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Pass Through Entity Tax 2022 Instructions Indiana Department of Revenue
Enlarge image | Pass Through Entity Tax 2022 Instructions Indiana Department of Revenue |
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Table of Contents
How to Make the Election ........................................................................................................................................... 3
Tax Return and Extension............................................................................................................................................. 3
Making Estimated Tax Payments .............................................................................................................................. 3
Withholding Requirements with Pass Through Entity Tax .............................................................................. 4
Calculating the Tax ......................................................................................................................................................... 4
Example 1: Determining Indiana-Sourced Income in a Single-Tiered Structure ................................ 5
Example 2: Determining Indiana-Sourced Income in a Multi-Tiered Structure .................................. 5
Partnership A’s Computation of Income Attributable to Indiana ............................................................ 6
Partnership B’s Partners’ Computation of Income Attributable to Indiana .......................................... 7
Reporting Income and Tax on Schedule Composite & Schedule Composite-COR............................... 7
Exception Codes 1–3 ................................................................................................................................................. 7
Exception Codes 4–6 ................................................................................................................................................. 8
Exception Codes 7-12 ............................................................................................................................................... 9
Reporting Pass Through Entity Tax ....................................................................................................................... 11
Claiming Credits for Indiana Pass Through Entity Tax Paid ......................................................................... 11
Additional Resources ................................................................................................................................................... 12
Contact Us ....................................................................................................................................................................... 12
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How to Make the Election
The annual election to opt into the Indiana Pass Through Entity Tax must be made on an
annual basis on the IN-PTET form prescribed by the Indiana Department of Revenue. Starting
with tax years beginning after Dec. 31, 2022, the election may also be made on the entity’s
annual return.
The election is irrevocable and must be made by an authorized person from the eligible
electing entity. An authorized person is any individual with the authority from the electing entity
to bind the electing entity or sign returns on its behalf. Electing entities must list resident and
nonresident entity owners on Schedule Composite and, if applicable, Schedule Composite-COR.
For tax year 2022, the election must be madeafter March 31, 2023,and before Aug. 31, 2024. If
the 2022 return was filed by April 18, 2023, a pass-through entity can amend their return to
make the election. For 2023 and tax years thereafter, the election may be made at any time
during the taxable year, or the election may be made after the taxable year on the entity’s timely
filed return, including extensions.
Tax Return and Extension
The Pass Through Entity Tax shall be due on the same date as the entity’s annual return for the
taxable year, without regard to extensions. On its return for the taxable year, the electing entity
shall attach a schedule showing the calculation of the tax and the credit for each entity owner, and
remit the tax with the return, taking into account prior estimated tax payments remitted by the
electing entity, along with other payments that are credited to the electing entity as tax paid or
withheld.
For tax years beginning in 2022, the Pass Through Entity Tax will be reported on the entity’s
composite schedule.
If the 2022 return is filed by April 18, 2023, a pass-through entity can amend their return to make
the election through Aug. 30, 2024.
Making Estimated Tax Payments
For taxable years ending on or before June 30, 2023, an electing entity is not required to make
estimated tax payments. For taxable years ending after June 30, 2023, and on or before
Dec. 31, 2024, an electing entity shall make a single estimated tax payment for the taxable years
on or before the end of the taxable year.
There is no penalty for underpayment of estimated tax, except to the extent the underpayment
fails to equal or exceed 50% of the tax imposed for the taxable year in the case of taxable years
ending after June 30, 2023, and on or before Dec. 31, 2024.
For taxable years ending after Dec. 31, 2024, there shall be no penalty for underpayment of
estimated tax, except to the extent the payments during the taxable year fail to equal or exceed the
lesser of 80% of the tax imposed for the taxable year or 100% of the tax imposed for the preceding
taxable year. DOR will prescribe forms for estimated tax payments no later than June 15, 2023.
