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Electing Pass-Through Entity: IT 4738

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Form / Instructions 

Due Dates 

The due date for filing the IT 4738 is April 15th after the year in which the entity’s fiscal year ends. For taxable year 2022, the due date for filing is April 18, 2023.

See the chart below for a comparison of the IT 4738 Electing Pass-Through Entity Income Tax Return, the IT 4708 Pass-Through Entity Composite Income Tax Return and the IT 1140 Pass-Through Entity & Trust Withholding Tax Return.

FAQs 

Q1: What is the new Electing Pass-Through Entity (EPTE) Income Tax that has been enacted in 2022?

Senate Bill 246 (134th General Assembly), creates a third PTE tax that allows a qualifying PTE to elect to be subject to this entity-level tax starting tax year 2022. This new PTE tax is meant to comply with IRS Notice 2020-75

Q2: What is the difference between the new IT 4738 electing pass-through entity (EPTE) tax vs. the pass-through entity (PTE) withholding tax paid on the IT 1140 and the composite income tax paid on the IT 4708?

The new IT 4738 electing pass-through entity tax is an entity level tax that is imposed on the entity’s total qualifying taxable income (all the PTE’s business income subject to apportionment plus all the PTE’s nonbusiness income subject to allocation). The tax paid on the IT 4708 and IT 1140 is filed and paid by the entity BUT is filed and paid on behalf of the entity’s shareholders/partners/investors. Neither tax (IT 4708/IT 1140) is imposed on the entity directly

Q3: How does an entity elect to be subject to this new tax on “electing” PTEs?

The Department has developed a new form, the IT 4738, for taxable year 2022. The election is made by filing the IT 4738 on or before the filing deadline.

Q4: What is the tax rate for the IT 4738 Electing Pass-Through Entity Income Tax Return?

For taxable years beginning in 2022, the IT 4738 tax rate is 5%; For taxable years beginning in 2023 and later, the tax rate is equal to the tax rate imposed on taxable business income pursuant to R.C. 5747.02 (A)(4)(a), which is currently 3%.

Q5: What is the due date for filing the IT 4738 Electing Pass-Through Entity Income Tax Return?

The due date for filing the IT 4738 is April 15th after the year in which the entity’s fiscal year ends. For taxable year 2022, the due date for filing is April 18, 2023.

Q6. Can an entity with a fiscal year filing period that begins prior to 1/1/2022 and ends during calendar year 2022 file the new electing pass-through entity tax (IT 4738) for taxable year 2022?

No. Entities may only elect to be subject to the new electing pass-through entity tax for taxable years beginning 1/1/2022 or later. If the taxable year begins prior to 1/1/2022, the new EPTE tax is not available for taxable year 2022.

Q7: When are estimated payments due for the IT 4738 Electing Pass-Through Entity Income Tax Return?

Estimated payments are due for the IT 4738 on the 15th day of the month after the end of each quarter.

No estimated payment coupon (UPC) is currently available for the IT 4738. If you need to make estimated payments, the Department recommends using the IT 1140 UPC.  The IT 4738 features a line in Schedule I to notify the Department to transfer payments from one of the other PTE form types (IT 1140 or IT 4708) to the IT 4738 for previously made payments.

Q8: Can the entity claim estimated (UPC/electronic) payments on the IT 4738 Electing Pass-Through Entity Income Tax Return that were originally remitted for the IT 1140 and/or IT 4708 for the taxable year?

Yes. The IT 4738 features a line to claim estimated payments the entity made for an IT 1140 and/or IT 4708 for the taxable year.

IT 4738 Schedule I, Line 12:

Q9: How does an electing pass-through entity (EPTE) make estimated payments if the entity intends to file the IT 4738?

If the entity intends to file the IT 4738, remit a payment via one of the following two methods:

NOTE: The 2022 IT 4738 features a line in Schedule I to notify the Department to transfer estimated payments from one of the other PTE form types (IT 1140 or IT 4708) to the IT 4738.

IT 4738: Schedule 1, line 12

If the entity is a first-time Ohio PTE filer, the PTE Registration Form must accompany the first estimated payment. Upload the PTE Registration Form via the Online Notice Response Service (ONRS) at tax.ohio.gov, email directly to the PTE & Fiduciary Income Tax Division at pass-throughentity@tax.state.oh.us, fax to (206)984-1685, or include a copy of the form when mailing the check/UPC.

See the PAYMENTS: Pass-Through Entity (PTE) & Fiduciary Income Tax page at the Department’s website tax.ohio.gov for additional payment information.

