through entities and provides offsetting tax credit to taxpayers who receive income from a pass-through business starting in 2020. Pass-through entities that qualify for the election are partnerships, S-corporations, and limited liability companies (that are taxed as partnerships or S-corporations), which have at least one owner that is subject to the New Jersey Income Tax at the time the election is filed. The election must be filed by the due date of the entity’s return (excluding extensions).