- Must the entity make an election to pay Pass Through Entity Tax each year?
Yes. The entity must make an election to pay the Pass Through Entity Tax each year. An election for one year does not carry over to the next.
- Who is authorized to make the election on behalf of the Pass Through Entity Tax?
The election must be made by an authorized person from the eligible electing entity. An authorized person is any individual with the authority from the electing entity to bind the electing entity or sign returns on its behalf.
- Can a shareholder or partner of an entity make an election to pay Pass Through Entity Tax even if the entity does not make an election?
- Can a shareholder or partner of an entity make an election to not pay Pass Through Entity Tax even if the entity makes an election?
- When is a pass-through entity required to make an election?
For tax year 2022, the election may be made after March 31, 2023, and before Aug. 31, 2024. If the 2022 return is filed by April 18, 2023, a pass-through entity can amend their return and make the election. If the 2022 return is filed after April 18, 2023, the election must be made on the original return.
For 2023 and tax years thereafter, the election may be made at any time during the taxable year or on the entity’s timely filed return, including extensions.
- How do I make an election to be subject to PTET?
For tax year 2022, you must complete Form IN-PTET.
For tax year 2023, Form IN-PTET is not required. However, if you do not file Form IN-PTET, you are able to make the election by marking the check box indicating PTET return on page 1 of the IT-20S and IT-65. Schedule PTET must include a computation code of 01-06. These are still requirements if you choose to file Form IN-PTET.
Note: You cannot make a PTET election after you have filed your original return. You are not able to amend your return to elect PTET.
- What is the tax rate?
The tax rate would be the same as the individual income tax rate for the tax year. The tax rate for a tax year is determined on the last day of the pass-through entity’s tax year. In other words, a pass-through entity whose year ends on Dec. 31, 2023, would use the 2023 tax rate, while an entity whose tax year ends on Jan. 31, 2024, would use the 2024 tax rate.
Tax Year Individual income tax rate 2022 3.23% 2023 3.15% 2024 3.05% 2025 3.00% - What entities may elect to pay the Pass Through Entity Tax?
Pass-through entities that qualify to make the Pass Through Entity Tax election include partnerships, S corporations, and LLCs taxed as an S corporation or partnership.
The election is not available to C corporations, trusts, sole proprietorships, or limited liability companies taxed as C corporations for federal income tax purposes. The election is not available to single-member LLCs that are disregarded for federal tax purposes and qualified subchapter S subsidiaries.
Note: For the purposes of the PTET election, the terms “partnership” and “S corporation” include LLCs taxed as a partnership or S corporation, and “partner” and “shareholder” refer to a member if the entity is an LLC.
- What owners qualify to receive the Pass Through Entity Tax Credit?
A qualifying owner must be either the direct or indirect owner of a qualifying entity or the beneficiary of an estate or trust. An owner shall not include banks and trust companies, national banking associations, savings banks, building and loan associations, savings and loan associations, and international banking facilities, unless classified as an S corporation or partnership.
Note: In the case of a beneficiary of an estate or trust or the owner of a qualifying entity (if the entity does not make a PTET election), the credit is limited to the credit passed through from an entity that makes an election. In other words, if a trust owns an interest in a partnership, the beneficiaries can only claim the credit of PTET paid by the partnership on the trust’s behalf and only to the extent the trust passes through the PTET.
- How does paying the Indiana state income tax affect an owner’s federal adjusted gross income?
Payment of an Indiana state income tax at the entity level is a deductible expense for the entity, which reduces the amount of federal adjusted gross income flowing through to the owners. Accordingly, the Schedule K-1 issued to the owners will reflect less income than would otherwise be reported. This results in a lower federal income tax for the owners.
- Can nonresident partners and shareholders residing in reverse credit states be included on the Schedule PTET?
- Can the PTET credit be utilized as withholding credit for purposes of the IT-2210?
Yes, PTET should be included as a credit on Line 3 of Schedule 5 of the IT-40 or Schedule F of IT-40PNR, which is then included as a withholding tax and PTET credit on Line 5 of IT-2210.
- Are composite tax payments still required for an entity that has made or will make a PTET election?
PTET supplants state composite tax requirements up to the amount of PTET owed. Thus, the PTET provisions regarding estimated and extension payments supersede the composite tax requirements for nonresident individual owners since the PTET and composite tax rates are the same for nonresident individuals. However, PTET does not supplant county tax that may be due on Schedule Composite.
PTET does not have to be elected prior to the due date for a composite tax payment in order for the PTET requirements to control as long as the PTET election is made prior to or concurrent with the filing of the pass-through entity’s return.
The composite tax rate for C corporations is generally higher than the PTET tax rate for such owners; therefore, the composite tax requirements still apply to that portion of composite tax that exceeds the PTET.
For instance, a pass-through entity would be required to pay composite tax equal to 4.9% of a nonresident corporate partner’s or shareholder’s distributive share of the pass-through entity’s Indiana-sourced income but will only owe PTET equal to 3.15% of the nonresident owner’s distributive share of the pass-through entity’s Indiana-sourced income.
The pass-through entity will be required to pay composite tax equal to at least 80% of 1.75% of the nonresident corporate owner’s distributive share of the pass-through entity’s Indiana-sourced income by the original due date of the entity’s return. Any remaining amounts of composite tax due must be paid at the time the return is actually filed.
- How do I request an extension to file Form IT-20S or IT-65?
There is no need to file an Indiana extension if a federal extension is filed. A copy of the federal extension must be included with the Indiana return when it is filed.
If a federal extension is not being filed, an Indiana extension request can be filed directly with DOR. The extension request should include the following:
- Taxpayer Name
- Taxpayer FEIN or TID
- Taxpayer Address
- Applicable Tax Year
- Statement that an extension to file the applicable return is being requested
Visit INTIME to file an extension or via mail:
Indiana Department of Revenue
Corporate Income Tax
Tax Administration
P.O. Box 7206
Indianapolis, IN 46207-7206 - If an entity has a fiscal year ending after December 31, 2022, can the entity pay PTET after the due date but before August 31, 2024, without penalty of interest? If not, can I request waiver of interest and penalties?
A fiscal-year filer electing to be subject to PTET is not eligible for automatic interest and penalty waiver for late payment of PTET. The allowance for automatic interest and penalty relief applies only to pass-through entities that elect PTET for a taxable year ending in 2022. Entities electing PTET for a fiscal year ending in 2023 are not eligible for automatic interest and penalty relief.
- How do you pay PTET?
For estimated payments, use Form IT-6WTH.
If you are paying with a voucher, be sure to use the correct taxable year. Verify the scan line and the tax year are the same.
If you are paying via INTIME, select the correct taxable year for Form IT-6WTH.
If you still owe PTET after year-end, you are able to pay with Form IT-6WTH or PFC.
- Can I elect PTET if I forgot to make an estimated payment?
Yes, as long as you do it on your original filed return. However, estimated tax penalties will apply.
- How do I report the penalty if my estimated payment was less than the required amount?
For 2023, do not self-report the estimated tax penalty. Instead, if a penalty is appropriate, DOR will assess the penalty and issue a proposed assessment. DOR will assess the estimated tax penalty only in exceptional circumstances. Many reasons currently known to DOR for not making an estimated payment, such as the entity having a minimal tax liability, the entity still determining its 2023 tax liability, or the entity still determining whether a PTET election should be made, will be considered reasonable cause for not imposing the estimated tax penalty or waiving any imposed penalty on the estimated tax.