California PTE tax in a partnership in ProConnect Tax

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.

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Follow these steps to make the election

For all qualifying partners

1. On the left-side menu, select State & Local.
2. Click on Miscellaneous Information.
3. Select the California Miscellaneous Information screen.
4. 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. On the left-side menu, select Schedule K-1.
2. Click on the Schedule K-1 Miscellaneous screen.
3. Scroll down to the California Miscellaneous section.
4. Locate the Pass-Through Entity Elective Tax Calculation (Form 3804) subsection.
5. 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 Partner Information to exclude partners who don’t qualify.
• You can override a partner’s pro-rata share of income on the Schedule K-1 Miscellaneous screen.
• 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

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

To make a PTE payment

By default, ProConnect Tax assumes your client is going to 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. From the Input Return tab, go to State & Local ⮕ Miscellaneous Information ⮕ CA Miscellaneous Information.
2. Scroll down to the Pass-Through Entity Elective Tax Payment Voucher(s) section.
3. Check the Payment amount will be paid with Web Pay for business box.
4. If applicable, check the Estimate amount will be paid with Web Pay for businesses box.

These checkboxes will suppress the 3893 vouchers and add instructions for using Web Pay to the client letter.

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To enter PTE tax already paid:

1. On the left-side menu, select State & Local.
2. Click on Miscellaneous Information.
3. Select the California Miscellaneous Information screen.
4. Scroll down to the Pass-Through Entity Elective Tax Payment Voucher(s) subsection.
5. Enter the amount in Pre-payment already made for PTE (-1 for none).

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

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What if my client made a partial payment?

• 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, ProConnect Tax 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. On the left-side menu, select State & Local.
3. Click on Miscellaneous Information.
4. Select the California Miscellaneous Information screen.
5. Scroll down to the Limited Partnership Tax/LLC Annual Tax/Administrative Adjustment Tax section.
6. Delete your entry in Form 565/Form 568 $800 tax: 1=option 1, 2=option 2.
7. On the left-side menu, select Ordinary Income.
8. Click on the Deductions screen.
9. 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. On the left-side menu, select Schedule K.
2. Click on the Rental Real Estate screen and select the appropriate property.
3. Select the Income Statement section along the top of the screen.
4. Enter the amount in Taxes on the appropriate property.
5. Scroll down to the State Amounts section.
6. 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 certain partners:

1. Select the Special Allocations tab above the return workspace.
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 on the Automatic Extension (7004) screen with direct debit indicated on the Miscellaneous Information screen, the program will no longer include the PTE amount due in the total payment amount. These changes went into effect on the 3/28/2023 update.

Before you e-file an extension, check:

• The e-file Payment Record (ext.) and
• The e-file Instructions (Ext.)

to verify the amount of payment you’re authorizing. 

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 the CA Miscellaneous Information screen in 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 2024 return, ProConnect Tax assumes you’ll want to do the same next year, and produces the 3893 (ES) voucher. This payment can’t be made electronically through ProConnect Tax.

A paragraph in the client letter will tell your client when and where to send the payment. 

To suppress or override the 3893:

On the California Miscellaneous Information screen, you can indicate that the 2024 Payment amount will be paid with Web Pay, or that the 2025 Estimate amount will be paid with Web Pay.

These checkboxes suppress the 3893 (PMT) and 3893 (ES) from printing, and remove the client letter paragraph related to these forms.

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