Web Content Viewer
Actions

Pass-Through Entities & Fiduciaries - General Information

Generally, income taxes paid by an individual to another state or the District of Columbia, including amounts paid by a PTE on behalf of its investors on a composite income tax return, are eligible for the Ohio resident credit. However, any taxes paid that are directly or indirectly deducted, or are required to be deducted, in computing the investor’s federal adjusted gross income are not eligible for the Ohio resident credit. Therefore, taxes paid by a PTE as part of a workaround for the federal state and local tax (SALT) deduction limitation will not qualify for the Ohio resident credit.

See R.C. 5747.05(B)(4)(a).

A PTE can only claim business credits when filing an IT 4708. The PTE can only claim credits attributable to investors whose income is included on the IT 4708. Business credits include nonrefundable credits on the Ohio Schedule E and refundable credits on Schedule V of the IT 4708. Supporting documentation must be attached to the return to validate the source of the credit.

The PTE may NOT utilize any portion of a credit that is attributable to an investor whose income Is not included on the tax return. Only the portion of credits attributable to the investors included on the tax return can be used in calculating the entity’s tax due.

As an example, if only 33% of the investors and their income are included on the IT 4708, then only 33% of the PTE credit from another PTE is available for use on their IT 4708 tax return. The remaining 67% should be claimed on the return where the income is reported, if allowable.

If withholding was done in error on non-qualifying investors, see FAQ “How does a non-qualifying investor receive a refund of taxes paid or withheld on its behalf?” in the IT 1140 section for information on recovering withholding for a non-qualifying investor.

See R.C. 5747.08(D)(1)(a)

A trust or estate files the IT 1041 to report only the retained income for the filing period. Business credits include nonrefundable credits on the Ohio Schedule E and refundable credits on Schedule XII of the IT 1041. Supporting documentation must be attached to the return to validate the source of the credit.

When it distributes income to the beneficiaries, the proportionate share of the credits must follow the distribution to the beneficiaries of the trust or estate.

If all income was distributed for the taxable year, the trust or estate is not entitled to claim any of the credits or 1099/W2 withholding; instead, the beneficiary claims all of the credits and/or withholding on the personal income tax return.

In the case of a partial distribution, the trust files the IT 1041 to pay the tax due and claim the proportionate share of credits on its retained income, and may need to file the IT 1140 to report the distributed portion of the income and pay the withholding tax due. An estate is not permitted to file the IT 1140, as it is not a qualifying trust or PTE.  Please see FAQ “When would a PTE or trust file an IT 1140 form?” in the IT 1140 category for when a trust must file an IT 1140.

See R.C. 5747.02(C)(3), R.C. 5747.08(I) and R.C. 5747.059.

A “pass-through entity” or “PTE” is an S Corporation, a partnership, or a limited liability company treated as either a partnership or an S corporation for federal income tax purposes. C corporations are not PTEs.

A qualifying PTE is any PTE excluding the following:

  • Entities described in IRC 501(c) such as pension plans and charities;
  • Publicly traded partnership; AND
  • REITs, RICs and REMICs.

A qualifying investor IS:

  • A nonresident individual;
  • An S Corporation;
  • A partnership;
  • A nonresident trust or estate;
  • A part-year Ohio resident individual, estate, or trust; AND
  • A limited liability company treated as a partnership or S Corporation for federal income tax purposes.

A qualifying investor is NOT:

  • Full-year Ohio resident individuals, estates, trusts;
  • C corporations;
  • Pension plans or charities;
  • Publicly traded partnerships;
  • Colleges or universities;
  • Public utilities in Ohio required to pay Ohio gross receipts excise tax;
  • Any insurance companies required to file an annual report with the Ohio superintendent of insurance;
  • Fraternal organizations;
  • Dealers in intangibles as defined in R.C. 5725.01(B);
  • REITS, RICs and REMICs;
  • Nonresident individuals and estates included on the IT 4708 for the taxable year;
  • The PTE is a disregarded entity or qualifying sub-chapter S subsidiary and the PTE owner (parent) is excluded or exempt from filing with the Department;
  • A PTE filing an IT 4708 composite return for nonresident qualifying investors; AND
  • Qualifying PTEs if the investors are limited to the non-qualifying investors listed above.

See R.C. 5733.40(I) for a complete list of non-qualifying investors.

A PTE may elect to file an IT 4708 and pays the tax on behalf of some or all its qualifying investors. If the PTE does not file the IT 4708, it must file an IT 1140 and withhold tax for qualifying investors. Additionally, a PTE can elect to file the new IT 4738 electing pass-through entity tax, 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).

When deciding whether to file an IT 1140, an IT 4708 or an IT 4738, take note that credits cannot be claimed on the IT 1140 or the IT 4738. This includes credit for indirect PTE payments reflected on an IT K-1 issued to the entity from another PTE.

However, a PTE can claim credits on the IT 4708.

For more information regarding which form to file, see the following chart:

Yes. The income for each qualifying investor must be included on either the IT 4708 or the IT 1140, but not both returns.  When filing both returns, all investors need to be listed on the investor schedule of both returns. The PTE must check the box to indicate which investor’s income is included on the respective return.

No. Once a PTE files the IT 4708, the IT 4738 or the IT 1140 for a given tax period, the PTE is not permitted to change the form type by filing an amended return to cancel out the original return filed, then submitting a new form of another type.

R.C. 5747.08(D)(3).

Yes. Each PTE can elect to file the IT 4708 and/or the IT 1140 or could make the election to file the IT 4738 (which must include all investors on the return). The same individual could be included on an IT 4708 for one PTE, an IT 1140 for another PTE and an IT 4738 for yet another PTE.

Note: The individual investor is required to file an IT 1040, if Ohio-sourced income has been reported on one or more IT 1140s.

