The tax is based on Illinois base income after apportionment or allocation. ![]() The tax on electing partnerships and S corporations will be at a flat tax rate of 4.95%. Based on discussions with the Illinois Department of Revenue (“IDOR”), the election will be made by checking a box on the PTE return indicating consent to the PTE tax. The PTE Tax is elective, meaning that it is made on an annual basis. Pass-Through Entity Tax is Made on Annual Basis Indeed, the IRS has blessed this type of arrangement in their Notice 2020-75 in which they approved the Federal deduction of state PTE taxes paid by the entity in circumstances where the PTE owner receives a state tax credit and where the PTE tax essentially is paid in lieu of the state income tax otherwise imposed directly upon the PTE owner. Under current law, state income taxes paid by individuals, whether attributable to PTE income or other income, are subject to the TCJA’s $10,000 cap whereas the tax paid at the entity level is not subject. And as a reminder, it is not just state income taxes that are limited to the cap of $10,000 per year-the cap also applies to the aggregate real property taxes, sales taxes, income taxes, or other taxes as well. In effect, the PTE tax will circumnavigate the Federal limitation on deduction of taxes limited to $10,000 per year as enacted in the Tax Cuts and Jobs Act of 2017 (TCJA). This new alternative resembles a composite tax arrangement which will look familiar to investors and owners with pass-through entity interests out-of-state and who have seen this kind of arrangement before. ![]() Pritzker signed into law an act* establishing an alternative way to tax the income of partnerships, LLCs and S corporations (“pass-through entities” or “PTE” for short). ![]() On August 27, 2021, Illinois Governor J.B.
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