Non-residents could be seriously disadvantaged if their home states disallow the credit for BAIT payments. The major concern-unknown as of this writing-is whether other states will allow their residents to claim a resident credit for NJ tax paid via the BAIT. If there are non-resident owners in states with their own personal income tax, the situation becomes more problematic. In a perfect scenario, a profitable firm with only residents of New Jersey or states with no income tax (e.g., Florida, Texas) the BAIT is clearly beneficial and there are few, if any, drawbacks to making the election.
An entity may also revoke its election during the same period, but cannot elect or revoke the BAIT election retroactively. Although the election is made at the entity level, it requires the consent of each member of the electing entity that is a member at the time the election is filed-or by any officer, manager or member of the electing entity who is authorized under the law or the entity’s organizational documents to make the election. An authorized member of a PTE must make the annual electronic election, due March 15 or before the 15 th day of the third month following the close of the PTE’s fiscal year. New Jersey assesses the BAIT at graduated rates from 5.675% to 10.9%. Firms organized as single-member LLCs or sole proprietors are ineligible for participation in this program.
#Nj tax refund status professional
Professional service firms taxed as S corporations (with a New Jersey S corporation election), partnerships and multi-member LLCs may elect into this entity-level tax as long as at least one member is liable for Gross Income Tax on its share of taxable PTE income. On their New Jersey returns, owners subject to NJ Gross Income Tax will be eligible to claim a refundable credit for their proportionate share of the BAIT liability for that year. As a result, partners and shareholders will report reduced federal income from the PTE, net of the BAIT. The BAIT enables owners of PTEs to reduce their federal taxable income by remitting this entity-level tax on its New Jersey-sourced income, thereby bypassing the SALT limit for individual owners who itemize deductions. Enticed by the potential for significant federal tax savings, professional service firms organized as PTEs want to know how they can benefit from the new law. This legislation generated only passing interest from the taxpaying community until the Internal Revenue Service’s (“IRS’s”) November release of Notice 2020-75 in which it expressed a favorable view toward state-sponsored pass-through entity (“PTE”) state and local tax (“SALT”) workarounds. In January 2020, New Jersey enacted the Pass-Through Business Alternative Income Tax (“BAIT”).
#Nj tax refund status license
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