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Withholding Requirements with Pass Through Entity Tax
If an entity elects to be subject to the Pass Through Entity Tax for a partner or shareholder or
treats Pass Through Entity Tax paid by another entity as Pass Through Entity Tax to its direct
owners, the entity is still subject to withholding tax on those owners. However, any withholding
tax required for the owners is reduced dollar-for-dollar by the Pass Through Entity Tax credited
to that owner.
For example, if a partnership has two equal partners—Individual A and Corporation B, a C
corporation—and the partnership has $20,000 of Indiana adjusted gross income, the partnership
will pay $323 of Pass Through Entity Tax for each partner. However, Corporation B would have
had withholding tax of $490 without an election. The partnership is still required to pay $167
($490 minus $323) in withholding tax in addition to the Pass Through Entity Tax.
If an entity pays or is credited with both Pass Through Entity Tax and withholding tax, any
payments of tax will be attributed first to Pass Through Entity Tax, then to withholding tax. Any
penalties and safe harbors for withholding tax shall be determined after the application of the
Pass Through Entity Tax.
Calculating the Tax
On its return for the taxable year, the electing entity must attach a Schedule Composite and, if
applicable, Schedule Composite-COR, showing the calculation of the tax and the credit for each
direct owner and remit the tax with the return, taking into account prior estimated tax payments
by the electing entity along with other payments that are credited to the electing entity as tax paid
or withheld.
The adjusted gross income of the electing entity shall be the aggregate of the direct owners’ share
of the electing entity’s adjusted gross income. The electing entity shall determine each
nonresident direct owner’s share after allocation and apportionment. Each resident direct owner’s
share can be determined either before or after allocation and apportionment at the discretion of
the electing entity. The electing entity must use the same method for all resident direct owners. If
a direct owner has an adjusted gross income from the pass-through entity of less than zero, then
the direct owner’s share shall be treated as zero.
The tax rate is the same as the individual income tax rate for any given tax year. If the
electing entity has a tax year that is in part of more than one tax year, the tax rate is
determined for the individual rate in effect on the last day of the electing entity’s tax year.
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Example 1: Determining Indiana-Sourced Income
in a Single-Tiered Structure
Individual Partners A and B each have a 50% ownership interest in their Partnership. Partner A was
an Indiana resident for all of 2022 (3.23% tax rate). Partner B was a nonresident during that time.
The Partnership earned 25% of its income in Indiana and 75% from other states. The Partnership
netted $100,000 of ordinary business income from the sale of tangible personal property. The
Partnership makes an election to pay tax at the entity level for 2022 and elects to tax Partner A on
a pre-apportionment basis.
Taxable income: The electing partnership’s Indiana-sourced income is therefore $62,500
($50,000 plus $12,500).
Type Partner A (resident) Partner B (nonresident)
Portion of income from partnership $50,000 $50,000
Indiana apportionment % 100% 25%
Partnership’s Indiana Gross Income $50,000 $12,500
Example 2: Determining Indiana-Sourced Income
in a Multi-Tiered Structure
Partnership A operates a business in Indiana, Michigan, and Ohio. Partnership A has three
partners: Partnership B (50% interest, MI partnership), Individual C (25% interest, OH resident), and
Individual D (25% interest, IN resident). Partnership A elects to tax Individual D on a pre-
apportionment basis.
Partnership A has $30,000,000 of federal ordinary business income, no Indiana adjustments, and
sales of tangible, personal property as follows:
State Amount Percentage
Michigan (has nexus) $9,000,000 30%
Ohio (has nexus) $4,500,000 15%
Indiana (has nexus) $16,500,000 55%
Sales to other states $0 -
Total sales $30,000,000 -
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Partnership A elects to pay tax at the entity level.
Partnership B has four partners: Corporation E (40%), Corporation F (35%), Individual G (15%,
IN resident), Individual H (10%, KY resident). Partnership B has no additional entity-level
activity other than its interest in Partnership A. All income and expenses of Partnerships A and
B are allocated to each partner on a pro rata basis based on ownership percentage.
