What is the Pass-through Entity (PTE) tax?

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​The Pass-through Entity (PTE) tax is an entity-level income tax that partnerships (other than publicly traded partnerships under IRC 7704) and subchapter S corporations may elect to pay effective for tax years ending on or after December 31, 2021, and beginning prior to January 1, 2026. The PTE tax rate is equal to 4.95 percent (.0495) of the taxpayer's net income for the taxable year. A partnership or S corporation making the election is liable for paying the PTE tax. If the electing partnership or S corporation fails to pay the full amount of PTE tax deemed assessed, the partners or shareholders will receive credit for the amount of PTE tax paid but shall be liable to pay any remaining tax (including penalties and interest) based on their share of the pass-through entity's income and credits.

Note: The PTE tax credit is considered paid/received on the last day of the pass-through entity's tax year. 

The election to pay the PTE tax is made on Form IL-1065, Partnership Replacement Tax Return, or Form IL-1120-ST, Small Business Corporation Replacement Tax Return. When a partnership or S corporation makes the election to pay the PTE tax, it is required to make quarterly estimated payments if the expected tax due (including both PTE tax and replacement tax) is more than $500; otherwise, they will incur late estimated payment penalties. Estimated payments are due on the 15th day of the 4th, 6th, 9th, and 12th months of the tax year. Estimated payments can be made

• electronically using MyTax Illinois or ACH Credit or
• by mail using Form IL-1065-V, Payment Voucher for Partnership Replacement Tax, or Form IL-1120-ST-V, Payment Voucher for Small Business Corporation Replacement Tax. 
  

Reminder: You must make electronic payments if your annual tax liability, including PTE tax, meets or exceeds $20,000. 

The Illinois Department of Revenue will waive late estimated payment penalties related to an election to pay the PTE tax for tax years ending before December 31, 2022. Taxpayers are encouraged to make voluntary prepayment of the PTE tax  to reduce any tax payment due when the return is filed. The penalty relief only applies to partnerships and subchapter S corporations that elect to pay PTE tax. Partners and shareholders of these entities are not eligible for the penalty relief. However, partners and shareholders may claim a tax credit against their own tax liability for distributive shares of the PTE tax credit and may adjust their estimated payments accordingly.

For tax years ending on and after December 31, 2022, 

• If  the election to pay PTE tax is made, then estimated payments are based on 90 percent of the current year tax liability or 100 percent  of the tax liability in the prior year. 
• If  the election to pay PTE tax is not made, then estimated payments are not required.  

Note: Use the Estimated Payment Worksheets in your specific return instructions to determine the correct amount of quarterly estimated payments to make. 

If a pass-through entity overpays PTE tax, the pass-through entity may request a refund. The members of the pass-through entity are allowed a credit only for their share of the PTE tax calculated due (to the extent paid). 

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