What is the Pass-through Entity (PTE) tax?

The Pass-through Entity (PTE) tax is an entity-level income tax that partnerships (other than publicly traded partnerships under IRC 7704) and subchapter S corporations may elect to pay effective for tax years ending on or after December 31, 2021. The PTE tax rate is equal to 4.95 percent (.0495) of the taxpayer's net income for the taxable year. A partnership or S corporation making the election is liable for paying the PTE tax. If the electing partnership or S corporation fails to pay the full amount of tax deemed assessed, the partners or shareholders shall be liable to pay the tax assessed (including penalties and interest).

The election to pay the PTE tax is made on Form IL-1065, Partnership Replacement Tax Return, or Form IL-1120-ST, Small Business Replacement Tax Return, for tax years ending on or after December 31, 2021. When a partnership or S corporation makes the election to pay the PTE tax, it is required to make quarterly estimated payments if the expected tax due (including both the PTE tax and replacement tax) is more than $500 or incur late estimated payment penalties. However, the Illinois Department of Revenue will waive late estimated payment penalties related to an election to pay the PTE tax for tax years ending before December 31, 2022. Taxpayers are encouraged to make voluntary prepayment of the pass-through entity tax to reduce any tax payment due when the return is filed. These prepayments can be made

Reminder: You must make electronic payments if your annual tax liability, including PTE tax, meets or exceeds $20,000. 

For taxpayers receiving PTE tax credit, the PTE tax credit is considered paid/received on the last day of the pass-through entity's tax year. 

The penalty relief only applies to partnerships and subchapter S corporations that elect to pay PTE tax. Partners and shareholders of these entities are not eligible for the penalty relief. However, partners and shareholders may claim a tax credit against their own tax liability for distributive shares of the PTE tax credit and may adjust their estimated payments accordingly.

See the Pass-through Entity Information (Publication 129) web page for more information.

If you have additional inquiries, you may submit them to the Questions, Comments, or Request form.