California Governor Gavin Newsom signed Assembly Bill 150 on July 16, 2021, incorporating a state and local tax (SALT) workaround through an elective 9.3% tax for pass-through entities. The measure bypasses the $10,000 per year SALT cap on itemized deductions.
California’s A.B. 150 is effective for taxable years 2021 through 2025, which correlates with the SALT deduction cap. Qualified pass-through companies include S-corporations, limited liability companies, and partnerships. The new bill will allow certain owners (individuals, fiduciaries, trusts, estates, or certain entities taxable as corporations) of qualified flow-through entities to receive an elective state tax credit for their corresponding share of pass-through entity-level state taxes paid by partnerships and S corporations.
This annual elective 9.3% pass-through entity tax (PTE) can be made on an owner-by-owner basis. The due dates and information for this elective pass-through tax are as follows:
- If the tax year begins on or after January 1, 2021 and before January 1, 2022, the pass-through tax must be paid on the original tax return due date.
- If the tax year begins on or after January 1, 2022 and before January 1, 2026, the qualifying electing entity is due to be paid in two portions:
- The first is due on or before June 15 of the annual elective taxable year. The amount will be either 50% of the elective tax paid the taxable year before or $1,000, whichever is greater.
- The second is due on or before the original tax return due date for the qualified entity, typically March 15.
We anticipate additional guidance to be forthcoming from the Franchise Tax Board and will continue to keep you updated.
Managing Your Tax Liability with Aldrich
With California tax laws being continually updated and changed, business owners should consult with their Aldrich Advisor to better understand their tax liability. Each bill adds another layer to consider when evaluating your tax planning strategy and savings potential. Our experts will continue to monitor for additional developments and keep you apprised of further updates and changes.
Meet the Author
Andrew Davidson, CPA
Aldrich CPAs + Advisors LLP
Andrew has been helping his clients by providing strategic tax planning and compliance services as well as acting as a trusted advisor for closely-held businesses and individual clients. Prior to joining Aldrich, he spent nine years in at a local firm. Andrew works with a board range of clients including manufacturers, resale and wholesale distributors,…
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