Pass-Through Entities

Pass-through entities can choose to be taxed at the entity level on their income, transferring the Virginia income tax liability on the PTE’s income from the PTE’s eligible owners to the PTE itself. The Elective Pass-Through Entity Tax must be filed electronically. Find a list of approved software products here.

The legislation also allows taxpayers to claim a credit for taxes paid to another state with certain similarly structured PTE tax on their Virginia return. See Tax Bulletin 22-6 and Tax Bulletin 23-3 for more information.

S Corporations, Partnerships, and Limited Liability Companies

Every pass-through entity (PTE) that does business in Virginia or receives income from Virginia sources must file an annual Virginia income tax return on Form 502 or Form 502PTET.

What is a “pass-through entity”?

A pass-through entity is any business that is recognized as a separate entity for federal income tax purposes and the owners of which report their distributive or pro rata shares of the entity's income, gains, losses, deductions, and credits on their own returns.

For Virginia tax purposes, “pass-through entities” include

For Virginia tax purposes, “pass-through entities” don’t include

For further information, see Tax Bulletin 05-6.

How to File and Pay - PTEs (Form 502)

There are several different ways to electronically file and pay your return.

Annual returns

Withholding payments

When to File

PTE income tax returns are due by the 15th day of the 4th month following the close of the business's taxable year. For calendar-year filers, that means April 15. If the filing deadline falls on a Saturday, Sunday, or holiday, you have until the next business day to file your return.

An automatic 6-month filing extension is allowed for pass-through entities filing on Form 502. No application for extension is required. To avoid late-filing penalties, you must file Form 502 no later than 6 months from the original due date of the return. For example, a calendar year Form 502 is due on April 15; therefore, the return must be filed no later than October 15 for the 6-month extension provision to apply.

The automatic extension of time to file does not extend the payment due date for withholding tax. The withholding tax payment is due on the due date of the pass-through entity's return regardless of whether the extension to file the income return (Form 502) is used. Use Form 502W to make the withholding tax payment by the due date.

Penalties for Late Filing and Late Payment

Extension penalty

Late payment penalty

If the return is filed during the extension period, but the tax due is not paid when the return is filed, both the extension penalty and the late payment penalty may apply. The extension penalty will apply from the due date of the return through the date the return is filed, and the late payment penalty (6% of the amount due) will apply from the date the return is filed through the date of payment.

To avoid paying the late payment penalty during the extension period, you must pay the tax owed when the return is filed.

Late filing penalty

If Form 502 is filed after the extended due date (6 months from the original due date), the extension provisions no longer apply and the PTE will be subject to the maximum late filing penalty of $1200.

For any month, or part of a month, that the PTE was subject to the late payment penalty and the late filing penalty, the greater of the 2 penalties will apply.

Resources

How to File and Pay - Elective Pass-Through Entity Tax (PTET) (Form 502 PTET)

PTEs can choose to pay Virginia income tax at the entity level, transferring the tax liability from the eligible owners of the entity to the entity itself. Electing PTEs should file the 502PTET form, reporting only the pro rata share of income, gain, loss, or deductions attributable to eligible owners of the PTE in the computation on Page 2,Section 1 of the form. The 502PTET form must be filed electronically. Find a list of approved software products here.

For Tax Year 2021, 2022, and 2023 filers, a free electronic filing option is available through your online business account. Tax Year 2021 returns must be filed using this option.

“Eligible owners” are:

Eligible owners may claim a refundable tax credit equal to the amount of Virginia tax paid on their behalf by the PTE. For more information, see Pass-Through Entity Elective Tax Payment Credit.

When to File

PTET returns are due by the 15th day of the 4th month following the close of the business's taxable year. For calendar-year filers, that means April 15. If the filing deadline falls on a Saturday, Sunday, or holiday, you have until the next business day to file your return.

An automatic 6-month filing extension is allowed for pass-through entities filing on Form 502PTET. No application for extension is required. To avoid late-filing penalties, you must file Form 502PTET no later than 6 months from the original due date of the return. For example, a calendar year Form 502PTET is due on April 15; therefore, the return must be filed no later than October 15 for the 6-month extension provision to apply.

The automatic extension of time to file does not extend the payment due date. The withholding tax payment is due on the due date of the pass-through entity's return regardless of whether the extension to file the income return (Form 502PTET) is used.

Payment Requirements

Payment requirements vary depending on the tax year:

Tax Year 2023 Filers