in-20250827-IR-045250425NRA: DEPARTMENT OF REVENUE

DEPARTMENT OF REVENUE Information Bulletin #72B Income Tax July 2025 Effective Date: Upon Publication (Replaces Bulletin #72B, dated Oct. 2024) SUBJECT: Pass Through Entity Tax REFERENCES: IC 6-3-2.1 DISCLAIMER: Information bulletins are intended to provide nontechnical assistance to the general public. Every attempt is made to provide information that is consistent with the appropriate statutes, rules, and court decisions. Any information that is not consistent with the law, regulations, or court decisions is not binding on either the department or the taxpayer. Therefore, the information provided herein should serve only as a foundation for further investigation and study of the current law and procedures related to the subject matter covered herein. SUMMARY OF CHANGES Apart from nonsubstantive, technical changes, this bulletin has been revised to reflect changes to PTET estimated payments for 2025. In addition, this bulletin has been revised to reflect the updated allowance for credits against PTET. Further, this bulletin has been revised to reflect that employee stock option plans and governments exempt from federal income tax are not permitted owners for PTET purposes. Finally, this bulletin has been revised to provide for updated income tax rates in the examples and to update the implementation date and rules for the revised calculation of income to 2026. INTRODUCTION In 2023, Senate Enrolled Act (“SEA”) 2 (2023) enacted a new pass through entity tax (“PTET”), which was retroactively effective for tax years beginning in 2022 and later. PTET is imposed on partnerships and S corporations (“qualifying entities”), who can voluntarily elect to pay the tax at the entity level based on each owner’s total share of adjusted gross income. In this bulletin, several examples have been presented to reflect the application of PTET. Additional examples will be provided at in.gov/dor/tax-forms/ptet/. In addition, please see the instruction booklets for the applicable forms (IT-20S, IT-41, and IT-65) for further detailed instructions. ENTITIES ELIGIBLE TO ELECT TO BE SUBJECT TO PTET The only qualifying entities that can elect to be subject to PTET are entities that are treated as partnerships or S corporations for federal income tax purposes. These include limited liability companies that are classified as partnerships for federal income tax purposes and those that elect to be treated as S corporations for federal income tax purposes. Estates and trusts cannot make an election to be subject to PTET. However, estates and non-grantor trusts can elect to pass through PTET from another entity to their beneficiaries as PTET. Grantor trusts shall treat the PTET as flowing through directly to the grantor(s) of the trust. In addition to estates and trusts, the following entities are not eligible to make a PTET election: ELIGIBLE AND INELIGIBLE OWNERS In general, any owner of a pass through entity is an eligible owner whose income is subject to PTET. This includes nonprofit entities, other pass through entities, and residents of reverse-credit states (AZ, DC, and OR). However, the following entities are not eligible owners for PTET: Beyond the list of entities listed above, the department will require any owner of an electing pass through entity to be subject to PTET. For pass through entities with owners that are not eligible owners, please see the instructions for the applicable return (IT-20S, IT-41, and IT-65) for specific reporting. For pass through entities that do not elect PTET but pass through PTET, the same definition of owner applies to that pass through entity. In the case of an estate or trust that cannot make a PTET election, an owner includes the beneficiaries of the trust and the same inclusion/exclusion rules apply. MAKING A PTET ELECTION AND ELECTION FOR RESIDENT PRE-APPORTIONMENT/POST-APPORTIONMENT TREATMENT For tax years beginning in 2022, a pass through entity making an election must file a Form IN-PTET to make an election. The Form IN-PTET must be signed by a person who has the authority to sign tax returns on behalf of the entity. The election must be filed with the department on or before Aug. 30, 2024. The election can be reflected on an amended return only if the pass through entity filed its original return on or before April 18, 2023 and properly completed Form IN-PTET on or before filing the amended return. If the original return is filed after April 18, 2023, the election must be made on or before the due date of the return, including extensions. In addition, the Form IN-PTET requires the designation of a specified computation code. Only for 2022, the department will permit a taxpayer to use a different computation code than that specified on Form IN-PTET if the different code is used on the first return filed by the taxpayer that reflects PTET. For tax years beginning in 2023 or later, an