California Pass-through entity (PTE) elective tax

[katonaleegp]

Thank you!

[Retina]

Do I leave the California estimated tax payments blank on the federal return if I made the ab150 pte election? I do see my federal taxable income reduced because of the credit on my K1. I have filed form 3804-CR. Thanks. 

[DaveF1006]

I am not sure how you reported this but this amount should have reduced your California Tax but not your federal. Here is how it should have been correctly reported. if you reported this in the estimated tax section in your federal return, this is incorrect. Here is how it should have been reported. You would not enter this as an estimated tax paid in your state return either.

If you entered a K1 in your federal return, there will be questions that will generate when you begin your California state Return. As you navigate through your state return:

1. You will reach an entry that is entitled Partnership Schedule K-1 Summary. Select edit next to the K1. There will be some preliminary questions to enter.
2. Then go to Partnership K-1 Adjustments. Continue past the first page, to go to the second page in the adjustments screen.
3. In the second page, scroll to the section where it says credits and there will be a entry to make that says 15f-Form 3804-CR Pass-Through Entity Elective Tax Credit.  This includes the AB 150 payment if you took the election.

[Freedom1095]

When I do this, I have a problem because I have an entry in my federal K-1 in box 13, code W which is state tax withheld - this then causes the program to double count this money since on the CA K-1 Adjustment page I enter the value as instructed in box 15f. This generates form 3804-CR, which correctly calculates the credit which zeros my tax, but later in form 540 the program is still taking the value I input in my federal K-1 for box 13, leaving me with a state refund the size of my entire payments to them in 2022! Clearly this is wrong.

Not sure if I should paper file the state or if I should wait for a fix?

[PatriciaV]

You may wish to consider requesting an extension of time to file. We are unable to confirm that this experience will be addressed by our technical support team before the filing deadline.

@Freedom1095 

[DJK11]

That worked!  I have a question about the PTE I paid for 2021.  At the time, the Federal Tax Code wasn’t updated with the new law past in CA.  How do I recoup the Federal Tax benefit from 2021?  Do I need to Amend last year’s tax return now, or is it taken into account somewhere for 2022? Thanks.

[DJK11]

See Dave(tax expert) below, but here is the summary;

If you entered a K1 in your federal return, there will be questions that will generate when you begin your California state Return. As you navigate through your state return:

1. You will reach an entry that is entitled Partnership Schedule K-1 Summary. Select edit next to the K1. There will be some preliminary questions to enter.
2. Then go to Partnership K-1 Adjustments. Continue past the first page, to go to the second page in the adjustments screen.
3. In the second page, scroll to the section where it says credits and there will be a entry to make that says 15f-Form 3804-CR Pass-Through Entity Elective Tax Credit.  This includes the AB 150 payment if you took the election.

[DJK11]

Hi Patricia,

That helped bring my CA tax amount inline, but was the Federal Tax benefit already included?  It didn’t seem to change.  Thanks.

[PatriciaV]

The PTE paid by the partnership was for State income tax on the partnership income - this deduction is based on State tax rules. The credit doesn't affect your federal tax liability at all. 

If you think about it, the partnership doesn't know your marginal tax rate at the federal level, so there isn't a way to prepay your federal income tax. On the other hand, State tax on partnership income is set by the State, so the amount can be estimated and paid by the partnership on your behalf. 

@DJK11 

[DJK11]

Hi Patricia,

I understand that it is paid from my State taxes.  Doesn’t the PTE payment create more savings under the SALT cap and the savings comes from reducing my Federal liability?  Maybe I am understanding incorrectly. Let me know.

Thanks,

Dave

[bobnogg2c]

I believe you are correct. Paying into state under SALT does reduce your federal liability.

[AliciaP1]

No, the PTE tax itself does not reduce your federal tax liability.  It allows partners/shareholders to have an additional reduction in their personal state tax liability while still maintaining the $10,000 SALT deduction limit against federal and state income.

@DJK11 

@bobnogg2c 

[Sam Hopi]

Hi Patricia V, I have an S-corp, and I would like to apply for PTE tax, for year 2024 tax return (not for tax return 2023) should I elect  it for along with 2023 tax return when it will be filed before March 15 2024.

And as I read its the instruction, the first payment will be June 15, 2024? am I right?

Thanks for your help

[chrisjli]

Thanks for the info. 

Related question, I understand PTE will be applied as a credit, but when I calculate the ES tax I need to pay (based on the 110% previous year tax rule), should I include the PTE as part of tax payment that I have already paid for the year?