2022-41: Passthrough entity tax OSTC fix enacted

The Governor has signed SB 851, which fixes the reduction in the Other State Tax Credit (OSTC) that resulted for taxpayers claiming the Passthrough Entity Elective Tax Credit for taxable years beginning on or after January 1, 2022.

Although SB 113 (Ch. 22-3) changed the ordering rules for post-2021 taxable years, so that the OSTC is claimed prior to the Passthrough Entity Elective Tax Credit, according to the FTB it did not change how the OSTC was calculated. This had the effect of dramatically reducing the amount of the OSTC a California resident taxpayer could claim.

SB 851 increases the amount of the California “net tax” used to calculate the OSTC by the amount of the Passthrough Entity Elective Tax Credit claimed, thereby allowing taxpayers who claim both credits to receive the full amount of the OSTC they would have claimed if they had not claimed the Passthrough Entity Elective Tax Credit.

SB 851 does not “fix” the mandatory June 15 prepayment requirements. Taxpayers who failed to make the required prepayment for June 15, 2022, will not be able to make the election for the 2022 taxable year unless a legislative fix is enacted next year.

For more information on the passthrough entity tax credits, and tax updates attend Spidell’s Federal and California Tax Update Webinar or Seminar.

Sign up for Spidell’s 2022/23 Federal and California Tax Update and get the full details on all the tax legislation enacted this year. Click here for a list of in-person seminar locations.

Sign up for Spidell’s Flash E-mail — Get breaking news delivered to your inbox, plus other free analysis and information for tax professionals. Join our community and stay at the top of your game. Click here to sign up.