Partnership B elects to treat Individual G as taxable on a pre-apportionment basis.
Taxable Income: If Partnership A makes the election, it will owe tax on $19,875,000 of taxable
Indiana income. See Partnership A’s table below.
If Partnership B makes the election to be taxed at the entity level, Partnership B will be subject to
tax on $9,262,500 of taxable Indiana income. See Partnership B’s table below.
Partnership B will determine its tax by first using its own income prior to apportionment,
regardless of whether Partnership A determined the tax on a pre- or post-apportionment
basis. Partnership B will compute its tax separately.
If Partnership B does not make the election to be taxed at the entity level, Partnership B may pass
the pass-through entity tax paid on its behalf through to its partners so that the partners can treat
the tax as Pass Through Entity Tax. However, it cannot pass a partner more tax than a pro rata
share of the Pass Through Entity Tax or the amount of Pass Through Entity Tax computed on the
partner’s share, whichever amount is greater.
Partnership A’s Computation of Income Attributable to Indiana
Individual C Individual D
Partnership B Total
(OH Resident) (IN Resident)
Ownership % in
50% 25% 25% 100%
Partnership A
Adjusted Gross
$15,000,000 $7,500,000 $7,500,000 $30,000,000
Income
IN apportionment 55% 55% N/A -
IN Taxable Income $8,250,000 $4,125,000 $7,500,000 $19,875,000
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Partnership B’s Partners’ Computation of Income Attributable to Indiana
Individual G Individual H
Corporation E Corporation F Total
(IN Resident) (KY Resident)
Ownership % in
40% 35% 15% 10% 100%
Partnership A
Business Income $6,000,000 $5,250,000 $2,250,000 $1,500,000 $15,000,000
IN apportionment 55% 55% N/A 55% -
IN Taxable Income $3,300,000 $2,887,500 $2,250,000 $825,000 $9,262,500
Reporting Income and Tax on
Schedule Composite & Schedule Composite-COR
On its return for the taxable year, the electing entity shall attach a Schedule Composite and, if
applicable, Schedule Composite-COR. These schedules compute both Pass Through Entity Tax
and withholding tax due.
If an entity is electing to be subject to Pass Through Entity Tax, the entity must list “PTET” on
Line 1 of Schedule Composite as the name of the entity. It should not enter an exception code
on Line 1, Column A. The entity should list the state of its commercial domicile in Line 1, Column
B. Column C should include one of the following codes if Pass Through Entity Tax is computed
at the applicable tax rate (3.23% for pass-through entities whose tax year ends in 2022 or 3.15%
for pass-through entities whose tax year ends in 2023).
Exception Codes 1–3
Code 1
Resident owners are subject to Pass Through Entity Tax on all income and the Pass Through
Entity Tax is calculated at the applicable tax rate.
Code 2
Resident owners are subject to Pass Through Entity Tax on only the share of the eligible entity’s
income apportioned to Indiana and the Pass Through Entity Tax is calculated at the applicable tax rate.
Code 3
There are no resident owners and the Pass Through Entity Tax is calculated at the applicable tax rate.
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Exception Codes 4–6
These should only be used in tiered structures when:
• the Pass Through Entity Tax passed through from one electing entity to another electing
entity is greater than the recipient’s Pass Through Entity Tax, and
• the recipient entity passes through more Pass Through Entity Tax to one or more owners
than would otherwise be due from the recipient entity.
Example: Partnership B’s share of income from Partnership A is $1,000,000. Partnership
A makes a Pass Through Entity Tax election and pays $32,300 on behalf of Partnership B.
Partnership B determines its income for its Indiana sources and determines that its total
share of all partners’ income is $900,000. Assume Partnership B has no excluded owners
such as a bank. Partnership B has a Pass Through Entity Tax liability of $29,070. If
Partnership B passes through more than $29,070, it should use codes 4–6. However, if
Partnership B elected to pass through only $29,070, it should use codes 1–3.
