Governor Gavin Newsom signed Assembly Bill 150 this past July. The new bill establishes an elective pass-through entity (PTE) tax framework that will allow California taxpayers to obtain relief from the current $10,000 limit on individual state and local tax deductions.

  • Qualifying pass-through entities include partnerships (publicly traded partnerships aren’t included) or S Corporations.
  • Qualifying entities must exclusively have partners/shareholders/members that are corporations, individuals, fiduciaries, estates, or trusts.
  • For tax years beginning on or after January 1, 2021 and before January 1, 2022
    • PTE tax is due on or before the filing date of the original return. (March 15, 2022 for 12/31/2021 year-end entities)
  • For tax years beginning on or after January 1, 2022 and before January 1, 2026
    • The greater of 50% of the elective tax paid in the prior year or $1,000 is due by June 15th of the tax year.
    • The remaining PTE tax is due on or before the filing due date of the original return.
  • The election must be made every year but once made, it is irrevocable.
  • The tax is 9.3% of qualified net income.
  • The PTE tax is in addition to other entity level taxes already being paid (i.e., 1.5% income tax for S Corporation, LLC tax, LLC fees).
  • Any excess amount paid will be carried forward as a credit to the following tax year and succeeding four years.
  • The PTE tax is effective only until December 1, 2026, unless it is repealed earlier or the $10,000 limit on state and local tax deductions is repealed by Congress.

We are still waiting on more guidance from the California FTB for more specific, but we will keep you updated as we learn more. If you have questions, please reach out to your Linkenheimer CPA.