New 2022 Tax Guidance for Virginia Pass Through Entities

PTET Election: What Pass Through Entities Need to Know

Virginia previously enacted Pass through Entity Tax legislation. However, certain partnerships were not eligible if the partnership had entities as members. In an effort to alleviate additional Federal tax burdens for Virginia business owners, legislation was enacted by the 2023 Virginia General Assembly (H.B. 1456 and S.B. 1476) to broaden eligibility of the new elective pass-through entity tax (“PTET”). The legislation is now signed allowing additional pass-through entities to utilize the PTET. The Virginia Department of Taxation issued new guidance on March 29, 2023, to help taxpayers reconcile their 2022 PTET returns. Following is a summary of key PTET requirements and considerations.

“Eligible Owner” requirement

The new law replaces the original qualifying pass-through entity (PTE) requirement with an “eligible owner” requirement  allowing any PTE to make the election but the tax may only be paid on behalf of eligible owners. The eligible owner is a direct owner of the PTE as follows:

1) Is a natural person or

2) An estate or trust subject to the Virginia fiduciary income tax who can claim a PTE tax credit.

PTET change effective date

• This tax law change is retroactive back to 2021.
• The effective date is July 1, 2023, but can be relied upon now for filing purposes, according to the Virginia Department of Taxation.

Filing information and deadline

• All PTEs choosing to make the PTET election (including those not meeting the qualifying PTE requirement under prior law as described above) should pay the 2022 tax by the original filing deadline.
• The original filing deadline for calendar year filers is April 17, 2023.
• The return should be completed based upon changes to the PTET computation made by this legislation.
• PTEs wishing to make the election should file Form 502-PTET or the PTE extension to make a payment of at least 90%.
  • non-eligible owners, including corporations and other PTEs, should not be included on the Form 502PTET
• PTEs may extend the time for filing the return and making the election but not the time for payment of the PTET.

Other considerations

No action is required for qualifying PTEs that already filed their taxable year 2022 PTET return because their computation is unchanged. The taxable year 2021 PTET implementation is delayed until at least October 15, 2023, so those seeking to make that election should follow Virginia Tax Bulletin 22-6 until additional guidance is issued.

The Keiter team will continue to monitor additional PTET guidance and provide timely updates so you can plan proactively. Contact your Opportunity Advisor if you have any questions specific to your partnership tax situation.

Additional Resources

Virginia Department of Taxation’s Pass-Through Entity Tax Frequently Asked Questions for Taxable Year 2022 and After