election to be subject to PTET can be filed in one of two ways. First, the pass through entity can file a Form IN-PTET to make the election. If this method is chosen, file Form IN-PTET on or before the return due date, including extensions, or the date the original return is actually filed. This should be submitted electronically via INTIME or by mail to the address specified on Form IN-PTET. An election cannot be made after the original return is filed, even if the original return is filed before the due date, or if the return is filed after the due date. Second, a pass through entity can elect to be subject to PTET on its original return. The entity must check the box on the IT-20S or IT-65 return indicating that a Schedule PTET is included with the return. In addition, the entity must list a computation code 01 through 06 on the Schedule PTET included with the original return if no credits are being claimed, or codes 13 through 15 if one or more credits are being claimed. Failure to check the box or failure to list an appropriate code will result in the PTET election being considered invalid. For entities that are not making a PTET election but are passing through PTET paid by another entity, the designation of PTET to be passed through can be made on an amended return, provided that the appropriate designation (computation codes 07 through 12) is used. If the entity has resident owners, regardless of the code used, the pass through entity must designate the treatment of resident owners as being taxed on a pre-apportionment or post-apportionment basis at the time the entity lists a computation code on the Schedule PTET. For 2023 and later, once that pre-apportionment/post-apportionment designation is made on a return, the designation is irrevocable. However, a pass through entity that uses a computation code reflecting no nonresident owners may make a one-time change to permit resident owners to be taxed on a pre-apportionment basis if the pass through entity discovers that a previously-listed nonresident is in fact a resident. The change must occur upon the discovery of the first nonresident owner mistakenly designated. Further, if an entity makes a pre-apportionment/post-apportionment designation, the entity can make the following changes: A PTET election must be made at the pass through entity level and is binding on all owners. A pass through entity may not make an election covering only a portion of its eligible owners. In addition, an owner may not choose different PTET treatment than that elected by the pass through entity. A separate PTET election must be made for each taxable year. A PTET election from a previous taxable year does not carry over to future taxable years. Further, the treatment of resident owners as taxable pre-apportionment or post-apportionment does not carry over to future taxable years. INCOME INCLUSION FOR PASS THROUGH ENTITY TAX AND WITHHOLDING/COMPOSITE TAX For 2022, the income computation provided in the IT-20S and IT-65 instruction booklets and Schedule IN K-1 shall be used. Calculation for 2023 through 2025 and simplified calculation for 2026 For 2023 through 2025, the income used for PTET will be the sum of Schedule IN K-1, Part 3, lines 1 through 11 minus lines 12, 13a, and 13b, plus any modifications required in Part 4. The modifications for Part 4 shall be listed in the instruction booklet. However, for individual owners, the amounts allowable on Part 3, lines 13a and 13b are the amounts allowable in determining federal adjusted gross income. If the computed amount of income is less than zero, the amount is zero. If a nonresident individual owner is subject to a loss limitation (passive loss, at-risk loss, etc.), the owner must do one of the following: For 2026 and later, if a pass through entity has actual knowledge that all  owners or at least 95% of all owners are not subject to federal passive or at-risk loss limitations, the income shall be computed in the same manner as the 2023 through 2025 calculation with the following modifications: Any required modifications for 2025 and later will be reflected either by a line on Part 1 and/or a modification in Part 4 of Schedule IN K-1. Standard method for 2026 and later For purposes of determining the income subject to PTET in 2026 and later, the following general rules will apply. Any references to line numbers are to the Schedule IN K-1. Any required modifications for 2026 and later will be reflected either by a line on Part 1 and/or a modification in Part 4 of Schedule IN K-1. DETERMINATION OF INCOME FOR RESIDENT OWNERS AND NONRESIDENT OWNERS For nonresident owners, the amount of income subject to tax is determined after apportionment. For resident owners, the amount of income subject to tax can be determined before apportionment (i.e., the owner is taxed on both Indiana and non-Indiana income) or after apportionment. The pass through entity must use the same method