Monday, June 17, 2024, is the due date for the 2024 passthrough entity elective tax prepayment. Taxpayers must make the prepayment in order to preserve their right to make the passthrough entity tax election on their 2024 tax return.
Remember that making the June 17 payment does not lock in the taxpayer to actually making the election on their return. If the taxpayer decides not to make the election, they can apply the prepayment to other taxes owed on their return. Any amount remaining will be refunded after the entity’s return is processed.
The prepayment must equal the greater of:
- $1,000; or
- 50% of the passthrough entity tax due for the prior year.
If the entity did not make the election in the prior year, they only have to pay the $1,000 amount.
If the taxpayer did make the election in 2023, we recommend that the taxpayer add a “cushion” to the 50% amount for the prior year in case the taxpayer discovers that they underpaid the amount due for the prior year.
As the law is currently written, there is no exception to the 50% threshold or for late payments, no matter the reason and no matter how small the shortfall. Although SB 1501, if enacted, would provide some relief from the 50% threshold requirement, it has not yet passed the California Assembly, and after that would still need to be signed by the Governor to become law. In the interim, taxpayers should plan on complying with the law as is currently in effect.
The payment can only be made by:
- Check, with Form FTB 3893, Pass-Through Entity Elective Tax Payment;
- Web-Pay (make sure the taxpayer indicates the payment is for the 2024 passthrough entity tax); or
- Electronic funds withdrawal, using tax preparation software.
For additional information on SB 1501, see our previous Flash E-mail, “Passthrough entity elective tax prepayment fix may be coming.”
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