California Pass-Through Entity Tax: PTET Election and Payments

What is California's PTE elective tax, and which entities can elect?

California's pass-through entity (PTE) elective tax is an optional entity-level tax of 9.3% on the income of owners who consent. The owners then take a credit for it on their own California returns. An entity taxed as a partnership (including a multi-member LLC) or as an S corporation can elect, for each tax year that begins before January 1, 2031 (FTB).

Two kinds of entity cannot elect: a publicly traded partnership, and an entity that is permitted or required to be in a combined reporting group. A disregarded single-member LLC is not itself a qualifying entity, because it is not taxed as a partnership or S corporation (FTB help).

What makes a case not simple:

• The election is irrevocable for the year and binds every owner, including owners who did not consent.
• It must be made on a timely filed original return, not an amended one.
• A missed or short June 15 payment now cuts the owners' credit.
• Owners who are corporations, partnerships or certain disregarded entities get no credit.

Gather before you start: last year's PTE tax paid, each owner's residency and consent, and each owner's K-1 income.

How do I make the PTE elective tax election on Form 100S, 565 or 568?

The entity makes the election by attaching a completed FTB 3804 to its timely filed original Form 100S, 565 or 568 and entering the tax on the return's designated line (FTB). In order:

1. Make the first payment by June 15 during the tax year of the election.
2. Collect consent from each owner whose income will be included.
3. After year-end, work out qualified net income (QNI) for those owners.
4. Complete FTB 3804: Part I totals the tax, and Part II, the Schedule of Qualified Taxpayers, lists each consenting owner and share.
5. Enter the tax on the return. On the latest posted (prior-year) forms this is Form 100S line 29, Form 565 line 25 or Form 568 line 4 (FTB 3804 instructions).
6. Pay the balance by the original due date, without extension.
7. File the return on time. A return filed by its extended due date still counts as a timely original return (FTB help).

Can I make the election on a superseding or amended return?

The election can be made on a superseding return but not on an amended return. A later return is superseding only if both returns were filed on or before the original due date, or both were filed during the extension period (FTB help).

Which owners are included, and who must consent?

An owner is included only if the owner is a qualified taxpayer who consents to have all of their share of income and guaranteed payments counted in QNI. Consent is all or nothing for each owner (FTB).

A nonconsenting owner does not stop the election; that owner's income stays out of QNI, but the election binds them (FTB help). A trust that qualifies can pass part or all of its credit to beneficiaries; each beneficiary and the trust files its own FTB 3804-CR.

How is the tax calculated, and how do I find each owner's share from the K-1?

The tax is 9.3% of the entity's QNI, which is the sum of each consenting owner's share of income and guaranteed payments that is subject to California personal income tax (FTB).

FTB gives these K-1 lines as the general starting point for one owner's share (FTB help):

Every item of the owner's share counts even if it is not on those lines. FTB's example is recaptured section 179 income. Also:

• Guaranteed payments to partners are included.
• Gain on the entity's sale of its own asset is included. Gain on an owner's sale of an interest in the entity is not.
• For a nonresident owner, only the part subject to California personal income tax counts, using the sourcing rules.

What are the two payments, and how do I pay them?

The entity pays a minimum by June 15 during the tax year and the rest by the original return due date, without extension (FTB).

For a calendar-year S corporation, partnership or LLC, the second payment for a tax year is due March 15 of the next year. A fiscal-year entity pays by the 15th day of the 3rd month after year-end (FTB 3893 instructions). When a due date falls on a weekend or legal holiday, a payment made on the next business day counts as timely. Filing an extension does not extend either payment.

How to pay:

• Use Web Pay, electronic funds withdrawal (EFW) through your tax software, or the FTB 3893 voucher mailed with a check (FTB help).
• Do not file FTB 3893 when paying by Web Pay or EFW, and designate an electronic payment as a "PTE payment".
• Pay the balance this way too, even when it goes with the return. Never combine a PTE payment with the entity's other tax payments.
• Use separate vouchers or transactions for each tax year.
• An S corporation that must pay electronically must pay this tax electronically (FTB 3893 instructions).

Two traps in the first payment:

• A one-time sale or a big income year raises the next year's June 15 amount, because it is based on the tax paid this year. FTB lists no exception.
• An overpayment cannot be saved as next year's June 15 payment. It can be applied to the next year's LLC annual tax or fee, or an S corporation's next estimate (FTB help).

An entity whose short first tax year does not include June 15 has no June 15 payment.

What if I miss or underpay the June 15 payment?

For tax years that begin on or after January 1, 2026, a missed or short June 15 payment does not block the election. The owners' credit is reduced by 12.5% of each owner's share of the unpaid amount (FTB).

FTB's formula for one owner is: 12.5% × (required June 15 amount − amount paid) × (owner's QNI ÷ total QNI). The entity still owes the full tax by the original due date, and underpaid tax carries penalties and interest (FTB help).

An error in the June 15 amount counts only if fixed on or before June 15; one found later leaves a short payment. FTB lists no exception, except extra time after a federal or state disaster declaration covering the entity's principal place of business. For tax years that began before 2026, a missed June 15 payment meant no valid election.

How do owners claim the PTE credit on FTB 3804-CR?

