How do I enter information for the New Jersey Pass-Through Business Alternative Income Tax?
New Jersey law allows eligible business entities to make an election to pay tax at the entity level which then allows members of the pass-through entity to take a tax credit on their individual returns. Per the NJ Division of Taxation:
"...for taxable years beginning on or after January 1, 2020, 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 member(s) may then claim a tax credit for the amount of tax paid by the pass-through entity on their share of distributive proceeds."
Eligible entities include Partnerships, S-corporations, and Limited liability companies (LLC). Single member LLCs and sole proprietorships are not eligible to make the election.
The election and payments are made online through the NJ DOT. Once the election has been made, and the tax has been paid, in Drake Tax, you can record the amounts on the business and individual returns by following the steps below.
If you attempt to file a NJ PTE through Drake Tax without having first made the election online through the NJ DOT, the return will be rejected: "Error Message: No Election Form filed for Return/YR/Period. Rule Number 09106."
The election can be made annually. It must be made electronically on or before the original due date of the return. It can be revoked on or before the original due date of the return. See the NJ FAQs for more details.
1065
Complete the NJ PTE screen. Enter the add-back to partnership income by going to the 1065 screen and entering the amount on line 13a.
1120-S
Complete the NJ PTE screen. Enter the add-back to S corporation income by going to the screen and entering the amount on the K screen > line 4b.
On the K1 screen for each shareholder enter the applicable amount on the line E/F/G Share of Pass Through Business Alternative Income Tax.
1040
Complete the NJ K1P or K1S screen as applicable. Then, enter the reported amount on the NJ > K1P or K1S screen > Share of Pass Thru Business Alternative Income Tax line.
The amount flows through as the Pass-Through Business Alternative Income Tax Credit to NJ 1040 or NJ 1040NR.
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