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2021 What's New for S Corporations
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For taxpayers affected by federal tax law passed after December 31, 2018.
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Under current law, definitions used in determining Minnesota taxable income are based on the Internal Revenue Code, as amended through December 31, 2018, with certain exceptions. Since that date, Congress has enacted the following significant acts:
- Taxpayer Certainty and Disaster Tax Relief (TCDTR) Act of 2019
- Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019
- Families First Coronavirus Response Act (FFCRA) of 2020
- Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020
- Taxpayer Certainty and Disaster Tax Relief (TCDTR20) Act of 2020
- COVID-related Tax Relief Act (COVIDTRA) of 2020
- American Rescue Plan Act (ARPA) of 2021
These acts contain changes affecting S corporations for tax year 2021. A bill signed into law on July 1, 2021 conforms Minnesota law to certain provisions from these federal acts.
Because Minnesota has not adopted certain federal changes, adjustments are required to correctly determine your Minnesota taxable income. Use Schedule KSNC to calculate nonconformity adjustments relating to these acts.
The tax bill establishes a fully refundable pass-through entity (PTE) tax allowing electing pass-through businesses to pay state income tax at the entity level rather than at the owner level. By making the PTE election, owners can reduce the impacts of the $10,000 deduction limit for state and local taxes (SALT) endorsed federally under Notice 2020-75.
Pass-through entities may only make this election:
- In taxable years where the SALT cap is in place
- When owners collectively holding more than 50% ownership in the entity make the election
Once made, elections are irrevocable. The PTE tax is calculated in the same manner as required for composite tax and provides similar withholding, penalty, credit, and nonresident allocation requirements.
This law change is effective for taxable years beginning after December 30, 2020.
For details and questions, go to Pass-Through Entity Tax.
The tax bill clarified that for taxable years beginning after December 31, 2019, no Section 179 addition is required for any taxpayer. The full Section 179 conformity includes specific language clarifying that no addition is needed for:
- Carryover amounts for property placed in service in taxable years beginning before January 1, 2020
- Property placed in service before January 1, 2020, by a partnership or S corporation filling on a fiscal year with a partner or shareholder filing on a calendar year
This clarification is effective retroactively for taxable years beginning after December 31, 2019.
