NYS PTE Credit Showing as State Tax Payment on Carryover Worksheet

[IdaPlanner]

Client is a partner in a partnership that has elected into the NYS PTE.  The partnership pays NY tax at the entity level.  That has two impacts on the partner:  1) His K-1 Federal income is reduced by the amount of state tax paid at the partnership level.  2) He receives a PTE credit toward his NY state taxes for the amount of state tax paid at the partnership level.  All good.

In Proseries 2023, the Carryover worksheet is treating the credit on his 2022 NYS return as if it was a payment made with the return filing.  This adds to state taxes paid in 2023 on his Schedule A which doesn't seem right (he didn't pay the tax, the entity did and his K-1 income has already been reduced by it).  It doesn't matter to the 2023 result due to the SALT cap, but it really messes up the State & Local Income Tax Refund Worksheet that's used to determine if any 2022 state refunds are taxable.  

Has anyone else noticed this?  The PTE credits are so complicated that getting someone to even understand what I'm talking about is an issue.  I think this is flying under the radar b/c the IRS hasn't adjusted the State & Local Income Tax Refund Worksheet in the 1040 instructions to handle refunds caused by PTE credits and Proseries is mishandling the PTE credit as a payment by the individual at the state level.

[MICHAELMARS]

NY is the worst for PTET.  I just checked some of my returns and I don't see what you are seeing.  The ptet has nothing to do with federal return except lowering federal income.  It the credit creates a state overpayment, then that is treated like any other overpayment.

[IdaPlanner]

It should just lower Federal income, but it also treats the NY credit as an individual payment of state tax that is paid with the return and adds it to Sch A for the following year!  Check for yourself.  Go to a 2022 individual NY return (IT-203 is where I've seen it, NY non-resident, though I'd guess it applies to IT-201 as well) that has a PTET credit.  Open the 2023 Federal return and look at the carryover worksheet and the Schedule A line 5.  It carries the credit as an individual payment of tax, thereby not only deducting it on the partnership return (and reducing K-1 income) but also deducting it on the partner's Sch A.