As you may have seen, the Indiana Senate Bill 2: Taxation of Pass-Through Entities (SB2) has been signed into law by Governor Holcomb.
This bill provides pass-through entities (PTEs) an election to pay Indiana income tax at the entity level, based upon an individual owner’s share of income. The election creates a tax credit for the individuals/owner(s) which offsets the individual’s personal income tax liability. The savings opportunity is this can maximize your state tax deduction for Federal purposes and reduce your Federal taxable income.
Additional information
- The Indiana Pass-Through Entity Tax rate is the individual rate of 3.23%. It does not include county taxes.
- The election will be made via a hardcopy form mailed directly to the Department. In the initial year, the election will not be available to be filed electronically. This is expected to change for 2023.
- The deduction for state taxes paid will be deducted from federal ordinary income in the year the taxes are paid (2023 in most cases).
- Because of the retroactive nature of the bill, the 2022 election must be made after March 31, 2023, and before August 31, 2024.
We are monitoring the Indiana Department of Revenue’s readiness to accept the election and produce the forms to accommodate the new tax as well as the readiness of the tax software providers to implement the change. This means clients who benefit from this election will need to file extensions.
If you have any questions or concerns, please do not hesitate to contact your HSC service leader or call our office at 800.880.7800.