of computation for all resident owners. In the case of a pass through entity that has an individual owner who was a resident for part of the taxable year and a nonresident for part of the taxable year, PTET is based on: As a general rule, for a partnership or S corporation the share attributable to each portion of the year should be prorated by day. For an estate or a trust, the share attributable to each portion should be determined on the day a distribution is made or deemed to be made. However, if a pass through entity can establish a different attribution (e.g., a seasonal business), the pass through entity may use the different attribution. In addition, if the pass through entity cannot divide the owner’s income, the entity can treat the owner as a full-year nonresident. If the adjusted gross income for a partner as determined above is zero or less, the adjusted gross income shall be treated as zero. TAX COMPUTATION-GENERAL RULE To determine the tax, determine the total shares of adjusted gross income for each owner and multiply the total share by the state individual adjusted gross income tax rate in effect on the last day of the taxable year. The following rates shall be used: TAX COMPUTATION-SPECIAL RULES In the case of a pass through entity that receives PTET from another pass through entity, the PTET can differ from the standard PTET calculation. In the case of PTET that is passed through, special rules apply. For purposes of discussion, assume PTE 1 elects PTET and passes that through to PTE 2. In the case of a pass through entity (PTE 2) that elects to be subject to PTET and is a recipient of PTET from another entity (PTE 1), PTE 2 shall apply the PTET in the following order: In the case of a pass through entity (PTE 2) that does not elect to be subject to PTET and is a recipient of PTET from another entity (PTE 1), PTE 2 shall apply the PTET in the following order: Example #1: Partnership A makes an election to be subject to PTET for 2025 and elects to tax Indiana resident partners on a pre-apportionment basis. Partnership A has five partners: Each partner owns 20% of Partnership A. Partnership A has $10 million of adjusted gross income (after Indiana modifications) and 60% of the income is apportioned to Indiana. The adjusted gross income and tax attributed to each partner is as follows: B, D, and F each have $2 million in income (20% of $10 million) multiplied by A’s 60% apportionment factor. C and E use $2 million as the pre-apportioned share of income. In addition, F will have a composite withholding tax liability of $22,800 ($1.2 million*4.9% corporate tax rate minus $36,000 PTET). Example #2: Same facts as Example #1 except that D is entitled to a $15 million guaranteed payment. B, C, D, E, and F are attributed a share of a $5 million loss. Since a partner reporting an overall loss is deemed to have zero income, B, C, E, and F have no income and therefore no PTET is in this example. D has $14 million of attributed income ($15 million guaranteed payment minus $1 million loss), multiplied by the 60% apportionment factor of Partnership A, for $8.4 million of Indiana-source income and $252,000 in PTET. Example #3: Same facts as Example #1. Corporation C has two equal partners, D and E. Corporation C has $1 million of its own income and elects to be subject to PTET. All of Corporation C’s income passes through to D and E. Corporation C elects to treat its resident partner as being taxed pre-apportionment. Corporation C has a 40% Indiana apportionment factor and the $2 million it receives is combined to produce an overall apportionable income of $3 million. Corporation C’s PTET is $63,000, determined as follows: D’s share of Corporation C’s income is $1.5 million, which in turn is multiplied by Corporation C’s 40% apportionment factor to result in $600,000 Indiana source income. Because Corporation C’s PTET is greater than the $60,000 credited from Partnership A, Corporation C will compute PTET separately and use the $60,000 as a prepayment of PTET. Example #4: Same facts as Example #3 except that Corporation C elects to treat E as taxable on a post-apportionment basis. E’s share of Corporation C’s income is $600,000 in this case ($3 million*50% ownership*40% apportionment). Evaluating Corporation C on its own, the PTET is $36,000, determined as follows: Because Corporation C has a greater amount of PTET from Partnership A ($60,000) than its own PTET liability ($36,000), Corporation C may treat the PTET passed through from Partnership A as passing through to D and E. However, in this case, Corporation C may not treat more than $30,000 as PTET passing through to D and E. For D and E, this amount is Partnership A’s PTET ($60,000) times their respective shares of income (50% each). Thus, their respective shares of PTET can be between $18,000 and $30,000. Example #5: Same facts as Example #3 except Corporation C’s stand-alone income is $500,000. Thus, Corporation C’s aggregate income is $2.5 million, which gives D $500,000 ($1.25 million times 40% apportionment) and E $1.25 million in income. The PTET on that income is as follows: Of the share of income from Partnership A, 28.57% ($500,000 divided by $1.75 million) is attributable to D and 71.43% is attributable to E. Thus, Corporation C can treat D has having up to $18,000 ($2 million times 28.57% share times 3.15% rate) and E has having up to $42,857 ($2 million times 71.43% times 3.00% rate). In other words, the PTET attributable D can be between $15,000 and $17,143, and the PTET attributable to E can be between $37,500 and $42,857. Any balance remaining after attribution of PTET to D and E first will be treated as composite withholding tax to the extent there is tax remaining, and then any remaining balance refunded to Corporation C. Example #6: Same facts as Example #5 except Corporation C does not make a PTET election. The amount of PTET from Partnership A that Corporation C can attribute to D and E is limited to $17,143 for D and $42,857 for E (i.e., their pro rata share of $60,000 PTET passed through based on their respective shares of income). Any balance remaining after attribution of PTET to D and E first will be treated as composite withholding tax to the extent there is tax remaining, and then any remaining balance will be refunded to Corporation C. Example #7: Partnership B has two equal partners, D and E. Partnership B has $1 million of its own income and has a 40% Indiana apportionment percentage. Partnership B attributes its income from Partnership A apart from Partnership B’s own income (in other words, Partnership A’s income is treated as allocable to Partnership B). Partnership B elects to be subject to PTET and elects to treat E as taxable pre-apportionment D’s income from the two partnerships is $800,000 ($1 million income*50% ownership*40% apportionment from Partnership B plus $2 million*50% ownership*60% apportionment allocated from Partnership A). E’s income from the two partnerships is $1.5 million ($1 million income * 50% ownership from Partnership B plus $2 million * 50% ownership allocated from Partnership A). The PTET attributable to D is $24,000 ($800,000 * 3.00% rate) and the PTET attributable to E is $45,000 ($1.5 million *3.00% rate). The combined PTET is $69,000, which is greater than the $36,000 credited to Partnership A. Partnership B’s PTET is $69,000 with a credit of $36,000 from Partnership A. Example #8: Same facts as Example #7 except that Partnership B has a $2,100,000 loss. D’s income from the two partnerships is $180,000 (minus $2.1 million income*50% ownership*40% apportionment from Partnership B plus $2 million*50% ownership*60% apportionment allocated from Partnership A). E’s income from the two partnerships is minus $50,000 (minus $2.1 million income * 50% ownership from Partnership A plus $2 million*50% ownership allocated from Partnership A). The PTET directly attributable to D is $5,400 ($180,000*3.00% rate) and the PTET attributable to E is $0 ($0*3.00% rate). However, because Partnership A remitted $36,000 on behalf of Partnership B, Partnership A can attribute the $36,000 between D and E. D’s share of the income from Partnership A is 37.5% and E’s share is 62.5%. Partnership B can attribute between $5,670 and $13,500 ($36,000*37.5%) to D and between $0 and $22,500 to E. Example #9: Same facts as Example #1 except that instead of Corporation C, one of the partners is Trust G, an Indiana resident trust. Partnership A makes a distribution of $2 million to Trust G and remits $60,000 of PTET on behalf of Trust G. Trust G also has $2 million of income, $1.6 million attributable to Indiana and $400,000 attributable outside Indiana. Trust G distributes $3 million equally to beneficiaries D and E. Trust G is precluded from making a PTET election but elects to treat the beneficiaries. For purposes of this example, assume that any income is distributed pro rata from each source. Partnership A paid $10,000 of out-of-state withholding and PTET on $200,000 of Trust G’s income to State X. In addition, Trust G paid $2,200 on $100,000 to State Y as Trust G’s direct tax liability. Trust G is permitted to claim these as they are its own liability. Trust G has a tax liability of $30,000 prior to credits. Trust G has a credit of $6,000 with regard to State X ($200,000 * 3.00% or $10,000, whichever is less). Trust G also has a credit of $2,200 with regard to State Y ($100,000 * 3.00% or $2,200, whichever is less). Thus, Trust H has a liability of $21,800 ($30,000 minus credits of $6,000 and $2,200). Of the income distributed from Trust G, D’s income is $750,000 from Partnership A and $750,000 from Trust G’s own activities. D’s Indiana income is $450,000 from Partnership A and $600,000 directly from Trust G. E has Indiana income from each source of $750,000, for a total of $1.5 million. The PTET that would have