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California PTE tax on a partnership in Lacerte

by Intuit Updated 2 months ago

California A.B. 150, also known as the Pass-Through Entity Elective tax or PTET, allows state tax on passthrough income to be paid at the entity level at a flat rate of 9.3%. The law is effective for tax years beginning on or after January 1, 2021, and before January 1, 2026.

Table of contents:

Follow these steps to make the election:

For all qualifying partners:

  1. Go to Screen 37.011, California Miscellaneous.
  2. Check the box labeled Every qualified partner wants to elect to file PTE tax calculation (3804).

Note: If this is a large partnership and most qualifying members want to elect in, you can check this box then elect out at the partner level for those who don’t want to participate.

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To elect in or out for certain partners:

  1. Go to Screen 32.1, Partner Miscellaneous Info.
  2. Scroll down to the California Miscellaneous section.
  3. Enter a 1 or 2 in Qualified taxpayer is electing to have tax paid by partnership.

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When you make the election:

The program will generate form 3804, Pass-Through Entity Elective Tax Calculation. Part II of the form lists each qualifying partner who elected in, along with their pro-rata share of income, and calculated PTE tax. 

  • The program uses your entries on Screen 7, Partner Information to exclude partners who don’t qualify.
  • You can override a partner’s pro-rata share of income on Screen 32.1, Partner Miscellaneous Info.
  • The total from form 3804 flows to form 565, line 25, or form 568, line 4.
  • The amount of credit calculated for each partner will flow to their CA K-1, line 15f.

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To make or record PTE payments:

Amounts you already paid - or indicate you’re going to pay outside of the return with a 3893 voucher or WebPay - will be included as an “Amount paid with form FTB 3893”(form 565, line 30; or form 568, line 9). This prevents them from affecting the bottom line of the tax return. 

Starting with the version 43.0328, Lacerte no longer allows you to combine the 3893 amount due with other balances due on the return in order to pay by direct debit with an e-filed return or extension. All PTE payments and estimates must be made by mail or Web Pay.

Filing Instructions or client letter paragraphs will generate for any separately filed payment vouchers. Always double check the e-file Instructions and e-file Payment Records Lacerte generates to be sure how much you’re paying with a direct debit return.

To make a PTE payment:

By default, Lacerte assumes your client will pay PTE tax by mail, and will print an FTB 3893 voucher for any amount you haven't already recorded as paid in the program.

If your client is going to use Web Pay to make their payments:

  1. Go to Screen 37.011, California Miscellaneous Information.
  2. Find the Pass-Through Entity Elective Tax Payment Voucher(s) section.
  3. Check the Payment amount will be paid with Web Pay for business (code 98) box.

Checking this box will suppress the 3893 vouchers and add info on using Web Pay to the client letter.

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To enter PTE tax already paid:

  1. Go to Screen 37.011, California Miscellaneous Information.
  2. Scroll down to the Pass-Through Entity Elective Tax Payment Voucher(s) subsection.
  3. Enter the amount of Pre-payment actually made for PTE (-1 for none).

The amount already paid will be included on the “Amount paid” line, and reduce the 3893 (PMT) voucher amount, if applicable. 

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What if my client made a partial payment?

If a partial payment was made, and your client is going to pay the amount due for this return with direct debit:

  • only the partial payment will flow to "Amount paid with form FTB 3893";
  • the remainder of PTE tax owed will be included in the total amount due (form 565, line 38; or form 568, line 16) and paid when the return is e-filed; and
  • no 3893 (PMT) will print.

If a partial payment was made, and your client isn’t paying the amount due on the return by direct debit:

  • the full amount of PTE tax will print on the “Amount paid with form FTB 3893” line (form 565, line 30; or form 568, line 9); and
  • the 3893 (PMT) will print, showing only the amount of PTE tax not previously paid.

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State tax accrual

At this time, Lacerte can’t automatically accrue PTE taxes in the partnership module.

If you normally use accrual option 1:

  1. Make note of the PTE tax calculated on form 3804.
  2. Go to Screen 37.011, California Miscellaneous Information.
  3. Scroll down to the Limited Partnership Tax/LLC Annual Tax/Administrative Adjustment Tax section.
  4. Delete your entry in Form 565/Form 568 $800 tax: 1=option 1, 2=option 2.
  5. Go to Screen 13, Deductions.
  6. Enter any taxes attributed to ordinary income, including PTE, in State tax.

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If the state taxes apply to an 8825 rental:

  1. Go to Screen 17, Rental Real Estate (Form 8825).
  2. Enter the amount in Taxes on the appropriate property.
  3. Scroll down to the State Amounts section.
  4. Enter a -1 in Taxes* to set the deduction to $0 on the state return only.

These entries will allow a deduction for CA taxes paid on the federal return without reducing California income by the same amount.

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If you need to allocate the federal deduction to only some partners:

  1. Go to Screen 29, Special Allocations.
  2. Allocate the Ordinary Business Income (Loss) and/or Rental Real Estate Net Income to partners according to their share of the deduction for PTE tax paid.

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How do extensions affect PTE tax?

If you’re requesting an electronic California extension in Screen 6, Automatic Extension with direct debit indicated on Screen 3, Miscellaneous Information, the program will no longer include the PTE amount due in the total payment amount. These changes went into effect on version 43.0328.

If you need to make a PTE payment with your extension:

  • the separate 3893 (PMT) voucher will report the amount of PTE tax due, and
  • your client should mail the voucher with payment or use Web Pay by 3/15, or the due date for their return.

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After you file an extension:

Enter the amount of PTE payment your client made with the extension on Screen 37.011, CA Miscellaneous Information in the field labeled Pre-payment actually made for PTE (-1 for none).

The amount already paid will reduce or eliminate the 3893 (PMT) voucher amount or the amount shown in the client letter with instructions for Web Pay, if applicable. 

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How do I make the election for next year?

When you make the election in a 2023 return, Lacerte assumes you’ll want to do the same in 2024, and produces the 3893 (ES) voucher. This payment can’t be made electronically through Lacerte.

If you use Filing Instructions, a separate filing instruction will generate for the 3893 that tells your client when and where to file, as well as the option to make payments or schedule them in advance through Web Pay. Otherwise, a paragraph in the client letter will tell your client when and where to send the payment. 

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To suppress or override the 3893:

On Screen 37.011, California Miscellaneous Information, you can indicate that the 2023 Payment amount will be paid with Web Pay, or that the 2024 Estimate amount will be paid with Web Pay.

These checkboxes suppress the 3893 (PMT) and 3893 (ES) from printing, and remove the Filing Instructions or client letter paragraph specific to the form. 

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Lacerte Tax

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