For New Jersey tax purposes, income and losses of a pass-through entity are passed through to its members. However, pass-through entities may elect to pay a Pass-Through Business Alternative Income Tax due on the sum of each of the member's share of distributive proceeds. The members may then claim a refundable tax credit for the amount of tax paid by the pass-through entity on their share of distributive proceeds.
An entity must first register with the New Jersey Division of Revenue and Enterprise Services to take advantage of the BAIT. To participate the entity must file an election form annually. All forms and payments must be filed electronically. See our FAQ page for further details.
We have made several important updates to the 2021 New Jersey Pass-Through Business Alternative Income Tax Return (Form PTE-100) and instructions.
2021 reference forms and instructions are available under the "File and Pay" button.
Distributive Proceeds. To make the 2021 PTE-100 easier to complete, we modified our interpretation of "distributive proceeds" to mirror the reporting of partnership income and S corporation income for New Jersey Gross Income Tax purposes. The pass-through entity will complete its Members Directory using each member's NJK-1 New Jersey sourced income amounts. In addition, for Tax Year 2021, an S corporation has the option to use a three-factor allocation formula on NJ-NR-A for purposes of the BAIT.
This change does not affect TY 2020. Taxpayers still need to follow the 2020 return and instructions, including when filing an amended 2020 PTE-100.
Credit Forward. The 2021 PTE-100 provides for a credit forward option to the 2022 PTE-100. Pass-through entities must file a 2022 Pass-Through Business Alternative Income Tax election before claiming a credit to 2022.
Consolidated Return. The 2021 PTE-100 form and instructions provide additional directions for entities choosing to file an optional consolidated return.
Estimated Payments/ Installment Interest. Schedule PTE-160, Underpayment of Estimated Pass-Through Business Alternative Income Tax, must be included if the entity calculated an interest charge on an underpayment of installment payments or an exception to the imposition of interest.
An entity that does not have a prior year tax liability will not be penalized under the safe harbor provisions in N.J.S.A. 54A:9-6 for the failure to file or make estimated payments.
P.L.2021, c. 419 revises the New Jersey elective pass-through entity business alternative income tax, which was enacted in January 2020. Changes are effective for tax years beginning on and after January 1, 2022.
Tax Rate Change. Income in excess of $1 million is taxed at 10.9%. (Previously, income in excess of $1 million but not over $5 million was taxed at 9.12%, and only income over $5 million was taxed at 10.9 %.)
Distributive Proceeds. BAIT is calculated for partnerships so that all income, not just New Jersey-sourced income, is subject to the tax if the owner is a New Jersey resident individual, estate or trust. BAIT for S corporations will continue to be based solely on New Jersey-sourced income.
Sourcing for Distributive Proceeds. For 2022 BAIT purposes, PTEs taxed as partnerships will compute distributive proceeds based on the information reported on their entity's Form NJ-1065. PTEs taxed as S corporations will compute distributive proceeds based on the three factor allocation formula Schedule NJ-NR-A which is based on cost of performance. An S corporation must complete and attach Form NJ-NR-A to its Form PTE-100.
Net pro rata share of S corporation income should continue to be reported in the same manner as it always has (Schedule J, Single Sales Factor - Market-Based Sourcing) for purposes of reporting on the NJ Gross Income Tax Returns.
Tax Remitted on Behalf of Nonresident Partners. Electing pass through entities are not required to remit a payment of tax for any nonresident partner that reasonably expects to be getting a refund due to its BAIT credit.
Tax Credit. The BAIT credit structure and permitted uses have been updated and expanded. Each member shall be allowed a credit in the amount equal to the member's direct share of the tax paid.
The credit allowed to each member shall be applied as follows:
Additional guidance for Tax Year 2022 will be posted to the our website as it becomes available.