California PTE Elective Tax Explained

California's pass-through entity elective tax, often called the PTE tax, is an optional 9.3% tax that a qualifying partnership, S corporation, or qualifying LLC can elect to pay on the qualified net income of consenting owners. Eligible owners may claim a corresponding nonrefundable California personal income tax credit.

The election was designed to let the entity pay a state income tax that may be deductible in computing federal pass-through income, subject to federal law, while California gives the owner a credit. It is not automatically beneficial and does not replace the entity or owner returns.

Which entities may qualify?

Qualified entities generally include entities taxed as partnerships or S corporations. A disregarded single-member LLC, most publicly traded partnerships, and an entity required to be included in a California combined report generally cannot make the election, subject to the current statutory definitions.

Eligible owners can include individuals, fiduciaries, estates, trusts, and certain disregarded single-member LLCs owned by those taxpayers. Corporations generally do not receive the owner credit. Ownership structure must be reviewed before assuming every owner qualifies.

The election is annual and irrevocable for the taxable year once made on a timely filed original return. Owners choose whether to consent; the entity can generally elect even if not every owner participates.

How the calculation works

The entity calculates qualified net income attributable to consenting qualified taxpayers and multiplies it by 9.3%.

Suppose a California S corporation has $140,000 of qualified net income. Elena consents and is allocated $100,000; another owner does not consent.

$100,000 × 9.3% = $9,300 PTE elective tax

The S corporation pays and reports the elective tax. Elena may receive a $9,300 California PTE tax credit, subject to the governing rules. The other owner receives no credit for the excluded $40,000.

The entity payment can reduce federal ordinary income or pass through as a separately analyzed item depending on entity type, timing, accounting method, and current federal guidance. California requires state adjustments so the mechanism is not counted twice.

Payment deadlines and the 2026 change

For calendar-year entities, the initial payment is generally due June 15 of the election year. It equals the greater of:

• $1,000, or
• 50% of the PTE elective tax paid for the prior taxable year.

The remaining elective tax is generally due by the original due date of the entity return, without regard to the filing extension.

Entity forms and owner reporting

Form FTB 3893 is used for PTE elective-tax payments. The entity calculates and reports the election using Form FTB 3804 with its timely original Form 565, 568, or 100S, as applicable. Owners receive credit information, commonly through Schedule K-1 and Form FTB 3804-CR or related reporting.

The owner claims the nonrefundable credit on the California personal income tax return. "Nonrefundable" means it generally cannot reduce tax below zero for the year. Unused credit can generally carry forward for up to five taxable years under current rules.

Entity records, owner records, payment confirmations, K-1 reporting, and return software must agree.

PTE tax versus estimated tax and withholding

PTE elective tax is paid by the entity and produces an owner credit. Form 540-ES estimated tax is paid by an individual toward personal liability. Nonresident withholding is another distinct payment system.

An owner should not enter the entity's Form FTB 3893 payment as a personal estimate. Instead, the owner claims the properly reported PTE credit. Because the credit is nonrefundable and may be reduced or carried forward, personal estimates should be projected after considering the expected credit — not automatically eliminated.

When the election may or may not help

Potential benefits depend on the federal deduction, California credit usage, ownership, cash flow, tax rates, losses, credit carryovers, nonresident status, other-state tax credits, entity accounting method, and owner-specific limitations. An entity with losses or owners who cannot use the credit promptly may receive little benefit.

The cash leaves the entity before owners claim the credit. Agreements should address how participating and nonparticipating owners bear the payment and how distributions are adjusted.

Common mistakes

• Missing or underpaying the June 15 installment
• Applying the post-2025 reduced-credit rule to a pre-2026 election
• Including ineligible owners or income
• Treating every state tax payment as federally deductible without timing analysis
• Claiming the entity payment as the owner's estimated payment
• Forgetting the annual, irrevocable election on a timely original return
• Ignoring credit carryovers or owner basis and distribution effects
• Assuming an extension extends the remaining payment deadline

Records to retain

Keep owner consents, ownership schedules, qualified-net-income workpapers, Forms FTB 3893 and payment confirmations, Forms FTB 3804 and 3804-CR, returns, K-1s, federal deduction workpapers, state adjustments, credit carryforward schedules, and governing-document provisions allocating the economic cost.

Frequently asked questions

Related terms

• Pass-Through Entity
• California PTE Tax Credit
• S Corporation
• Partnership
• California Estimated Tax
• Schedule K-1
• State and Local Tax Deduction

Official sources

• California FTB — Pass-through entity elective tax
• California FTB — PTE elective-tax help
• California FTB — 2026 Form FTB 3893 instructions
• California FTB — Senate Bill 132 extension summary

The definitions and examples on this page are for informational purposes only and do not constitute tax advice. Tax laws change frequently and individual circumstances vary. Consult a qualified tax professional before making decisions based on this content.