Pass-through entity (PTE) elective tax

For taxable years beginning on or after January 1, 2021, and before January 1, 2026, qualifying pass-through entities (PTEs) may annually elect to pay an entity level state tax on income. Qualified taxpayers receive a credit for their share of the entity level tax, reducing their California personal income tax.

Do you qualify?

A qualifying PTE is an entity taxed as a partnership or S corporation.

Who does not qualify?

A qualified PTE does not include:

  • Publicly traded partnerships
  • An entity permitted or required to be in a combined reporting group
  • An entity that has a partnership as a partner, member, or shareholder

Who is a qualified taxpayer?

A qualified taxpayer:

  • Can be individuals, fiduciaries, estates, or trusts subject to California personal income tax
  • Must be a partner, member, or shareholder of an electing qualified entity

To be qualified, a taxpayer must consent to have their pro rata or distributive share of the qualified net income of the electing qualified PTE.

A qualified taxpayer is not a:

  • Disregarded business entity and its partners and members
  • Corporation
  • Partnership

PTE election

An annual election is made on an original, timely filed tax return. Once the election is made, it is irrevocable for that year and is binding on all partners, shareholders, and members of the PTE.

How to make the election

2021 taxable year

The election must be made on a timely-filed tax return.

2022 to 2025 taxable years

Beginning on or after January 1, 2022, and before January 1, 2026, the election must be made when the tax return for the taxable year is filed and the PTE must make an initial payment by June 15.

For taxable years beginning on or after January 1, 2022, and before January 1, 2026, the PTE may not make an election if the initial payment is not made by June 15.

When to pay the elective tax

The payment date must be within the following time frames:

2021 taxable year

Pay the elective tax on or before the due date of the original tax return.

2022 to 2025 taxable years

Use the following table:

Payment dates
Due Payment
On or before June 15th of the taxable year of the election Payment 1
Pay $1,000 or 50% of the elective tax paid in the prior taxable year, whichever is greater.
On or before the due date of the original return without regard to extensions Payment 2
Pay the remaining amount.

PTE elective tax calculation

The elective tax is 9.3% of the entity's qualified net income, which is the sum of the pro rata or distributive share of each qualified taxpayers' income subject to California personal income tax.

Tax credit

Qualified taxpayers are eligible to claim a nonrefundable credit for the amount of tax paid on the qualified taxpayers’ pro rata or distributive share of the qualified entity’s qualified net income. Unused credits can be carried over for up to 5 years.

How to claim your tax credit

Qualified taxpayers can claim the credit on their personal income tax return.

What form to file

We are developing the following tax forms for qualified entities to make the PTE elective tax payments and for qualified taxpayers to claim the tax credit:

  • Pass-Through Entity Elective Tax Payment Voucher (FTB 3893) – Available November 1, 2021
  • Pass-Through Entity Elective Tax Calculation (FTB 3804) – Available January 2022
  • Pass-Through Entity Elective Tax Credit (FTB 3804-CR) – Available January 2022