been attributed to D if Trust G was eligible for PTET would have been $13,500 ($450,000*3.00%) and $22,500 ($750,000 * 3.00%) attributed to E. Since the total PTET ($36,000) was greater than the PTET passed through ($60,000), the $60,000 can be attributed to D and E based on their pro rata share of income from Partnership A. D’s share of income passed through from Partnership A is 37.5% ($45,000/$120,000) and E’s share of income passed through is 62.5% ($75,000/$120,000). Thus, Trust G can attribute PTET up to $22,500 to D and $37,500 to E. Any unattributed balance would be applied to composite withholding tax. Any balance remaining after attribution to passed-through PTET and composite withholding will be applied to Trust G’s $21,800 liability and then refunded to Trust G. USE OF TAX CREDITS AGAINST PTET FOR TAXABLE YEARS BEGINNING IN 2024 AND EARLIER Other than estimated or withholding payments of PTET by the pass through entity, the only credits allowable against PTET are PTET paid by another entity or tax withheld on behalf of the pass through entity. Any other tax credits are not allowable against PTET. These may be claimed against the pass through entity’s withholding tax for nonresident owners as provided below but otherwise must be passed through to the owners of the pass through entity. For purposes of the examples below, the rules apply regardless of whether the pass through entity owes PTET, the pass through entity is passing through PTET from another entity, or a combination of the two. Example #10: Partnership A has $20,000 of PTET for 2023. Partnership A also has a $15,000 research expense credit for 2023. Partnership A cannot reduce its PTET by the research expense credit. Instead, any research expense credit must be passed through to the partners. Example #11: Partnership A has $20,000 of PTET for 2023. Partnership A also has a $35,000 refundable EDGE credit for 2023. Partnership A cannot reduce its PTET by the EDGE credit. In addition, Partnership A cannot claim any refundable portion of the credit. Instead, the EDGE credit must be passed through to the partners. USE OF TAX CREDITS AGAINST PTET FOR TAXABLE YEARS BEGINNING 2025 AND LATER For 2025 and later, the following credits are allowable against PTET regardless of whether an entity elects to be subject to PTET: For 2025 and later, a pass through entity that elects to be subject to PTET may also elect to compute its tax by applying certain credits. The following credits are available to entities that elect to be subject to PTET. These credits are not available to entities that pass PTET through but do not elect to be subject to PTET. See the discussions below for further information regarding each credit. For entities claiming these credits, new computation codes 13 through 15 will be used in lieu of codes 01 through 03 or codes 04 through 06. Use of these computation codes on Schedule PTET will be sufficient to indicate an election to use credits against PTET. If an election is made to claim credits for out-of-state taxes but not to claim credits that flow through to owners (or vice versa), the use of these computation codes is required but the tax reported should only reflect the applicable credit type elected. Do not report these credits separately on the IT-20S or IT-65 against the PTET liability. Instead, report the PTET liability after application of these credits. CREDIT FOR NON-INDIANA TAXES FOR RESIDENT OWNERS For the credit for resident owners, the pass through entity is permitted to claim a credit for taxes imposed by another state, up to the amount of income subject to Indiana PTET multiplied by the lesser of: This credit is only applicable against the PTET calculated for resident individuals, resident estates, and resident trusts. In addition, the pass through entity must elect to treat all of its resident owners’ income prior to apportionment as being subject to PTET. This credit is available for income attributed to all states that impose individual income taxes other than Arizona, Oregon, and Washington, DC. The credit must be computed separately for income derived from each state and cannot exceed the PTET attributed to the owner. In addition, the election to apply this credit must be applied to all resident owners. An election to apply this credit also requires the credit for reverse credit states to be applied. Example #12: Partnership A has $1,000,000 of income for 2025. Partnership A has an apportionment percentage of 45% in Indiana, 30% in Illinois, and 25% in Tennessee. Partnership A has equal two individual owners, X, an Indiana resident and Y, an Illinois resident. Partnership A elects to treat its resident owner as being subject to PTET prior to apportionment. For X, the income subject to PTET is $500,000 ($1,000,000 times 50%). Prior to credits, the PTET attributable to X is $15,000. Of X’s $500,000 income, $150,000 ($500,000 times 30%) is also subject to