Code 4
Resident direct owners are subject to Pass Through Entity Tax on all income.
Code 5
Resident direct owners are subject to Pass Through Entity Tax on only the share of the eligible
entity’s income apportioned to Indiana.
Code 6
There are no resident direct owners.
Instructions for Completing Remaining Lines on Schedule Composite
On line 1 of the Schedule Composite, enter zero (0) in Columns D through G.
For each direct owner subject to Pass Through Entity Tax, enter the owner’s name. For Column A,
leave the column blank unless one of the following occurs:
• The owner is an Indiana resident. Enter “15” in column A.
• The owner is an employee stock option plan that has completed Schedule IN-COMPA.
Enter “03” in Column A.
• The owner is an individual retirement account that has completed Schedule IN-COMPA.
Enter “06” in Column A.
• The owner is a bank and trust company, national banking association, savings bank,
building and loan association, savings and loan association, or international banking
facility and the owner is not an S corporation, partnership, or trust for federal tax
purposes. Enter “02” in Column A.
• The owner is a non-resident of Indiana, is not an employee stock option plan, an individual
retirement account, a bank or international banking facility, and the Pass Through Entity
Tax (or combined Pass Through Entity Tax and withholding tax) passed through to the
owner is greater than the Pass Through Entity Tax otherwise computed for the owner of
the non-resident’s income reported in Column C. Enter “01” in Column A.
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For each owner, report the income subject to Pass Through Entity Tax and withholding tax in
Column C and the combined Pass Through Entity Tax and withholding tax in Column D. Column
D must be at least the product of the rate of Column C unless the entity is expressly permitted
to use exemption codes 02, 03, or 06 as provided above. Complete Columns E through F for
withholding tax purposes only. Enter the sum of Column D and Column F in Column G.
A pass-through entity is not permitted to use most tax credits to reduce the amount of
Pass Through Entity Tax owed for a direct owner nor can the pass-through entity use those
credits to offset its Pass Through Entity Tax liability. The only credits that a pass-through
entity can use are Indiana Pass Through Entity Tax paid or Indiana withholding tax credits.
Exception Codes 7-12
If you are an entity that has not elected to be subject to Pass Through Entity Tax (“non-electing
entity”), you may pass through Pass Through Entity Tax to your owners as Pass Through Entity
Tax or treat the Pass Through Entity Tax as withholding tax. Even though estates and trusts
cannot elect to be subject to Pass Through Entity Tax themselves, they can pass through Pass
Through Entity Tax paid by another entity.
For 2022, no special election is required. However, you must enter “PTET” for the name of the
partner, shareholder, or beneficiary on line 1 of the Schedule Composite. In addition, in Column
C on Line 1, enter the following codes depending on the how the resident share is to be
computed:
Code 7
Resident owners are subject to Pass Through Entity Tax on all income from the non-electing entity
and all Pass Through Entity Tax is calculated either at the applicable tax rate or at a lower rate.
Code 8
Resident owners are subject to Pass Through Entity Tax on only the share of the non-electing
entity’s income apportioned to Indiana and all Pass Through Entity Tax is calculated either at the
applicable Pass Through Entity Tax rate or at a lower rate.
Code 9
There are no resident owners of the non-electing entity and all Pass Through Entity Tax is
calculated either at the applicable tax rate or at a lower rate.
Code 10
Resident owners are subject to Pass Through Entity Tax on all income from the non-electing
entity and the Pass Through Entity Tax is calculated for at least one individual or entity at a rate
greater than the applicable tax rate.
Code 11
Resident owners are subject to Pass Through Entity Tax only on the share of the non-electing
entity’s income apportioned to Indiana and the Pass Through Entity Tax is calculated for at least
one individual or entity at a rate greater than the applicable tax rate.
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Code 12
There are no resident owners of the non-electing entity, and the Pass Through Entity Tax is
calculated for at least one individual or entity at a rate greater than the applicable tax rate.
