New West Virginia Pass-Through Entity Tax Effective Tax Years January 1, 2022

The Federal Tax Cuts and Jobs Act enacted at the end of 2017 contained a limit to state income/property tax deductions for individuals of $10,000 per year on their federal returns. Many business owners pay state income tax on business income far in excess of $10,000, so this cap has put them at a disadvantage.

West Virginia Senate Bill 151 will allow pass-through entities, (PTE) defined as S-Corporations, Partnerships, and LLCs, to elect to pay a flat West Virginia entity-level income tax similar to corporations called a Pass-Through Entity Tax (PTET). The tax rate will be the top rate for individuals, currently 6.5%, and will be a deduction from the federal taxable income that passes to the business owner, reducing the federal tax owed.

This bill passed the Senate and now the House, and should be signed by Governor Justice. The good news is it will be effective for tax years beginning January 1, 2022. The bad news is, those business returns are due March 15, which is next week, and details for making the election and paying this tax are not available.

We highly recommend, if you have not filed your 2022 business return and it has West Virginia apportioned income, it be extended to assess the impact of this bill on your unique situation. If it is signed into law as expected, we advise extending your 2022 individual returns as well, since these important details will not be available by April 18.

As always, please reach out to your Brown Edwards contact with questions.