Illinois tax at a maximum 4.95%. The credit available to X is limited to 3% (Indiana’s individual income tax rate) multiplied by $150,000, for a credit of $4,500. X also derived $125,000 from Tennessee. However, Tennessee has no individual income tax, so X is permitted no credit for Tennessee taxes. The PTET attributable to X is $10,500 ($15,000 minus $4,500 credit for Illinois taxes). For Y, this credit is not available because Y is not a resident of Indiana. Y is subject to PTET on $225,000 ($500,000 times 45% apportionment). Example #13: Same facts as Example # 12 except that the partnership elects to tax its resident owner after apportionment. X is subject to PTET on $225,000 ($500,000 times 45% apportionment) for $6,750 in PTET. The pass through entity cannot claim a credit for Illinois taxes because the pass through entity elected to be subject to PTET on a post-apportionment basis. CREDIT FOR NON-INDIANA TAXES FOR RESIDENTS OF REVERSE CREDIT STATES For the computation of PTET on owners who are residents of Arizona, Oregon, and Washington, DC, the pass through entity is permitted to claim a credit for taxes imposed by the resident state, up to the amount of income subject to Indiana PTET multiplied by the lesser of: This credit is only applicable against the PTET calculated for resident individuals, estates, and trusts of the specified states. In addition, the election to apply this credit must be applied to all owners from these specified. An election to apply this credit also requires the credit for Indiana resident owners who are subject to PTET on all income to be applied. CREDIT FOR OTHER INDIANA TAX CREDITS For Indiana tax credits that can be passed through to owners, Indiana will permit a credit against PTET in the following circumstances: Example #14: In 2025, Partnership A has two equal individual partners, one resident partner (Partner X) and one non-resident partners(Partner Y). Partnership A has $6,000,000 of Indiana adjusted gross income prior to apportionment and 60% Indiana apportionment percentage. Partnership A elects to treat Partner X as being subject to PTET on a pre-apportionment basis. As a result, Partnership A has $144,000 of PTET for 2025 prior to credits, $90,000 attributable to Partner X, $54,000 attributable to Partner Y. Partnership A also has a $120,000 research expense credit for 2025. The research expense credit would pass through pro rata to each partner based on their ownership percentage. Thus, Partner X and Partner Y each have $60,000 of the credit. For computing PTET, the PTET attributable to Partner X is $30,000 ($90,000 tax minus $60,000 credit). The PTET attributable to Partner Y is zero because the $60,000 exceeds the $54,000 PTET otherwise computed. In addition, the $6,000 excess cannot be applied against the PTET attributable to Partner X. Partner X’s Schedule IN K-1 should list $30,000 in PTET and Partner Y’s return should list $0 in PTET. Example #15: Same facts as Example #14 except that Partner Y is itself a partnership domiciled in Tennessee. The research credit against PTET can be applied against Partner Y’s PTET liability and Partner Y’s partners can claim the credit against PTET if Partner Y elects to be subject to PTET. PASS THROUGH ENTITY REPORTING OF PTET BY THE PAYING OR REPORTING ENTITY For 2022, PTET must be reported using Schedule Composite and Schedule Composite-COR. The pass through entity must list one owner as having the name “PTET” and list a computation code (01-12) in Column C of Schedule Composite. If the entity is filing Schedule Composite-COR, it must also list “PTET” and the computation code in the dollar amount column. The tax for each owner will be reported as part of the state tax required for withholding. For 2023 and later, PTET will be reported using a new Schedule PTET. Schedule PTET will list the required computation code and provide a listing of all owners subject to PTET along with the amount of PTET available to the owners. PASS THROUGH ENTITY REPORTING OF PTET ON IN K-1 For 2022, PTET is reported as state withholding tax. To the extent PTET for 2022 is paid on behalf of an owner, the pass through entity paying or reporting PTET should provide the owner with a separate statement designating the amount of PTET and amount of composite/withholding tax. For 2023 going forward, PTET will be reported on a separate K-1 line designated for PTET. Any state/county withholding will be reported on separate lines. If the pass through entity elects to apply credits for non-Indiana taxes and Indiana-specific credits against PTET as provided above, the amount of PTET reported is the amount after the application of those credits. If an estate or trust is reporting PTET for 2023 passing through from another entity, the estate or trust must file the 2023 return on paper. Any penalties for filing excess paper K-1s for estates and trusts will be waived in this circumstance. REPORTING PTET