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Estimate Tax for Nonresident Individual Partners and Shareholders and Corporate Partners

Beginning September 15, 2003, partnerships, LLC's and S corporations are required to make estimated tax payments to NYS on behalf of nonresident individual partners and shareholders. The estimated payments are reported to NYS on Form IT-2658. The form is available on the NYS website. The September 15 payment should include the amounts due from April 15 and June 15. The fourth quarter estimated payment is due by January 15, 2004. Going forward, the quarterly estimated tax payments will be due on the 15th of April, June, September and January.

The estimated payment can be calculated using one of two methods. The first method is using the partner's or shareholder's actual distributive share of income from New York sources from their 2002 Form K-1 multiplied by a rate of 7.7%. The second method is an estimate of 2003's distributive share. The 2003 method must be used if 2003 is the initial K-1 for the individual. The computed amount is then reduced by the partner's or shareholder's distributive share or pro-rata share of any allowable credits passed through from the partnership or S corporation. If the individual has New York source income on one K-1 and offsetting NYS losses from other entities, the estimated payments are still required on the income producing K-1. If the 2002 Form K-1 reported income that would generate less than a $300 tax liability or reported a loss, no estimated payments are required for 2003.

Partnerships must also make estimated tax payments on behalf of partners that are C corporations by using Form CT-2658. As above, estimates can be based on 2002 actual amounts or 2003 estimated amounts. The tax rate for C corporations is 7.5% rather than the 7.7% for individuals. The payment due dates for C corporation partners are the same as those for nonresident individuals with one exception. If the January 15 payment is made by December 15 of the previous year, the corporate partner can take the partnership payment into account when they compute the corporation's December 15 installment.

For both nonresident individual partners and C corporation partners, the entity required to make estimated payments on their behalf can be subject to underpayment penalties. The required entity must either pay 90% of the current year estimated tax due or 100% of the prior year tax due (110% if New York source income allocated to nonresident individual partners or C corporation partners exceeds $150,000). Failure to make the estimated payments will result in a $50 per partner or shareholder penalty per failure.

Every entity required to make estimated tax payments on behalf of its partners, members or shareholders must issue a statement to them showing the amount of estimated taxes paid on their behalf. The statement must be issued within 30 days after the estimated tax is paid. There is no form for this notification process. The partnership or S corporation may choose the method of notifying the partners or shareholders of the payment.

Estimated tax payment are only required for partners, members or shareholders who are nonresident individuals or C corporations. Estimated tax payments are not required for partners, members or shareholders who are resident individuals, partnerships, S corporations, estates or trusts.