Statutory Snapshot
- Law: California Revenue & Taxation Code §§ 19900 – 19906 (originally AB 150; expanded by SB 113).
- Rate: Flat 9.3 % of each consenting owner’s California-source income in the entity.
- Years Available: Tax years 2021 → 2025 (sunsets before 1-1-2026 unless Congress lifts the federal $10 k SALT cap).
- Federal Context: Designed to bypass the IRC §164(b)(6) SALT limitation by shifting state tax to the entity level.
Who Can Elect in 2025?
| Requirement | Details |
|---|---|
| Entity Type | S Corporations, Partnerships, LLCs taxed as partnerships or S corps. |
| Owner Eligibility | Only individuals, trusts, estates, and certain disregarded entities. No partnerships, C-corps, or publicly traded partnerships may receive the credit. |
| Unanimous Consent | Each qualifying owner must consent; otherwise, their share is excluded from the PTET base. |
Two-Payment Rule & Deadlines (2025)
| Date | Action | Form / Method | Amount |
|---|---|---|---|
| June 15 2025 | Payment 1 to preserve election | FTB Voucher 3893 (Web Pay or check) | Greater of $1,000 or 50 % of prior-year PTET |
| March 15 2026 (original return due) | Payment 2 – balance of 9.3 % | FTB 3893 or with Form 3804 filing | Remainder |
Late or missed Payment 1 = no election allowed for 2025.
Step-by-Step Compliance Guide
- Project California-Source Income for 2025 by April.
- Calculate PTET Base: Include only consenting owners’ distributive shares.
- Compute Payment 1: 50 % of projected tax or $1,000 (whichever is higher).
- Submit Voucher 3893 via Web Pay by June 15 2025; save receipt.
- Track Cash Flow—PTET is nondeductible for federal at owner level, but deductible at entity level, lowering K-1 ordinary income.
- File Form 3804 & Entity Return (Form 100S or 565/568) by March 15 2026; remit Payment 2.
- Pass Credit to Owners on CA Schedule K-1 (codes 112/113). Owners claim on FTB Form 3804-CR and enter credit on Form 540 line 345.
- Carryover Unused Credit (5-year carryforward) if credit exceeds CA personal income tax.
Worked Example – NeuronCloud LLC (AI SaaS)
- 2025 CA-Source Ordinary Income: $1,200,000
- Members: Two founders (75 %) + Seed fund LP (25 %, ineligible)
- PTET Base: $900,000 (founders’ share only)
- Total PTET: 9.3 % × $900,000 = $83,700
- Payment 1 (June 15 2025): $41,850
- Payment 2 (Mar 15 2026): $41,850
- Cash-Flow Win: Entity deducts $83,700, dropping K-1 income to $816,300; founders receive an $83,700 CA credit to offset their personal tax.
Key Planning Tips for 2025
- Mind the Investor Mix: VC funds or C-corps on your cap table dilute the PTET base—model benefits before electing.
- Layer with QBI & R&D: The entity-level deduction may also trim qualified business income, so coordinate with §199A and R&D credit projections.
- Multi-State Entities: Only CA-source income is subject; apportion aggressively to other states where feasible.
- Extension ≠ Extra Time: Payment 1 locks the election; filing extensions do not extend the June 15 deadline.
Conclusion
For founders facing the 9.3 % PTET, it’s literally “all-in or nothing.” Miss the June 15 prepayment and the door slams shut for 2025. Model the owner mix, cash impact, and downstream credits now—then execute before summer.
Call to Action
Need a PTET cash-flow model or Form 3893 walk-through?
Reserve a strategy call with Anshul Goyal, CPA EA FCA and nail your June 15 deadline. Schedule now
Disclaimer
Anshul Goyal, CPA EA FCA, is a licensed Certified Public Accountant in the United States and an Enrolled Agent admitted to practice before the IRS. He represents clients in tax litigation and specializes in cross-border compliance for American businesses and Indians living in the U.S. This content is educational and not tax advice. Consult your own advisor regarding your situation.
Top 5 FAQs
| Question | Short Answer |
|---|---|
| 1. What happens if Payment 1 is late? | Election is invalid; no PTET for 2025. |
| 2. Can owners opt out individually? | Yes, but their income is excluded from the PTET base. |
| 3. Is PTET refundable? | Credit is non-refundable; unused amounts carry forward 5 years. |
| 4. Does an S-corp with non-resident owners qualify? | Yes, if owners are individuals/trusts; credit offsets their CA tax. |
| 5. Can I deduct PTET on my federal 1120-S/1065? | Yes, as an entity-level state tax under IRC §162. |
About Our CPA
Anshul Goyal, CPA EA FCA has guided 2,000+ pass-throughs through PTET, R&D, and multi-state hurdles, saving clients over $200 M. He leads Kewal Krishan & Co., delivering full-cycle tax and advisory solutions to AI and SaaS innovators nationwide.