California Pass-Through Entity Elective Tax: 9.3% Through 2030, Who Can Elect and the June 15 Payment

California's pass-through entity elective tax, often called the California PTE tax, lets an S corporation or partnership pay California income tax at the entity level instead of passing all of the income through to owners who pay it on their personal returns. The election is made each year on the entity's return with Form FTB 3804, and it comes with a payment schedule that includes a June 15 deadline for the first payment. This guide covers what the tax is, who can elect, how the election and payments work, and how owners claim the credit. It is informational content, not legal or tax advice. Confirm each step with a qualified CPA before you file.

What the California Pass-Through Entity Elective Tax Is

For taxable years beginning on or after January 1, 2021 and before January 1, 2031, a qualifying pass-through entity may elect each year to pay an entity-level California tax on income. In plain terms, the program covers tax years 2021 through 2030. The rate is 9.3% of the entity's qualified net income. Qualified net income is the pro rata or distributive share of income of the entity's qualified owners, plus their guaranteed payments.

If the entity deducts this tax on its federal return, the amount deducted must be added back for California, according to the Franchise Tax Board (FTB). Owners then claim a California credit on their personal returns for the tax paid on their share, which is covered below.

Owners of S corporations often ask whether the election works as a California SALT cap workaround. This guide does not analyze the federal limit on the state and local tax deduction or its timing. Ask a CPA how that limit affects the choice.

Who Can Elect

Two questions decide eligibility: whether the entity qualifies, and whether each owner is a qualified owner.

Qualifying entities

A qualifying entity is one taxed as a partnership or an S corporation. That includes an LLC taxed as either a partnership or an S corporation. The following entities do not qualify:

• Publicly traded partnerships
• Entities required to be included in a combined reporting group

Qualified owners

A qualified owner, also called a qualified taxpayer, is an individual, fiduciary, estate or trust that is subject to California personal income tax. A disregarded single-member LLC owned by one of those owners is also treated as a qualified owner. Corporations and partnerships that own interests in the electing entity are not qualified owners.

Each owner must consent to include all of their share in qualified net income. Ask your CPA how that consent is documented for each owner before the return is filed.

How the Election Is Made

The election is made every year. It must be made on a timely filed original return. An amended return does not make the election. The entity files Form FTB 3804 with its return and includes the tax on the designated line of the return.

Once the election is made for a year, it is irrevocable for that year. The election binds both consenting and non-consenting owners, so one owner cannot opt out of the entity's choice.

Payments for the elective tax are made only through Web Pay or with the PTE payment voucher, Form FTB 3893. The payments cannot be combined with the entity's other tax payments, so they must be submitted separately. Confirm current forms and payment instructions on the FTB website at https://www.ftb.ca.gov/.

The Two Payments and the June 15 Rule

For tax years 2022 through 2030, the elective tax is paid in two payments.

Payment 1: due on or before June 15

Payment 1 is due on or before June 15 of the election year. Its amount is the greater of $1,000 or 50% of the PTE tax the entity paid for the prior year. For example, if the entity paid $3,000 of PTE tax for the prior year, 50% is $1,500, so Payment 1 is $1,500. If the entity paid $1,500 for the prior year, 50% is $750, so Payment 1 is $1,000 because the $1,000 floor applies.

Payment 2: due with the return

Payment 2 is the remaining amount of the tax. It is due on or before the original due date of the return, without regard to extensions. An extension of time to file does not move this due date.

If a due date falls on a weekend or a holiday, the due date moves to the next business day.

Missing or underpaying June 15 (2026 through 2030)

For tax years 2026 through 2030, missing the June 15 payment or underpaying it does not cancel the election. Instead, the owners must reduce their credit by 12.5% of their share of the unpaid amount that was due on June 15. For example, if an owner's share of the unpaid June 15 amount is $10,000, that owner's credit is reduced by $1,250. Confirm with the FTB and your CPA how the June 15 rules apply to tax years 2022 through 2025.

The Owner Credit

Qualified owners claim a nonrefundable credit for the tax paid on their share. They claim it by filing Form FTB 3804-CR with their personal California return. A nonrefundable credit can reduce tax owed but is not paid out as a refund beyond the tax owed.

Any unused credit carries over for up to 5 years.

Owners who compute the other state tax credit (OSTC) must add back the PTE credit that reduced their net tax, for tax years 2022 through 2030. Owners with income taxed by another state should ask their CPA how this add-back affects their OSTC calculation.

Separate From the $800 Minimum and the LLC Fee

The elective tax is separate from the $800 minimum annual franchise tax and the LLC fee. Paying the elective tax does not replace either one.

Every LLC, LP and LLP organized or registered in California in 2024 through 2026 owes the $800 minimum annual franchise tax from its first year. The LLC fee is $900, $2,500, $6,000 or $11,790, depending on California-source total income of $250,000, $500,000, $1,000,000 or $5,000,000 or more. A newly incorporated or qualified corporation or S corporation owes no $800 in its first taxable year.

An LLC whose first taxable year begins in 2027, 2028 or 2029 pays $400 in year one under RTC 17941(g)(2). Confirm the first-year amount with the FTB at https://www.ftb.ca.gov/ before you rely on it.

What to Ask Your CPA

Bring these questions to your CPA before the June 15 deadline:

• Does the entity qualify, and is it free of the publicly traded partnership and combined reporting group exclusions?
• Which owners are qualified owners, and how will each owner's consent be documented?
• How does the federal state and local tax deduction limit affect the choice to elect?
• How should Payment 1 be calculated from the prior year's PTE tax, and is the $1,000 floor relevant?
• If the June 15 payment is missed or underpaid, how will the 12.5% credit reduction affect each owner for 2026 through 2030?
• How much credit can each owner use this year, and how much will carry over for up to 5 years?
• How does the OSTC add-back affect owners who also claim the other state tax credit?
• Which first-year and annual amounts, including the $800 minimum and the LLC fee, apply to the entity this year?

Next Steps

Decide whether the election makes sense before June 15, since Payment 1 is due that day. Gather the prior year's PTE tax amount, confirm each owner's qualified status, and talk through the federal deduction limit with your CPA. Then prepare Form FTB 3804 for the return and the separate payments through Web Pay or Form FTB 3893.

This page is informational content, not legal or tax advice. Whether the California pass-through entity elective tax fits your business depends on your entity type, owners, income and federal tax position. Consult a qualified CPA or attorney before making the election or filing. Confirm current rates, forms and deadlines with the Franchise Tax Board at https://www.ftb.ca.gov/.