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Ohio Department of Taxation issues update on PTE Tax for Electing Entities

Written on Apr 14, 2023

In June of 2022, Ohio’s General Assembly passed Am. S.B. 246. This bill added section R.C. 5747.38, which allows a qualifying pass-through entity (PTE) to “elect” to be subject to this new entity-level tax in response to the $10,000 limit placed on individuals who claim federal itemized deduction for state and local taxes (SALT cap) as enacted by the Tax Cuts and Jobs Act in 2017.

The following summarizes new updates and reminders as of April 6, 2023:

  • Filing Due Date: The due date to file the 2022 IT 4738 return is April 18, 2023. If an entity has an extension to file the federal 1065 or 1120-S, Ohio will honor that federal extension to file the IT 4738 to the same federal extended due date. Attach a copy of the federal extension when filing the IT 4738.
    • A federal extension is only an extension to file the IT 4738, not an extension to pay the electing pass-through entity tax liability.
  • Making payments: Previously the Ohio Department of Taxation issued advice to use the IT 1140 Universal Payment Coupon (UPC) to make estimated payments for the 2022 IT 4738. A new UPC for the IT 4738 is now available and is posted to the Department’s website on the forms page. If the entity needs to make 2023 estimated payments or needs to make a payment of total amount due for the 2022 IT 4738, use the IT 4738 UPC.
  • Claiming payments: If the entity elects to file the 2022 IT 4738, it is important to separate the payments as follows:
    • Line 11: Ohio IT 4738 estimated UPC/electronic payments for the taxable year. Only use this line to claim actual payments for which the entity used the IT 4738 UPC (was first available on 1/19/2023).
    • Line 12: IT 1140 and IT 4708 estimated UPC/electronic payments claimed on this return. Use this line to claim actual payments for which the entity used either the 1140 or 4708 UPC.
      • In addition, overpayment credit carryforwards (CCF) from the 2021 IT 1140 or 4708 that the entity wants to claim on the 2022 IT 4738 should also be reported on line 12. For tax years beginning 01/01/23 and after, there will be a new line specifically for claiming CCF from the previous tax year.
  • Filing Reminders for the IT 4738:
    • There is no line available on the IT 4738 for the electing pass-through entity (EPTE) to report the tax paid expense (as reported on the federal 1065 or 1120-S). The Department is seeing entities erroneously using Line 31 of the IT 4738 to report this tax paid expense add-back. The add-back of the EPTE tax paid is made on the individual income tax return, IT 1040, Schedule of Adjustments line 2.
    • Do not self-assess the IT 2210 interest penalty on the 2022 IT 4738. The Department is not applying this interest penalty for tax years starting prior to 01/01/2023.
    • There are no credits permitted to be taken on the IT 4738. If a PTE files an IT 4738 and has been made aware of credits that they may otherwise have been able to take, the PTE must pass those credits to its owners/investors via an Ohio IT K1 (line 4) vs. reporting them on the IT 4738.
    • Please include any federal return information or other supporting schedules when filing the IT 4738.
  • Bonus depreciation add-backs and deductions: Only an individual investor/owner and/or entity that has made a depreciation add-back in a previous tax year can claim the subsequent depreciation deduction in the current year. The Department is seeing entities who have never filed an Ohio PTE return for a previous tax year (IT 1140 or IT 4708) attempt to claim a depreciation deduction on their initial 2022 IT 4738. Only the entity that made the depreciation add-back on a previous year PTE return (IT 1140 or IT 4708) can claim the depreciation deduction on the 2022 IT 4738 return due April 18, 2023 (or the extended due date). For additional information regarding the depreciation adjustments for pass-through entities and individual investors, refer to the FAQ links below: