ELT (Entity Level Tax) Update

Last year around Thanksgiving, Massachusetts issued regulations for the new Entity Level Tax that allows Mass S-Corps and Partnerships to essentially pay the personal Massachusetts income taxes for their owners as a deductible business expense to the practice. The purpose of the Entity Level Tax is to get around the $10k SALT (State and Local Tax) cap enacted by the 2018 Trump tax changes.

More information is available in our article posted last December available at: https://schwartzaccountants.com/2021/12/ma-announces-new-entity-level-tax-to-help-ma-practice-owners-save-taxes/

The amount of taxes you will save is about 1.25% of your non-wage S-Corp income, or your partnership income including Guaranteed Payments.  Let’s look at an example of a practice owner with a K1 showing a profit of $200k over and above the owner’s W-2 salary. This practice owner would save approximately $2,500 in taxes overall by having the practice pay the owner’s Mass taxes due on the K1 income.

What to do if we already set up your practice to pay the ELT:

1. If you generally pay estimated taxes, please continue paying your federal estimated taxes for 2022.
2. No Mass estimates should be paid personally for 2022 unless you have significant investment or real estate income.
3. We should have set up for your practice to pay the ELT each quarter:
   1. Take a look at the ELT instruction letter included with your taxes for the dates and amounts.
   2. These payments will most likely be set up for direct debit from your practice bank account.

What to do if you are not yet set up for the ELT but would benefit from paying Mass taxes this way:

1. Reach out to your Client Manager to discuss getting set up for the ELT.
2. If you are not a payroll client of our firm, please log onto your Mass Tax Connect and give Schwartz and Schwartz PC access to your account.
   1. We can send you instructions.
3. Later this spring or during our next meeting this summer, we’ll set up your practice to pay the ELT and also set up the estimated ELT tax payments for 2022.
4. Stop paying your Mass estimated taxes personally for the remainder of 2022 unless you have significant investment or real estate income.

Massachusetts has provided information about the new Entity Level Tax at: https://www.mass.gov/info-details/elective-pass-through-entity-excise.