Pass-Through Entity Withholding
If you incorrectly submitted Form 592 during the year and discovered you were supposed to submit Form 592-PTE, continue to use Form 592 for the remainder of the year. Begin submitting Form 592-PTE the following year.
Pass-Through Entity Annual Withholding Return
For taxable years beginning on or after January 1, 2020, a pass-through entity that has paid withholding on behalf of a nonresident owner or has been withheld upon must use Form 592-PTE, Pass-Through Entity Annual Withholding Return, to report the total withholding.
A Pass-Through Entity (PTE) is generally an entity that passes its income or losses through to its owners instead of paying the related tax at the entity level. A PTE can be any of the following:
- S corporations
- Limited Liability Companies (not electing to be treated as a Corp)
If you are pass-through entity, you may need to withhold tax if you make nonwage distributions to your nonresident owners. If you are a pass-through entity that has been withheld upon you need to allocate that withholding to your owners, whether a California resident or nonresident. Pass-through entities who withhold tax on behalf of nonresident owners or have been withheld upon are called withholding agents and are required to file Form 592-PTE on an annual basis to allocate withholding.
PTE owners who have been withheld upon are called payees. Examples of pass-through entity payees:
PTE payees can be individuals, businesses, or PTEs.
A lower tier pass-through entity is a pass through entity with California source income that has a pass-through entity owner. If it withheld tax on behalf of its nonresident owners, it is required to file Form 592-PTE to allocate withholding to each nonresident owner, in accordance with each nonresident owner’s interest in the entity.
An upper tier pass-through entity is a pass-through entity’s owner that is itself a pass-through entity. If tax has been withheld on behalf of the upper tier pass-through entity by a lower tier pass-through entity, the upper tier pass-through entity is required to file Form 592-PTE to allocate withholding paid on its behalf to each owner, whether a California resident or nonresident, in accordance with each owner’s interest in the upper tier pass-through entity.
When you do not have to withhold on your payee
You may not have to withhold if:
- The gross payments or distributions of California source income to the nonresident owner is equal to or are less than $1,500 for the calendar year.
- The distribution is exempt income or is not a taxable distribution.
- The nonresident owner has certified that the income was previously reported on the nonresident owner’s California tax return.
- The payee has an approved withholding waiver on Form 588 from Franchise Tax Board.
Otherwise, you must withhold 7% of the gross payment or distribution amount that’s more than $1,500 in a calendar year. Visit Publication 1017, Resident and Nonresident Withholding Guidelines for full list of exceptions.
How to avoid penalties
- You must pay the withholding by the due date to avoid penalties and interest.
- If you do not withhold, you may have to pay the amount you’re required to withhold, including penalties and interest.
- You must file Form 592-PTE by the due date and you must also provide a Form 592-B to each payee by the due date.
Withholding requirements for lower-tier pass-through entities
Every nonwage payment you make to nonresident owners you must:
- Calculate and withhold 7% of the gross payment or distribution amount that is more than $1,500 in a calendar year.
- Make payments for specific pay periods by each due date of the applicable tax year:
|Payment period||Due date|
January 1 through March 31
April 1 through May 31
June 1 through August 31
September 1 through December 31
January 15 (of the next year)
- Per pay period if applicable:
- Submit payment voucher for Pass-Through Entity Withholding (Form 592-Q)
- If you paid withholding on behalf of a nonresident owner or you are an upper tier pass-through entity that has been withheld upon:
- Annually, submit Pass-Through Entity Withholding Return (Form 592-PTE)
- Submit the applicable form to the payee(s):
- Nonresident Withholding Tax Statement (Form 592-B)
Upper-tier pass-through entities file Form 592-PTE to allocate withholding paid on its behalf to each owner, whether a California resident or nonresident, in accordance with each owner’s interest in the upper tier pass through entity.
Form 592-PTE must be filed on an annual basis no later than January 31st of the year following the year for which withholding was required to be remitted to the FTB. Submit Form 592-Q, if additional withholding is required, with the annual Form 592-PTE and the pass-through entity withholding payments.
Do not use Form 592-PTE if:
- You are reporting withholding on domestic nonresident individuals who are not owners of your pass-through entity (independent contractors). Use Form 592.
- You are reporting withholding on foreign partners or members. Use Form 592-F.
- No payment, distribution, or withholding occurred
If an error is overed after Form 592 or Form 592-PTE is filed, including filing an incorrect taxable year form, then an amended Form 592 or Form 592-PTE must be filed to correct any errors. Only withholding agents may file an amended form.