For taxable years beginning on and after January 1, 2021, but before January 1, 2026, the Virginia General Assembly has established a new elective pass-through entity (PTE) tax. Form 502PTET will allow qualifying pass-through entities to pay Virginia tax at a rate of 5.75% on behalf of their owners at the pass-through entity level rather than the owners paying the tax at the individual level, consequently avoiding the state and local tax cap on Schedule A of Form 1040. The elective income tax and corresponding refundable credit allow the qualifying PTE to shift the income tax burden from the PTE owners to the PTE itself.
Form 502PTET will be available in Drake Tax in late spring. Drake Software is asking that you plan accordingly.
Important Notes
- Entities that do not elect the PTET must file Form 502.
- Each electing PTE must obtain consent from its owners. The election is binding on all the owners once the election is made. An owner does not have the option to opt out of an entity’s election.
- A qualifying pass-through entity’s taxable income must be adjusted to eliminate any federal deduction for state and local income taxes.
- Due to the timing of this legislation, implementation of the Taxable Year 2021 PTE elective tax will occur on or after October 15, 2023, following separate guidance and procedures scheduled to be released prior to October 15, 2023.
- For taxable years beginning on or after January 1, 2022, but before January 1, 2026, a qualifying PTE may make an annual election on a timely-filed Form 502PTET.
- Form 502PTET automatically qualifies for a 6-month extension.
- Form 502PTET and all corresponding schedules must be filed electronically. No paper submissions will be accepted.
- Payments must be made electronically by the filing deadline of April 17, 2023, for calendar year entities. Payments are processed at:
www.business.tax.virginia.gov/tax-eforms/ptetpmt.php
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