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What are a pass-through entity, pass-through entity income, and pass-through withholding?

A pass-through entity (PTE) is any entity treated as a partnership, subchapter S corporation, or trust for federal income tax purposes.

Pass-through entity income is the income that any partnership, subchapter S corporation, or trust passes through to its partners, shareholders, or beneficiaries. Pass-through entity income is considered earned on the last day of the pass-through entity's tax year.

Pass-through withholding is the amount required to be reported and paid by the pass-through entity, that has not elected to pay pass-through entity tax*, on behalf of its nonresident partners**, shareholders, and beneficiaries:

  • who have not submitted Form IL-1000-E, Certificate of Exemption for Pass-through Withholding, to the pass-through entity, and
  • who receive business and nonbusiness income allocable to Illinois from the pass-through entity.

Pass-through withholding is

  • reported to members on the Schedule K-1-P or K-1-T sent to them by the pass-through entity,
  • reported to the Illinois Department of Revenue on Form IL-1120-ST or Form IL-1065 and Illinois Schedule B, or Form IL-1041 and Schedule D, and
  • paid electronically or with the return type voucher (IL-1065-V, IL-1120-ST-V or IL-1041-V).

If any member is a  pass-through entity itself, it is required to report and pay pass-through withholding on behalf of its own nonresident partners, shareholders, or beneficiaries on the pass-through it received. A member may claim a credit on its Illinois income tax return for pass-through withholding reported and paid on its behalf.

* Only partnerships and subchapter S corporations can make the election to pay PTE tax.

** Investment partnerships with nonresident partners are required to withhold the partner's share of partnership income from another lower-tier partnership that is apportionable or allocable to Illinois by the investment partnership. Form IL-1000-E does not exempt an investment partnership from investment partnership withholding.

See our Pass-through Entity Information (Publication 129) web page for more information. 

 

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