 

Q10: Can the entity claim a credit carryforward from a prior year IT 1140 and/or IT 4708 on the IT 4738 Electing Pass-Through Entity Income Tax Return?

Yes. The IT 4738 features a line on the form to claim a credit carryforward from the prior year IT 1140 and/or IT 4708 filing. See the 2022 IT 4738 instructions for additional details.

Q11: Can a disregarded entity elect to file the IT 4738 Electing Pass-Through Entity Income Tax Return?

No. A disregarded entity may not make the election to file the IT 4738.

Q12: Are all owners bound by the entity’s election to file the IT 4738 Electing Pass-Through Entity Income Tax Return?

Yes. The entity’s election to file the IT 4738 is binding on all owners of the entity.

Q13: Must all owners’ qualifying taxable income be included on the IT 4738 Electing Pass-Through Entity Income Tax Return?

Yes. All owners’ qualifying taxable income is required to be included on the IT 4738.

Q14: Can the entity file the IT 1140 and/or the IT 4708 for the same taxable year if the entity has already filed the IT 4738?

No. Once the election is made by filing the IT 4738, that election is irrevocable for the taxable year.

Q15: Can a trust that typically files the IT 1041 return elect to file the IT 4738, instead?

No. A trust is not a qualifying pass-through entity; thus, it is disallowed from filing the IT 4738 Electing Pass-Through Entity Income Tax Return.

However, a trust, as an owner of an electing pass-through entity (EPTE) which has elected to file, must be included on the IT 4738, as all owners’ qualifying taxable income is required to be included on the IT 4738. Note: When filing the IT 1041, the trust must add back its proportionate share of the tax amount paid on the entity’s IT 4738. See R.C. 5747.01(S)(!5).

Q16: Ohio law states the election to file the IT 4738 Electing Pass-Through Entity Income Tax Return is irrevocable for the taxable year. Can an entity choose each year whether to file the IT 4738, despite having filed an IT 4708 in a prior taxable year?

Yes. The election to file the IT 4738 is made each year. The entity can alternate between filing the IT 4738 and the IT 4708. Note the IT 1140 Pass-Through Entity and Trust Withholding Tax Return does not allow the inclusion of Ohio resident owners.

Q17: Does the filing of the IT 4738 Electing Pass-Through Entity Income Tax Return eliminate a nonresident owner’s IT 1040 Individual Income Tax Return filing requirement or a trust’s IT 1041 Fiduciary Income Tax Return filing requirement?

The IT 4738 satisfies the Ohio filing requirements for the entity’s nonresident and trust owners, unless the owners have other Ohio-sourced taxable income. However, a nonresident or trust is not prohibited from filing an IT 1040 or IT 1041, as applicable. See R.C. 5747.08(L)

Q18: How does an individual owner report the tax paid on the IT 4738 Electing Pass-Through Entity Income Tax Return when filing the IT 1040 Individual Income Tax Return?

Owners who file an IT 1040 must add back the proportionate share of taxes paid on the IT 4738 (to the extent not included in computing federal or Ohio adjusted gross income) on the Ohio Schedule of Adjustments. A refundable credit equal to the owner’s proportionate share of tax paid on the IT 4738 will be available on the Ohio Schedule of Credits. See FAQ “Can the entity’s owners claim a refundable business credit from the entity’s IT 4738 Electing Pass-Through Entity Income Tax Return when they file their own IT 1040 Individual Income Tax Return?”

Q19: Can the entity’s owners claim a refundable business credit from the entity’s IT 4738 Electing Pass-Through Entity Income Tax Return when they file their own IT 1040 Individual Income Tax Return?

Yes. Owners can report a refundable business credit in the amount of their proportionate share of the tax paid by the entity on the IT 4738, which the entity reports on the IT K-1 it issues to its owners. The credit is reported on the Ohio Schedule of Credits as a pass-through entity credit.

Q20: Will the Department impose the 2210 interest penalty on entities that elect to file the 2022 IT 4738 Electing Pass-Through Entity Income Tax Return for failure to make, or paid late, estimated payments?

No. The Department will not impose the 2210 interest penalty on any entities that elect to file the 2022 IT 4738 for failure to make, or paid late, estimated payments.

From tax years starting 1/1/23, entities that elect to file the IT 4738 will be subject to the 2210 interest penalty for failure to make timely estimated payments.

See PTE FAQs category Estimated Payments & the 2210 Interest Penalty at tax.ohio.gov for additional details.

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