If you own an LLC, S-Corp, or partnership in California and you’re hitting the $10,000 SALT cap on your federal return, the California Pass-Through Entity Tax (CA PTET) can save you thousands. Here’s how it works, who qualifies, and how to elect it before the deadline.
What Is the California Pass-Through Entity Tax (PTET)?
The California Pass-Through Entity Tax is an elective state tax that lets qualifying business entities pay California income tax at the entity level instead of passing it through to owners’ personal returns. Created by AB 150 in 2021 and extended through 2025 by SB 113, the PTET is California’s official workaround to the federal SALT (State and Local Tax) deduction cap.
Here’s the problem it solves: since the 2017 Tax Cuts and Jobs Act, individual taxpayers can deduct at most $10,000 of state and local taxes on Schedule A. For a California small-business owner paying $40,000+ in state income tax, that’s $30,000 of deductions vanishing every year. By electing PTET, the business pays the California tax — which is fully deductible as a federal business expense — and the owner gets a state tax credit on their personal return.
End result: you get the full federal deduction your business actually paid, instead of being capped at $10,000.
Who Qualifies for the CA PTET Election?
The CA PTET is available to:
- S-Corporations filing Form 100S
- Multi-member LLCs taxed as partnerships (Form 565) or as S-Corps (Form 100S)
- General partnerships and limited partnerships filing Form 565
Entities NOT eligible:
- Single-member LLCs treated as disregarded entities (sole proprietorships)
- Publicly-traded partnerships
- Entities with a partnership as an owner (each owner must be an individual, estate, trust, or qualifying single-member LLC)
- C-Corporations (they already pay entity-level tax)
Every consenting owner must be a “qualified taxpayer” — meaning an individual, fiduciary, estate, or trust. Owners must affirmatively opt in; the entity can’t make the election for non-consenting members.
How to Make the CA PTET Election
The election is annual — you must elect each tax year separately. The mechanics:
- Prepayment due June 15 — The entity must pay the greater of (a) 50% of last year’s PTET, or (b) $1,000 by June 15 of the current tax year. Miss this deadline and you lose the election entirely for the year.
- Balance due by original return due date — March 15 for S-Corps, partnerships, and multi-member LLCs taxed as either.
- File Form 3804 with the entity return — this lists each consenting owner and their PTET allocation.
- Owners claim the credit on Form 3804-CR attached to their personal California return (Form 540 or 540NR).
The PTET rate is 9.3% of qualified net income — applied to each consenting owner’s distributive share. The credit is non-refundable on the owner’s return but carries forward up to 5 years if unused.
How Much Will the CA PTET Save You? A Real Example
Let’s run the numbers on a typical California small-business owner:
Sarah owns an S-Corp consulting practice in Riverside. Her 2025 K-1 shows $250,000 of qualified net income. She files married-filing-jointly, federal tax bracket 32%.
| Item | Without PTET | With PTET |
|---|---|---|
| CA state tax on $250K (9.3%) | $23,250 | $23,250 |
| Paid by entity (deductible federally) | $0 | $23,250 |
| Federal deduction Sarah claims | $10,000 (SALT cap) | $23,250 (business expense) |
| Federal tax savings at 32% bracket | $3,200 | $7,440 |
| Net federal savings from PTET | — | $4,240 |
Sarah pockets an extra $4,240 in federal tax savings just from electing PTET — every year. Scale that up to a $500K-income business and you’re looking at $8,000+ in annual savings. Over a decade of business operation, that’s serious money.
California PTET — Frequently Asked Questions
What is the deadline to make the CA PTET election for 2025?
The June 15, 2025 prepayment deadline is firm — miss it and the election is void for the entire year. The balance is due March 15, 2026 with the entity return. For 2026 tax year, the prepayment is due June 15, 2026.
Is the CA PTET available for sole proprietorships?
No. Single-member LLCs treated as disregarded entities and sole proprietorships filing Schedule C are not eligible. If you want PTET access, you’d need to file an S-Corp election or operate as a multi-member LLC.
Can I elect PTET on amended returns?
No. The PTET election must be made on a timely-filed original return (including extensions). You cannot retroactively elect on an amended return.
What happens if an owner doesn’t consent to the PTET election?
Only the consenting owners get the PTET treatment. Non-consenting owners report their share of income normally on their personal returns and don’t claim the credit. The entity still files Form 3804 listing only the consenting owners.
Does the CA PTET affect estimated tax payments at the personal level?
Yes. Because you’ll claim the PTET credit on your personal return, your personal California estimated tax liability may drop substantially. Recalculate your Q3 and Q4 estimates after making the election.
Will the CA PTET still be available after 2025?
SB 113 extended PTET through tax year 2025. Without further legislative action, the election is currently scheduled to sunset for tax years beginning January 1, 2026 or later. California typically extends these provisions, but plan accordingly and watch for 2026 legislative updates.
How much does Catalyst CPA charge to set up and file the PTET election?
For most clients, the PTET election filing is included in our entity tax return preparation fee (S-Corps from $1,200, partnerships from $1,500). For new clients, we’ll quote a flat fee after a free 30-minute review of your situation.
Should You Elect the CA PTET? Get a Same-Day Analysis
The CA PTET is the single highest-ROI tax election available to California small-business owners — but the eligibility rules, deadline math, and multi-owner consent logistics trip up plenty of taxpayers (and frankly, plenty of CPAs). Before you sign Form 3804, you want to be sure (a) you actually qualify, (b) your owners all consent, (c) the prepayment math is right, and (d) the federal benefit pencils out in your specific bracket.
I’m Adham Abadier, CPA (California License #158599). I prepare PTET elections for S-Corps, LLCs, and partnerships across Moreno Valley, Riverside, Corona, Eastvale, Murrieta, and the broader Inland Empire. Schedule a free 30-minute consultation and I’ll run the numbers on your specific situation — same day.
