• Natalie C. Papagni, CPA

California Enacts SALT Limitation Workaround

Updated: Dec 26, 2021

For taxable years beginning on or after January 1, 2021, and before January 1, 2026, qualified entity doing business in California can make an annual, irrevocable election to pay a pass-through entity tax similar to the New York PTET.

The tax is computed at the rate of 9.3% for the taxable year for which the election is made.

Entities eligible to make the California PTET election include entities taxed as partnerships (except publicly traded partnerships) and S Corporations. The elective tax is in addition to, and not in place of, any other tax required to be paid under California’s personal income tax or corporation tax laws.

The potential benefit? Owners of pass-through entities making the election claim a credit for their share of the pass-through entity’s PTE tax on their respective returns. If this results in an overpayment, excess credit may be carried forward for five (5) years.

For taxable years beginning on or after January 1, 2021, and before January 1, 2022, the elective tax is due and payable on or before the due date of the original return that the entity is required to file, without regard to any extension of time for filing the return, for the taxable year of the extension. For future tax years, the Department will establish new due dates for making the election and payment of the tax.

Contact us if you have questions on how the California SALT Limitation Work Around may benefit you.

Cobalt PacWest

CPAs & Tax Advisors

3000 El Camino Real, Building 4

Palo Alto, CA 94306

650.930.9562 | 877.233.5678

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