Virginia Elective Pass-Through Entity Tax | Virginia Tax (2024)

FAQs

What is the elective pass-through entity tax in Virginia? ›

Electing PTEs are taxed at a rate of 5.75%. Eligible owners of a PTE are: natural persons who are subject to Virginia income tax, or. estates or trusts subject to Virginia income tax.

The PTE tax and credit is equal to 9.3% of each taxpayer's qualified net income. Qualified net income is each consenting qualified taxpayer's total pro rata or distributive income and guaranteed payments that are subject to California income tax.

PTET Overview

The PTE law effectively allows qualifying pass-through entities, for taxable years 2021 through 2025, to make an annual election to pay an entity level income tax for the period covered by the return at the individual income tax rate of 5.75%.

Once all conditions are met, the owner's pro rata or distributive share (plus guaranteed payments) of qualified net income is reported on Form 3804. Their respective elective tax credit amount is then calculated by taking their share of qualified net income multiplied by 9.3%.

Most US businesses are taxed as pass-through (or flow-through) entities that, unlike C-corporations, are not subject to the corporate income tax or any other entity-level tax. Instead, their owners or members include their allocated shares of profits in taxable income under the individual income tax.

Virginia corporate tax

Many LLCs are classified as pass-through entities (i.e., taxes are levied on the owners' individual tax returns), but you can choose to be taxed as a corporation instead. If you choose to be taxed as a corporation, it means your LLC will be taxed with Virginia's corporate income tax rate of 6%.

Potential Disadvantages

The most significant disadvantage of all pass-through entities except for S-Corps is that the owners pay taxes and self-employment taxes on all company earnings. This tax treatment could mean they are pushed into a higher tax bracket and pay 15.3% in self-employment taxes.

One of the main tax benefits of electing a pass-through business structure is avoiding double taxation. Business earnings are only taxed once, on the owner or shareholder's personal tax return.

Accordingly, C Corporations are not considered pass-through entities. These entities are subject to double taxation.

Are you subject to Virginia withholding, yes or no? ›

In general, an employer who pays wages to one or more employees in Virginia is required to deduct and withhold state income tax from those wages. Since Virginia law substantially conforms to federal law, if federal law requires an employer to withhold tax from any payment, we also require Virginia withholding.

For tax years 2019 and 2020, the deduction allowed is 25% of the federal deduction. For tax year 2021, 50% of the federal deduction will be allowed. For tax year 2022, 75% of the federal deduction will be allowed.

PTE tax allows an entity taxed as a partnership or S Corporation to make a tax payment on behalf of its partners. The business pays an elective tax of 9.3% of qualified net income to the Franchise Tax Board.

PTE elective tax calculation

The PTE elective tax is 9.3% of the entity's qualified net income, which is the sum of the pro rata or distributive share and guaranteed payments of each qualified taxpayers' income subject to California personal income tax.

Generally, a state election to pay tax at the entity level can be made by entities treated for federal tax purposes as partnerships (other than publicly traded partnerships) or S corporations; however, many states provide limitations or exceptions to this general rule.

The elective share serves as an override to a testator's stated intent by allowing the surviving spouse to choose to take a portion of the decedent's estate — even if the will explicitly disinherits the surviving spouse.

Unlike pass-through entities such as sole proprietorships, partnerships, and S corporations, C corporations are separate taxable entities. This means the corporation itself is subject to income tax on its profits.

The tax for each dog or cat shall not be more than $10 for each year or $50 for a lifetime license issued pursuant to subsection B of § 3.2-6530. If the dog or cat has been spayed, the tax shall not exceed the tax provided for a male dog or cat.

Pass-Through Entity Annual Withholding Return

A Pass-Through Entity (PTE) is generally an entity that passes its income or losses through to its owners instead of paying the related tax at the entity level. A PTE can be any of the following: Estates. Trusts. S corporations.