Each consenting owner claims the credit on FTB 3804-CR, filed with Form 540, 540NR or 541. The credit is the owner's QNI share times 9.3% (FTB 3804-CR instructions).

The credit amount shows on the Other credits line of the owner's K-1, with a statement attached. Then the owner:

1. Takes the credit amount from the K-1 into FTB 3804-CR, Part I, with the entity's name and ID.
2. Enters the credit claimed, using credit code 242.
3. Attaches FTB 3804-CR to the return.

Rules that shape the credit:

• It is nonrefundable, and any unused part carries forward up to 5 years. It cannot be carried back.
• It applies only to the entity's payment for the same tax year.
• It can reduce regular tax below tentative minimum tax, but cannot reduce alternative minimum tax or the behavioral health services tax (FTB help).
• It is applied after the other state tax credit. To work out that credit, the owner first adds the PTE credit back to net tax payable.
• A taxpayer and spouse or registered domestic partner may claim only one credit between them.
• An owner who left it off can amend and attach FTB 3804-CR.
• The credit lowers the owner's California estimated tax payments. The PTE tax is not part of the entity's own estimated tax.

Do nonresident owners get the credit, and does the election change withholding or a group return?

Nonresident owners who consent get the credit, claimed on Form 540NR. The election does not affect the 7% nonresident withholding requirement (FTB help).

The entity can still file a nonresident group return, but the credit is not a flow-through item, so it can be claimed only on the owner's own return. For when withholding applies and how to avoid it, see California nonresident withholding and the Form 588 waiver. For a home-state credit for California's tax, see the state-by-state guide.

When does the election save tax, and when does it not?

Any saving is mostly federal, and it depends on each owner's own return. Under IRS Notice 2020-75, the entity deducts the payment for federal tax in the year it pays it, so less income passes to owners on their K-1s; the notice announced regulations and lets taxpayers rely on it until they are issued. For California, the entity adds the deduction back, and the owners' credit reduces their California tax.

An owner whose state and local taxes already fit under the federal SALT limit ($40,400, reduced at higher incomes) may gain little, and a short June 15 payment cuts into any gain. The full analysis is in Should my S corporation or partnership elect PTET?

Can I change or revoke the election, and what if income changes after I file?

Once the election is made on a valid original return, it is irrevocable for that year. FTB treats a superseding return (filed within the windows above) as the original, so the election can be made or revoked on it (FTB help). The entity cannot amend FTB 3804 to revoke the election or change which owners consented.

If income changes after a valid election, such as after a K-1 correction or an audit, the entity must revise QNI:

• If QNI goes up, the entity files an amended return and pays the additional tax, with penalties and interest on any underpayment.
• If QNI goes down, the entity files an amended return and amended FTB 3804 and claims a refund of the overpayment.
• Owners then amend their own returns with an amended FTB 3804-CR and Schedule P, Part III.
• A change in QNI also changes the next year's June 15 amount.

What does the entity add back on its California return?

If the entity deducts the PTE elective tax on its federal return, it adds the deducted amount back in computing its California net income (FTB). The owners' California benefit is the credit, not a deduction.

Example

These examples are illustrative, in US dollars. A calendar-year entity is assumed.

S corporation with a prior-year payment

An S corporation has two California-resident shareholders with equal shares. They both consent, and QNI is $400,000. The tax is $400,000 × 9.3% = $37,200. The corporation paid $30,000 of PTE tax last year.

• June 15 payment: 50% of $30,000 = $15,000.
• Balance by March 15 of the next year: $37,200 − $15,000 = $22,200.
• Each shareholder's credit: 9.3% × $200,000 = $18,600, claimed on FTB 3804-CR.

Two-member LLC electing for the first time

An LLC taxed as a partnership has two equal members and QNI of $300,000. The tax is $27,900. It paid no PTE tax last year, so the June 15 payment is the $1,000 minimum. It pays the other $26,900 by March 15 of the next year. Each member's credit is $13,950.

If the LLC decides to elect only after June 15 and paid nothing then, the election still stands for a tax year beginning in 2026 or later. Each member's credit falls by 12.5% × ($1,000 × 50%) = $62.50, to $13,887.50.

The S corporation pays only $5,000 on June 15

Take the first S corporation, with a required June 15 amount of $15,000. It pays only $5,000, leaving $10,000 unpaid.

• The election still stands, because the tax year begins in 2026 or later.
• Each shareholder's share of the unpaid amount is $10,000 × 50% = $5,000. The reduction is 12.5% × $5,000 = $625.
• Each credit is $18,600 − $625 = $17,975.
• The corporation still owes the rest of the tax, $32,200 on a $37,200 total, by March 15.

Different for you?

• You are deciding whether to elect: the federal deduction, SALT limit and QBI effect are in the election guide.
• The entity or owners are in other states: rates, elections and deadlines are in the state-by-state guide.
• You pay nonresident owners: withholding and the Form 588 waiver are in the nonresident withholding guide.
• You want the minimum franchise tax, LLC fee or S corporation income tax: see California minimum tax and LLC fee.
• You need the K-1 and return basics: see how S corporations are taxed and how partnerships are taxed.
• Owners are trusts or entities, some will not consent, June 15 was missed, income changed after filing, or the entity has a fiscal year: these turn on the election's binding effect and the credit; see corporate tax help before filing.