CREDITS ON RECIPIENTS’ TAX RETURNS PTET is a refundable credit for individuals and entities that are credited with PTET. If PTET exceeds the individual’s or entity’s tax liability after other credits are considered, the excess can be refunded or carried forward in the same manner as any other overpayment. For 2022, individuals must report PTET as part of the state tax withheld. Partnerships and S corporations should report PTET paid by another entity as state tax withheld. Other entities should report the tax as part of other payments. For 2023 and later, individuals should report PTET on the separate line designated for PTET. All other entities will report PTET on the lines designated for IN K-1 withholding by other entities (IT-20S and IT-65) or as other payments (FIT-20, IT-20NP, IT-20, and IT-41). In addition to reporting of the PTET, you must include a copy of any Schedule IN K-1 reporting the credit to substantiate the credit. Failure to include a Schedule IN K-1 reporting PTET paid will result in denial of the credit for that portion of the PTET paid. For electronically filed returns, the K-1 should be part of the electronic return itself. Including a K-1 as a binary attachment or INTIME correspondence likely will result in refund reductions and/or assessments of tax for the recipient as well as return processing delays due to the fact that the attachment is not directly captured as part of the recipient’s return. PTET paid to a state other than Indiana is permitted as a nonrefundable credit for individuals, estates, and trusts. However, the person claiming the credit must provide evidence of the credit. That evidence is: PAYMENT OF PTET For taxable years ending in 2022, PTET was due on the 15th day of the fourth month after the end of the taxable year. However, no penalty or interest will be assessed for late payment of PTET if the PTET is paid by Aug. 30, 2024. However, if PTET not paid fully by Aug. 31, 2024, and after are subject to interest and penalty, with interest beginning on Aug. 31, 2024. For taxable years ending from Jan. 1, 2023, to June 30, 2023, PTET is due on the 15th day of the fourth month after the end of the taxable year. PTET for this period is not subject to penalty and interest waiver. No estimated payments are required. For taxable years ending from July 1, 2023, to Dec. 31, 2024, a single estimated PTET payment is required on or before the end of the taxable year. Any prior year tax is disregarded for these purposes. The estimated payment must equal or exceed 50% of the tax liability for the taxable year. If the estimated payment does not meet this amount, the pass through entity is subject to a 10% penalty on the underpayment. Any balance of PTET is due on the 15th day of the fourth month after the end of the taxable year. For taxable years 2023 and 2024, the penalty for failure to make estimated payments will not be imposed. For taxable years ending in 2025 and later, estimated PTET payments are due on the same dates as corporate estimated tax payments under IC 6-3-4-4.1. The dates are April 20, June 20, Sept. 20, and Dec. 20 for calendar year filers. Fiscal year filers will have estimated payments due on the 20th day of the fourth, sixth, ninth, and 12th months of their fiscal years. No penalty will be imposed for the failure to make estimated payments if the estimated payment exceeds 20% of the current year PTET or 25% of the previous year’s PTET, whichever is less. The penalty for failure to make estimated payments will be computed on a quarter-by-quarter basis starting with estimated payments due on or after May 20, 2025, with the modifications provided below. Any balance of PTET after all estimated payment is due on the 15th day of the fourth month after the end of the taxable year. For estimated payments required to be made during 2025, the following provisions apply for penalty calculations only for full-year taxpayers: Payments of PTET should be remitted with Form IT-6WTH. However, payments otherwise designated as estimated payments at the pass through entity level will be treated as being estimated taxes, while estimated taxes made at the owner level will not be treated as PTET estimated tax payments. Multiple payments and IT-6WTH vouchers may be filed throughout the tax year or during the extension period. If additional payments are necessary, remit using the department’s online e-services portal, the Indiana Taxpayer Information Management Engine (INTIME), which can be accessed at intime.dor.in.gov. For purposes of estimated payments, payments are not required to be made by electronic funds transfer regardless of the tax amount due. In addition, though annualization is not incorporated into PTET estimated payments, use of an annualization method otherwise permitted under IRC § 6655 will be permitted for purposes of determining whether any penalty should be reduced or waived. Finally, the penalty for insufficient