If you own an S corporation, partnership, or LLC taxed as a passthrough entity and want to take advantage of California’s Passthrough Entity Elective Tax (PTET) for the 2025 tax year, you need to make a key decision soon: whether to make a prepayment by June 16, 2025. This payment is required in order to preserve your right to elect the PTET for 2025. Here’s what you need to know.
🔹 What You Need to Pay — and When
To stay eligible to make the PTET election when you file your 2025 return, you must make a prepayment by June 16, 2025. The amount due is the greater of:
- $1,000, or
- 50% of the PTET you owed for 2024, based on your final filed return.
If you qualify for the Los Angeles County wildfire disaster extension, your deadline is October 15, 2025.
Important: 2025 is currently the last year California will allow PTET elections, unless the law is extended and the new federal OBBBA doesn’t override it (which is still to be seen). However, any unused PTET credits will continue to carry forward for five years.
🔹 Didn’t Elect PTET for 2024? Here’s What to Do
If you didn’t make the PTET election for 2024, you can still keep your options open for 2025 by making the minimum $1,000 prepayment by June 16, 2025 — even if you previously elected PTET in earlier years.
🔹 What If You Did Elect PTET for 2024?
Then the 50% rule applies. Your prepayment must be at least half of your 2024 PTET liability, as reported on your final return.
There are no exceptions to the 50% rule. If you underpay—even by a small amount—you’ll be disqualified from making the 2025 election.
🔹 How to Avoid Getting Caught Short
If you haven’t finalized your 2024 return or you’re still estimating the PTET, consider adding a cushion to your payment. If you end up amending the return or discovering a higher liability later, your original prepayment still needs to hit the 50% threshold of the final amount.
Once you’ve made the prepayment, you can still choose not to make the election when you file — it’s not binding. If you opt out or aren’t eligible, your payment can be used for your other entity-level taxes (like the S corp net income tax or LLC fee), and any excess will eventually be refunded (though it may take up to eight months after filing).
🔹 Short-Year Entities Don’t Need to Prepay
If your entity is newly formed or changes its tax status after June 16, 2025, and your 2025 tax year doesn’t include June 16, you are not required to make a prepayment to elect PTET for that short year.
🔹 How to Make the Prepayment
Choose one of the following methods:
- Check with 2025 Form 3893 (not available for S corps subject to mandatory e-pay)
- WebPay: Be careful to select the right tax year and tax type — don’t use the individual estimated tax option.
- Electronic Funds Withdrawal (EFW) through your tax software
Take Action Now: If you want to keep the PTET option open for 2025, don’t miss the June 16 prepayment deadline. A simple oversight or underpayment could cost you the opportunity to elect.
If you want to form a pass-through entity to take advantage of potential tax savings, talk to your business law attorneys or Tax planning attorneys at Strategy Law.
