Illinois Pass Through Entity Tax Credit: Is Your Small Business Taking Advantage of This Credit?

Illinois Pass Through Entity Tax Credit: Is Your Small Business Taking Advantage of This Credit?

The Illinois Pass Through Entity Tax Credit (PTE Tax Credit) was introduced to address the impact of the federal $10,000 cap on state and local tax (SALT) deductions. If you are a small business owner in Illinois, it can help you lower your personal federal tax liability. Here’s how it works:

  1. Eligibility:
    • Pass-through entities such as partnerships, LLCs, and S corporations are eligible.
    • The entity must be subject to the Illinois Income Tax Act.
    • The credit is available for tax years 2022 through 2025
  2. Pass-Through Credit:
    • Calculate the credit based on the entity’s distributive share of Illinois income tax liability. (4.95% of the entity’s Illinois income)
    • The company must make quarterly estimated payments. The payments are a deductible business expense on the company’s federal income tax return.
    • Pass the credit through to owners/shareholders based on their proportion of ownership interest.
  3. Individual Owner/Shareholder Benefits:
    • Owners/shareholders can apply the pass-through credit to offset their personal Illinois income tax liability.
    • This helps mitigate the impact of the SALT deduction limitation at the individual level.

Below is a simplified overview of what the PTE looks like.

Example Facts*
S-Corp has $300,000 of Taxable Income
NO PTE Tax Election Made PTE Tax Election Made
S-Corp Income Passed through to Shareholder
$300,000 $285,150
Taxes Paid
$78,753 Federal Income Tax – Shareholder $73,556 Federal income Tax – Shareholder
$14,850 Illinois Income Tax – Shareholder $14,850 Illinois Income Tax – Shareholder
*Assumes taxpayer is a filing single and their pass through income from S-Corp is the shareholder’s only income.

Through the Illinois PTE Tax Credit, the Shareholder of this S-Corp would see tax savings of approximately $5,000.

Take advantage of the Illinois PTE Tax Credit to optimize your small business’s tax strategy. By leveraging available tax credits, you can reduce your overall tax liability, enhance financial stability, and position your business for greater success.

Contact us today for a consultation!