Enter the same exception codes that apply for direct owners of entities that make an election to
be subject to Pass Through Entity Tax. In addition, an entity that does not make an election to
be subject to Pass Through Entity Tax may use regular exception codes applicable to
withholding but solely for purposes of withholding. An entity passing through Pass Through
Entity Tax cannot use most tax credits or exceptions to reduce Pass Through Entity Tax that is
actually passed through.
For Schedule Composite-COR, enter “PTET” on line 1 under the name of the entity if the entity
has elected to be subject to Pass Through Entity Tax or if the entity is passing through Pass
Through Entity Tax. No information should be entered other than the pass-through entity’s state
of domicile.
For each C corporation subject to Pass Through Entity Tax, list the information as you otherwise
would on Schedule Composite-COR. Use an exception code only if the tax reported is different
than 4.9% (not the applicable individual rate) and follow the procedures applicable for the
exception code.
If the corporation is exempt as a bank or international banking facility, enter code “02” for that
entity if the withholding is less than 4.9%.
In certain circumstances, an entity could be subject to both Pass Through Entity Tax and
withholding tax. For instance, if a C corporation has $10,000 of income as a partner in a
partnership for the year ending December 31, 2022, the partnership elects to be subject to Pass
Through Entity Tax, and the C corporation does not provide an exception for the C corporation,
the partnership will treat $323 as Pass Through Entity Tax and $167 as withholding. The Pass
Through Entity Tax and withholding tax will be subject to different penalty and interest rules.
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Reporting Pass Through Entity Tax
If an entity remits Pass Through Entity Tax for its owners, the entity on its return must report:
• Pass Through Entity Tax in the same manner as other withholding tax payments
• Pass Through Entity Tax paid for the owner on Schedule IN K-1 on the same line for state
taxes withheld (Schedule IN K-1, Part 2, Line 11)
• The owner’s share of Pass Through Entity Tax as a state income tax deducted for purposes
of Part 4, Line 1
If the entity does not make an election to be subject to Pass Through Entity Tax, the entity must
report the Pass Through Entity Tax passed through to its owners or beneficiaries in the manner
that it would otherwise report taxes withheld for the owners or beneficiaries (Schedule IN K-1, Part
2, Line 11 or IT-41 Schedule K-1, Part 2, Line 12). The entity must also report that owner’s or
beneficiary’s share of Pass Through Entity Tax as a state income tax deducted for purposes of Part
4, Line 1 of Schedule IN K-1 or IT-41 Schedule IN K-1.
Claiming Credits for Indiana Pass Through Entity Tax Paid
Each entity owner is entitled to a refundable credit for the Pass Through Entity Tax, allowed
against income tax for a taxpayer who is a partner in a partnership or a shareholder of an S
corporation that has elected to pay the Pass Through Entity Tax. The amount of the credit is equal
to the portion of the tax paid by the entity that is attributable to the partner or shareholder's share
of income taxable in Indiana. This would effectively offset any impact of payment of tax at the
entity level on the entity owners.
The eligible individual taxpayers that receive an Indiana Pass Through Entity Tax credit from an
electing entity may claim the credit by attaching Schedule IN K-1 or IT-41 Schedule K-1, reflecting
the credit and listing the credit on the individual’s IT-40 Schedule 5 or IT-40PNR Schedule F of
their Indiana personal income tax return.
Partnerships and S corporations report Pass Through Entity Tax paid by another entity as pass-
through withholding (Form IT-65, line 8 or IT-20S, line 17).
In addition to the lines required for individuals, partnerships, and S corporations, the credit
should be listed on these lines of other returns if applicable:
• Nonprofit corporations: IT-20NP, line 23
• Corporations: IT-20, line 35.
• Financial institutions: FIT-20, line 42
• Estates and trusts: IT-41, line 14
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Additional Resources
Senate Enrolled Act 2 (2023)
Indiana Code 6-3-2.1
Information Bulletin (coming soon)
Contact Us
Questions on Pass Through Entity Tax? Contact Tax Policy.
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