During the 2022 General Assembly Session, legislation was enacted that allows a qualifying Pass-Through Entity (PTE) to make an annual election for Taxable Years 2021 through 2025 to pay a Pass-Through Entity Tax (PTET) at a rate of 5.75 percent at the entity level. Due to the timing of the legislation and because the filing season for Taxable Year 2021 was already underway, the Virginia Department of Taxation (VDOT) delayed the implementation of the 2021 elective PTET.
Virginia opened the filing “window” for filing “retroactive” 2021 Virginia Pass-Through Entity Tax returns earlier this year. The 2021 Form 502PTET can only be filed using Virginia’s Business Online Services on or before September 16, 2024. There are no extensions or late filing options.
The PTET legislation provides a corresponding refundable income tax credit to the PTE owner for Taxable Years 2021 through 2025 for any amount of income tax paid by a qualifying PTE. The effect of such elective income tax and corresponding refundable credit is to allow the qualifying PTE to shift the income tax burden from the PTE owners to the PTE itself. Further, the federal tax deduction for the state income tax paid shifts to the PTE and reduces federal taxable income reported by the PTE owner.
With the 2021 “retroactive” PTET election, the PTE pays the 2021 tax and deducts the expense – for federal purposes – in the year paid.
The 2021 PTET can be paid by either submitting with the 2021 Form 502PTET or making the payments electronically prior to or at the time the Taxable Year 2021 Form 502PTET is submitted. Taxable Year 2021 Form 502PTET will not be accepted after September 16, 2024, or without full payment of the 2021 PTET.
There are costs and circumstances with accompanying risks where this retroactive opportunity may not be advantageous for you and your Pass-Through Entity.
If you are interested in this potential tax-saving opportunity, please consult with your MUAC representative.