If you anticipate your business making the Indiana Pass-Through Entity Tax (PTET) election for the 2023 calendar year, the business needs to pay at least 50% of the 2023 estimated PTET on or before December 31, 2023, to avoid underpayment penalties. For 2023, the PTET rate is generally 3.15% of your Indiana taxable income.
If the business is on a cash basis for tax purposes and has the available cash flow, it is generally good tax planning to pay 100% of the 2023 estimated PTET on or before December 31, 2023, so that the business can deduct the entire payment on the 2023 federal return.
Why make the PTET election? The election creates a tax savings opportunity because the state income tax paid at the entity level will be an above-the-line tax deduction for federal tax purposes. Without the election, the deduction for Indiana income taxes paid on pass-through K-1 income is only allowed as an itemized deduction on an individual’s return. Since most individuals either do not itemize or are subject to the $10,000 limit on deductions for state and local taxes, the election allows for a deduction of state income taxes that were previously not deductible for most individuals. The tax paid at the entity level passes through as a refundable credit to the individual and can be used to offset income taxes on the individual’s state income tax return. The approximate federal tax savings is 1% of the Indiana taxable income.
Payments can be made online through INTIME (https://intime.dor.in.gov/eServices) or by using Form IT-6WTH, which the IN Dept. of Revenue has been mailing out to businesses over the last few weeks.
Please contact your Whitinger tax advisor if you have any questions or need assistance calculating your 2023 PTET payment.