How to enter or to reflect IT-2568 Estimated tax payment maed by NY Partnership on behalf of a NY nonresident partner ?

[SunnySpring]

I have one NY resident individual who is also a member of NY Partnership (LLC).  Under NY tax law, a NY Partnership LLC or S Corp is required to make estimated tax payment on behalf of NY non-resident partners or shareholders, by using IT-2568 (vouchers).

Therefore, during 2020, the partnership (LLC) made 4 times of IT-2568 estimated tax payments "on behalf of" NY Non-resident partners.

In his individual tax return (IT-203 - Nonresident return), can he claim the estimated tax payments made by his partnership as "paid"?  Or can't he claim the payment of estimated taxes made by his Partnership at all?

ProConnect doesn't have any section or line for this purpose.  I am asking NYS directly, but so far, I haven't heard from them.  
Does anyone someone know about IT-2568 and whether the paid amount on IT-2568 can be used for nonresident return as "estimated tax paid"?

[TylorValdez1]

Yes they can. You would enter the withholding in the 1099-Misc section under state information.

[SunnySpring]

Thank you for responding to my question.

But, I am not sure why I should go into "1099-MISC section" when the client did not receive 1099 form from Partnership.  He is a partner, and he receives only K-1.

Would you elaborate to explain "how" he can claim that he has paid estimated taxes, which were paid by his partnership?

I am sorry, but this is the first time I encounter with this situation.

[TylorValdez1]

E-filed returns for the state of NY requires that state withholding on Passthrough K-1 be entered as 1099-Misc. You will have an issue with the state return if you use the field on the k-1 for credit for state estimates/withholding when you go to e-file.

[SunnySpring]

More question, although i can see what you are saying.

When you mentioned 1099-misc section, did you mean that "SS benefits, Alimony, misc. income" section, or "1099-NEC" section under the above?

I see "State estimate/withholding" information in both tabs, but I want to know which you meant.

Also, you are saying "withholding" about IT-2568, but I guess that you know that IT-2568 estimated tax was paid by the partnership, not withheld by the partnership.  The partnership did not withhold any amount for IT2568 from any payment to partners.  Partners did not receive any compensation from the partnership. So I am not sure why you keep saying "withholding" 

I am sorry, I know less than you do, and I appreciate that if you elaborate more details of how to do this.

Thank you.

[SunnySpring]

I went to "1099-misc/nec" section and entered the amount of IT-2568 in the box "state withholding" box.

Then the Critical Diagnostics increased, asking to enter "income" and EIN of the payer.

Since IT-2568 estimated tax was paid by the partnership regardless each partner's income or compensation, there is no way for this withholding to be a tax against the partner compensation,which was none.  The partnership did not pay any compensation to partners.

Did I do wrong, when I went to "1099-misc" section, from "SS benefits, Alimony, misc income" section?

Would you please explain more in detail about where to go to enter the amount of IT-2568 tax paid by the partnership?  

[TylorValdez1]

You are in the right section. Fill out the payer information section and use the partnership name address and EIN.

[SunnySpring]

Thank you for your being helpful, which is really appreciated.

But, after entering Partnership's name and address, and EIN, there is still one critical diagnostic, which says:

Form 1099 MISC # 1: New York Business Rule R0509 states that the New York State withholding must be less than the total of lines 1-3, 5-8, 10, 13-15 (a & b). Please review and modify the input or the return will be rejected by the state.

I thought I am doing what you told me to do, yet, this diagnostic bothers me.

Would you tell me what's wrong with my entries or what else I should do?

[TylorValdez1 · Accepted solution]

Enter the ordinary income from the K-1 in box 3. The income amount will not flow to the return, yet will satisfy the diagnostic. 

[SunnySpring]

But that is the problem.

For the year 2020, the Partnership's 2019 income was the basis, so that the partnership was required to make this IT-2568 estimated tax payment.

Now, the partnership did not have a positive income (a red number) in 2020, and the K-1 of Form 1065 shows a negative ordinary income (minus number).  As a result, for the year 2021, the partnership generated IT-2568E (Exempt certification) for the partners (= no estimated tax payment).

So what should I do?  This tax return  for the partner is for 2020, and the partnership didn't have a positive number as ordinary income, and  IT-2568 was created because of the positive, big, income amount of its 2019 return.

I am sorry for these questions, and I really appreciate your patience in dealing with me.  But I really need more helps from you on this issue.  After I directly asekd NYS Taxation Department, they even did not respond to me.  

[TylorValdez1]

Just enter the estimated payment number in as ordinary. Again that amount will not hit the tax return. It is just one of those weird things we have to do for a NY return.

[SunnySpring]

Please help.

As I said, the New York partnership has two Nonresident partners, and the partnership has paid IT-2568 estimated taxes "On behalf of those nonresident partners" through 2020, based on its 2019 income.

And as I was told, I entered the total amount of IT-2568 in the "withholding" box under "1099-misc" section of the "SS benefits, alimony, and misc income" tab.  
But the problem is that ProConnect warns that I should enter "income amount" that should exceed the amount of estimated taxes, which does not exist, simply because the Partnership did not have any income in the year 2020.  IT-2568 tax was calculated based on its 2019 income, and the partnership didn't have a net profit in 2020.  

In this situation, what should I do?  There is nothing definitely as a positive (net profit) amount to enter there, because its bottom line was a negative amount.  Could I use the net income amount from the year 2019, which was the basis of calculation of IT-2568?

Please help.  I really need an accurate help, as I can't fail the e-filing of this individual client's return.

[SunnySpring]

Hi Thank you.

I have missed your response.

I will use the 2019 income since it was the basis amount when calculating the estimated taxes.

Thank you so much.

[TylorValdez1]

You are welcome.

[SunnySpring]

I tried, but the Critical diagnostic remains, which insists that I should enter either one of "income" boxes (such as Rent, Roalty, Other income), not the e-file section, where I entered EIN and the total sum of IT-2568.

There is no "ordinary income" box above the E-file information section, that's why I entered the 2019 income amount as the basis of estimation in this E-file information section.

Where should I enter the income amount, if it is not in this e-file information section?

I am sorry that I am asking for too much.

[SunnySpring]

OK, Great！

It worked！

For the rest, I just hope that NYS accepts this return.

Thank you very much!  I know I can't express appreciation enough.

Thank you.

[SunnySpring]

After I did what you suggested and I found that it worked, NYS called me, regarding this inquiry.

They (NYS Tax Dept) said that "any estimated tax paid" should go to Line 65, not Line 62 (withheld).

It means that what we have discussed so far is not the right way to enter the estimated tax amount.

NYS told me to ask Intuit/Proconnect to do something to force "the entry to Line 65" not to Line 62.

I am again in a trouble.

[TylorValdez1]

You are not in trouble. Moving forward if the credit amount from a k-1 is for withholding use the process we outline in our previous discussion. If the credit amount is for estimated payments from a k-1, then enter those amounts in the 2020 estimated payment screen under the state column and NY.

[SunnySpring]

Got it.

As the NYS told me, I checked with the Instruction of Form IT-203, and it says that the line 65 (for estimated tax payment) is the right place.

In this case, I haven't been able to discover this part, which says that "any amount of estimated income tax paid on your behalf by a partnership, S Corporation or LLC of which you are a partner or shareholder" should be entered in Line 65.

I am sorry that I have been bothering you with so many questions, just to figure out this solution.  Nonetheless you have been helpful all the time, which I sincerely appreciate.

Thank you very much.