Pennsylvania — No Pass-Through Entity Tax (PTET) — Pennsylvania has not adopted an elective pass-through entity tax; the Act 52 of 2013 entity-level assessment election is a collection mechanism, not a PTET

# Summary

Pennsylvania has not adopted an elective pass-through entity tax (PTET). There is no Pennsylvania entity-level income tax that a partnership, PA S corporation, or LLC may elect to pay in place of its owners' personal income tax, and therefore no PTET rate, no election, and no election deadline exist. Pennsylvania taxes pass-through income to the owners at the flat personal income tax rate, reported on the PA-20S/PA-65 information return and passed through on Schedules RK-1 and NRK-1. Nonresident owners may instead be included on the PA-40 NRC nonresident consolidated return, which is a composite filing rather than an entity-level tax. Two features of Pennsylvania practice are commonly mistaken for a PTET and are distinguished below: the Act 52 of 2013 entity-level assessment election, and the resident credit rules that reference other states' entity level taxes.

# The Act 52 of 2013 entity-level election is an assessment mechanism, not a PTET

Line 5 of the PA-20S/PA-65 asks whether "the entity elect[s] to be subject to assessment at the entity level under Act 52 of 2013," and that checkbox is the single most likely source of a false positive. It is not an election to pay an entity-level income tax. The Department's own instruction for the corresponding line explains the mechanism: "The entity must answer 'Yes' if it is electing to be subject to assessment at the entity level. Act 52 of 2013 authorized the assessment of specific partnerships and PA S corporations at the entity level. Certain partnerships and PA S corporations are not automatically subject to assessment at the entity level per the statute. However, the Act provides an option for such partnerships" to elect in. What Act 52 changed is who the Department may assess when tax attributable to pass-through income goes unpaid — the entity rather than each owner — not who bears the tax. The income remains the owners' income, taxed at the personal income tax rate on their own returns, and electing in produces no entity-level rate, no separate entity tax computation, and no owner credit for tax paid by the entity. A true PTET does all three.

# Pennsylvania's own instructions treat entity level taxes as something other states impose

The Schedule RK-1 instructions confirm the position from the opposite direction. Line 8 of the RK-1 carries the resident credit for taxes paid to other jurisdictions, and the Department instructs: "Do not use Line 8 to report a resident credit for an Entity Level Tax. Certain states have imposed an entity level tax (ELT) on pass-through entities resulting from the Federal Tax Cut and Jobs Act (P.L. No: 115-97)." Pennsylvania is describing the ELT as a feature of other states' regimes and telling its own filers how to treat it — which it would have no reason to do if Pennsylvania imposed one. The Department directs filers to its FAQ Answer ID 3618 for the treatment of another state's ELT.

# What Pennsylvania imposes instead

Pass-through income is taxed to the owners under Article III of the Tax Reform Code at Pennsylvania's flat personal income tax rate, with no graduated brackets. The entity files the PA-20S/PA-65 information return and issues Schedule RK-1 to resident owners and Schedule NRK-1 to nonresident owners, reporting each owner's pro rata share by class of income. For nonresident individual owners, the entity may file the PA-40 NRC, the Nonresident Consolidated Return, which "is a tax return used to combine and report the income (losses), PA tax withheld, credits, etc." of qualifying nonresident owners. The NRC is a composite return: the participating owners remain the taxpayers, so it is not an entity-level tax and does not generate a federal deduction at the entity level in the way a PTET is designed to.