estimated PTET payments is expected to be assessed by the department after filing of the appropriate return, with no requirement of self-reporting by the entity. COMPOSITE WITHHOLDING TAX WITH PTET If you have both PTET and composite withholding for a nonresident owner, PTET reduces the state composite withholding tax dollar-for-dollar. However, if the PTET is more than the state composite withholding tax, the composite withholding tax will be zero. Further, if composite withholding tax is due for local income tax, PTET will not reduce local income tax due. For tax years beginning in 2023 and later, if PTET reduces composite withholding tax for all owners that are required to be listed on Schedule Composite, Schedule Composite will not be required to be filed. The composite withholding tax must be determined prior to the application of any exception codes. If a nonresident owner would be subject to composite withholding tax except for the application of an exception code, Schedule Composite must be completed in the normal manner otherwise required. The allowance for not filing a composite schedule also applies to Schedule Composite-COR. The allowances for not filing Schedule Composite and Schedule Composite-COR are determined separately. TREATMENT OF PTET FOR ESTIMATED TAX PURPOSES PTET will be treated as a withholding payment on behalf of an individual and as an estimated payment on behalf of a corporation for purposes of determining any penalties under IC 6-3-4-4.1, IC 6-3-4-4.2 (effective for 2026), and IC 6-5.5-7-1. PTET will be presumed to be treated as paid in equal quarterly amounts throughout the individual’s or corporation’s taxable year. However, this presumption may be overcome if the individual or corporation can reasonably demonstrate that the PTET or income should be attributed in a different manner, such as in the manner provided in Treas. Reg. 1.6654-2(d)(2). SAFE HARBOR PROVISION FOR PAYMENTS BY DEADLINE A partnership or S corporation will not be penalized for failure to pay the full amount of PTET shown on the return or to pay the deficiency of the PTET due if the partnership or S corporation pays the department at least 80% of the combined PTET and composite withholding tax due for the current year or 100% of the combined PTET and composite withholding tax due for the preceding year before the 15th day of the fourth month after the end of the partnership or S corporation’s taxable year. However, if the remaining unpaid tax and interest is not remitted by the extended due date for the partnership or S corporation return, late payment penalties may be assessed on the unpaid balance.  Further, the safe harbor does not relieve the partnership or S corporation from penalties for failure to remit sufficient estimated tax payments. A partnership or S corporation permitted an extension of time to file its income tax return under IC 6-8.1-6-1 will be granted the same extension for PTET. In order to qualify for penalty relief, the partnership or S corporation is required: An extension does not relieve the pass through entity for interest on any unpaid tax or penalty except as specifically provided by law. SPECIAL NOTE FOR INCOME TAX ADDBACK PTET is a state tax based on or measured by income for purposes of IC 6-3-1-3.5 and IC 6-5.5-1-2. If a taxpayer deducts PTET for federal adjusted gross income tax purposes, the federal deduction must be added back to adjusted gross income in the year in which the taxpayer claims the federal deduction. This year may be different than the year to which the taxpayer claims the credit on their Indiana tax return. In addition, if the taxpayer is later refunded PTET, the refund is to be reported as a negative income tax addback for the year in which the refund is included in the taxpayer’s federal adjusted gross income. Individuals will report the refund as a negative income tax addback (Schedule 1 of Form IT-40 or Schedule B of Form IT-40PNR) as opposed to a state tax refund on Schedule 2 of Form IT-40 or Schedule C of Form IT-40PNR. SPECIAL RULES FOR RELATED TO PTET ADJUSTMENTS Partnerships electing to be subject to PTET and partners in those partnerships are also subject to the rules related to partnership audit changes and reporting under IC 6-3-4.5. In addition, S corporations that elect to be subject to PTET and their shareholders are subject to the provisions of IC 6-3-4.5 with regard to any adjustments to PTET. IC 6-3-4.5 does not apply to S corporations with regard to nonresident withholding tax under IC 6-3-4-13 nor to any other issues related to the S corporation’s tax attributes. Refer to Income Tax Information Bulletin #72A for further information on how partnership adjustments are treated, available at in.gov/dor/resources/tax-library/information-bulletins/income-tax-information-bulletins/. If you have any questions concerning this bulletin, contact the Tax Policy Division at taxpolicy@dor.in.gov.