The California passthrough entity elective tax (PTET) is intended to give relief to taxpayers affected by the limitation on deductibility of state and local taxes (SALT) introduced a few years ago.
The idea is that your S corporation, partnership or LLC (but not a single member LLC) can elect to pay a 9.3% tax on its California income. The tax is refunded as a credit on your California personal return, but it is deductible on the business’s federal tax return… resulting in reduced tax for you.
Many other states have similar programs.
The payment is exactly 9.3% of California income. Not more, and not less. The credit is only a benefit if you have enough California tax to deduct it from.
You make the election when you file the business’s tax return, but you have to make a minimum payment by June 15. The minimum payment is 50% of the amount you claimed for the previous year, or if you didn’t claim the PTET for last year, the minimum payment is $1,000. The balance is payable by the due date of the business’s tax return – typically next March 15.
If you decide not to make the election, the payment will be refunded.
The PTET should be included in year-end tax planning. That’s when an income projection will help to decide whether to make an additional deductible payment before December 31, or whether the election is likely to be beneficial at all.
Note – for 2023 only, all PTET payment deadlines have been extended to October 16 for most California counties.
Bruce Critchley Tax 