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Make a pass through company12/31/2023 For the state PTE, pass-through entity taxpayers, such as partnerships and S corporations, can elect to pay state income taxes at the entity-level return rather than on the personal income tax returns of the individual partners and owners.Īs of September 1, 2021, 19 states have passed a PTE: The state PTE works because the SALT Cap is applicable for only individual income tax purposes. The IRS disallowed many of the state workarounds that have been proposed but approved the pass-through entity-level tax election (PTE) with the release of Notice 2020-75. Since the TCJA’s passing, states have been looking for workarounds to provide income tax relief for individuals. unincorporated business taxes, Philadelphia Business Income & Receipts Tax, Washington Business & Occupation Excise Tax, and any state tax based on apportioned net worth.A major component of the 2017 Tax Cuts and Jobs Act (TCJA) was the $10,000 limit on the state tax deduction (SALT Cap) for individual income tax return purposes. Ineligible taxes not availed the credit falling under these examples would include the Texas Franchise Tax, Tennessee Franchise & Excise Tax, NYC and D.C. Examples of such state PTE taxes that are ineligible for the credit include a franchise tax, license tax, excise tax, unincorporated business tax, occupation tax or other similar taxes. The credit for taxes paid to other states does not extend to taxes that are solely intended to be a tax at the PTE level and not intended as an income tax paid on behalf of its individual owners. Prior guidance from the Virginia Department of Taxation had only allowed such credit for taxes paid by S corporations, but not partnerships. This credit could be generated from payments by either S corporations or partnerships. 1, 2026, a credit is available for any income tax paid to another state that is substantially similar to the newly enacted Virginia PTET (i.e., Maryland, New York, Connecticut PTETs). Individuals who are owners of qualifying PTEs that make the PTET election are eligible to receive a refundable credit for their pro-rata share of PTET tax paid on their behalf at the entity level.Īdditionally, for taxable years beginning on or after Jan. 1, 2026, the PTET election must be made by a qualifying pass-through entity on its timely filed return, including any extensions. 15, 2023.įor tax years beginning on or after Jan. ![]() The Virginia Department of Taxation’s recently issued Tax Bulletin 22-6 declares that they will issue guidance on how eligible PTEs will be able to make a retroactive PTET election for their 2021 tax year by Oct. The due date for the election for tax years beginning on or after Jan. This elective PTET is created in response to the $10,000 federal limitation on state and local taxes allowed to be deducted on federal individual income tax returns. Qualifying PTEs include any PTEs owned 100% by individuals, or S corporations owned 100% by individuals, or other persons eligible to own an S corporation. 1, 2026, qualifying PTEs may elect to pay tax at the entity level for each tax year at a rate of 5.75%. The enacted House Bill created Virginia Code Section 58.1-390.3, which allows for a new PTET election for pass-through entities (PTEs) doing business in Virginia to choose to pay state income tax due at the entity level on behalf of its individual owners. Glenn Youngkin on April 11, also modifies existing legislation to expand the credit available to Virginia resident individuals for taxes paid to other states. Virginia recently joined the list of states that have established a new pass-through entity tax (PTET) for business entities doing business in the state.
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