Pass-through entities (PTEs) include:
- Limited-liability companies taxed as a partnership or S corporation
- S corporations
- Trusts and estates
Income, losses, deductions and credits typically flow through the entity and are taxed at the owner level. Owners should include their share of income or loss on their individual income tax return. The entity can choose to pay the tax for Idaho nonresident individuals on the entity’s composite return. (See Idaho Code section 63-3006C.)
Idaho’s affected business entity (ABE) election provides any partnership or S corporation the option of paying its Idaho income tax as a pass-through entity (PTE) at the corporate rate. This election allows each individual or company that’s a member of the partnership or S corporation to receive a credit against what they owe for Idaho income tax.
Key facts to know about ABE:
- The PTE can make the ABE election for any taxable year by selecting the election’s checkbox on a timely filed original return.* All filing requirements, including extensions, also apply to ABEs.
- The PTE must make the election each year it wants to file as an ABE.
- Each ABE must pay any tax due on or before April 15 (calendar-year filers), or the fifteenth day of the fourth month following the close of each taxable year.
- PTEs making the ABE election can’t take the Idaho capital gains deduction on the sale of Idaho property. ABEs must pass this deduction to owners to take on their individual returns.
- ABE estimated payments are voluntary payments and don’t qualify for refund interest.
- An entity with no prior tax return filed in Idaho that’s electing an ABE for the first time must pay 80% of the tax due by the original due date to qualify for an extension.
* The Tax Commission provides an ABE election form. Keep this election form on file for your records; don’t send it to the Tax Commission. Simply filing the income tax return with the ABE checkbox selected is sufficient for making the election.
PTEs, owners, and reporting
The information below defines the reporting requirements for each pass-through owner type, with an emphasis on nonresident individuals. The PTE must include both the following items with its business income tax return:
Resident and part-year resident individuals
These owners must report the income from the PTE on their Idaho income tax returns. The entity can’t include these owners in a composite filing, and these owners aren’t subject to withholding.
Corporations, partnerships, trusts, and estates or
Nonresident individual owners with Idaho distributable income of less than $1,000
These owners must report the income from the PTE on their Idaho returns if they have other reporting requirements. The entity can’t include these owners in a composite filing, and these owners aren’t subject to withholding.
Nonresident individual owners with Idaho distributable income of at least $1,000
A PTE has three options for its nonresident individual owners with Idaho distributable income of at least $1,000:
- Option #1: Form PTE-NROA, Idaho Nonresident Owner Agreement
- Option #2: Composite filing
- Option #3: Withholding
Option #1: Form PTE-NROA
The nonresident individual owner can submit a signed agreement (Form PTE-NROA) to the PTE. This allows the nonresident individual owner to file an Idaho return to report the Idaho-source distributable income from the entity and pay the tax due. The Tax Commission can assess the PTE for the taxes due if the nonresident individual doesn’t file the return and pay the tax due.
If the pass-through entity receives Form Form PTE-NROA for a nonresident individual owner and approves it, the entity doesn’t include the individual in a composite filing or pay withholding on Form PTE-01, Idaho Income Tax Withheld for an Individual Nonresident Owner of a Pass-through Entity, to the Tax Commission on the owner’s behalf.
Option #2: Composite filing
Under the composite filing option, the PTE pays the tax for the nonresident individuals on the entity’s return at the corporate tax rate.
- Include the nonresident individual’s information on Form PTE-12. Enter C for Composite Return Filing in the Filing Code column.
- Complete Part V of Form ID K-1 for each nonresident individual owner. Put the amount of tax paid on line 38.
- The entity also must enter the amount of tax paid on line 38 for each individual owner on its Form PTE-12 under column c. (These amounts must match.)
With this option, the entity return will show a tax due amount. The entity won’t use Form PTE-01 because no withholding payment is being made.
Option #3: Withholding
The PTE pays Idaho income tax withholding calculated at the highest individual tax rate on the nonresident individual’s Idaho source distributable income from the PTE.
- The PTE submits withholding to the Tax Commission using a Form PTE-01 for each nonresident individual owner.
- The PTE must pay withholding to the Tax Commission by the 15th day of the fourth month following the end of the tax year.
- When a PTE has a fiscal year end other than that of the owner, the credit passes through in the same period that the owner reports the income or loss for federal tax purposes.
- Put the owner’s tax year in the “payment is for tax year” section of the Form PTE-01.
- Include the nonresident individual’s information on the Form PTE-12. Enter W for Withholding in the Filing Code column.
- Complete Form ID K-1 for each nonresident individual owner. Put the amount of Idaho distributable income on line 34, column b.
- The PTE also must enter the amount of withholding paid for each individual owner on the entity’s Form PTE-12 under column d. (These amounts must match.)
Under this option, the entity return won’t show a tax due amount or any estimated payments. File a Form PTE-01 for each nonresident individual owner the PTE pays withholding on.
Forms and publications
- Form ID K-1, Partner’s, Shareholder’s, or Beneficiary’s Share of Idaho Adjustment Credits
- Form PTE-12, Idaho Schedule for Pass-Through Owners
- Form PTE-01, Idaho Income Tax Withheld for an Individual Nonresident Owner of a Pass-Through Entity
- Form PTE-NROA, Idaho Nonresident Owner Agreement
- All business income tax forms and publications for the current year