IT 1140

A PTE may file an IT 1140 for each short period. When filing each IT 1140, the PTE must clearly indicate the short period on the return, any payment vouchers, and all IT K-1s issued to investors. For more details regarding the IT 1140, see PTE FAQ category Withholding Tax Return (IT 1140).

IT 4708

The IT 4708 is an annual tax return; a PTE filing it must aggregate the information contained in the multiple federal filings on a single IT 4708 for the tax year. For more details regarding the IT 4708, see PTE FAQ category Composite Return (IT 4708).

See R.C. 5747.42(A) 

IT 4738

The IT 4738 is an annual tax return; a PTE making the election to file it must aggregate the information contained in the multiple federal filings on a single IT 4738 for the tax year. For more details regarding the IT 4738 return, see FAQ category Electing Pass-Through Entities (EPTE) (IT 4738).

See R.C. 5747.42(A) 

 

Include federal form 3115, “Application for Change in Accounting Method,” when filing the IT 4708, IT 4738 or IT 1140.

Ohio has the following three methods for making PTE & Fiduciary income tax payments:

1. Electronic Funds Transfer (EFT): Payments may be remitted by EFT (ACH credit) via the Ohio Treasurer of State (TOS). Any questions about the EFT payment process should be directed to the Ohio Treasurer of State by calling (877)338-6446.

This is an ACH credit option; the entity initiates the payment through its own bank. No online credit card payment or ACH debit option exists at this time either through the Ohio Treasurer of State (TOS) or the Ohio Department of Taxation. 

Access the applicable tax form-specific link below for the information page with the TOS routing/account numbers and codes/format the financial institution must use to issue the ACH credit via the TOS payment option:

IT 4708 Pass-Through Entity Composite Income Tax Payments

IT 1140 Pass-Through Entity and Trust Withholding Tax Payments

IT 1041 Fiduciary Income Tax (Trusts and Estates) Payments

IT 4738 Electing Pass-Through Entity Income Tax Payments

NOTE: The TOS no longer requires PTE and fiduciary filers to submit an EFT authorization form to register before making an IT 4708, IT 4738, IT 1140 and/or IT 1041 payment via ACH credit (no ACH debit option).

2. Check or Money Order: Make check or money order payable to "Ohio Treasurer of State." A payment made by a check or money order must be submitted with the appropriate Ohio Universal Payment Coupon (UPC) attached to the billing notice. If no UPC is included with the notice, see the searchable Tax Forms section at tax.ohio.gov and enter “UPC” in the Form Title or Number field. Mail the payment and UPC to the address on the UPC, or hand-deliver to our self-service walk-in center by appointment only, during normal business hours (8:00 a.m. to 5:00 p.m., Monday through Friday). To make an appointment, please call 855-567-8292 or email us.

3. Electronic Check: When filing electronically through an approved software program, the PTE or fiduciary has the option to make a payment by electronic check in the form of an Electronic Funds Withdrawal, or direct debit. The direct debit option is only available for e-filed returns. For mailed returns created from an approved software program, the options for payment are 1) Electronic Funds Transfer (EFT), or 2) check or money order, as listed above.

For a current list of approved software programs, please visit the PTE and Fiduciary Income Tax - Software Developers webpage at tax.ohio.gov and search for the most recent MeF Approval Status link.

Please contact the software companies directly for their electronic payments support.

HOW TO COMPLETE THE UNIVERSAL PAYMENT COUPON (UPC)

Each payment made by check or money order must be submitted with the appropriate Ohio Universal Payment Coupon (UPC).  Application of payments is driven by the UPC used and is based on which form is filed (i.e. IT 1041, IT 4708, IT 4738 or IT 1140). Each UPC allows the Taxpayer to make either an estimated payment (“ES” payment) or payment submitted with the tax return (“P” payment). Only one type of payment can be made on each UPC submitted.

All UPCs can be found at Tax Forms by entering “UPC” in the Form Title or Number field.

  • IT 1041 Payments: This UPC is used by estates and trusts to make either an estimated payment (IT 1041ES Trust or Estate) or a payment submitted with the trust/estate return (IT 1041P Trust or Estate). When completing the UPC:
    • Indicate the reporting period by providing the filing period start date and end date;
    • Specify the appropriate payment type (IT 1041ES Trust or Estate or IT 1041P Trust or Estate);
    • Enter the entity type code in the box above the payment amount (*see codes on instructions page above UPC);
    • Enter the amount of payment as a whole number without a decimal, as the UPC features a preprinted “.00”; AND
    • A FEIN should be entered for a trust. The SSN field should only be utilized by the estate if the estate has not been issued a FEIN.  
  • IT 4708 Payments: This UPC is used by PTEs to make either an estimated payment (IT 4708ES) or a payment submitted with the composite return (IT 4708P). When completing the UPC:
    • Enter the filing period start date and end date;
    • Select either the IT 4708ES or IT 4708P;
    • Enter the correct entity type code in the box above the payment amount (*see codes on instructions page above UPC); AND
    • Enter the amount of payment as a whole number without a decimal, as the UPC features a preprinted “.00”.
  • IT 1140 Payments: This UPC is used by PTEs and fiduciaries to make either an estimated payment (IT 1140ES) or a payment submitted with the withholding return (IT 1140P). Be sure to:
    • Indicate the reporting period by providing the filing period start date and end date;
    • Specify the appropriate payment type (IT 1140ES or IT 1140P);
    • Enter the correct entity type code in the box above the payment amount (*see codes on instructions page above UPC); AND
    • Enter the amount of payment as a whole number without a decimal, as the UPC features a preprinted “.00”.

 

  • IT 4738 Payments: This UPC is used by electing pass-through entities (EPTEs) to make either an estimated payment (IT 4738ES) or a payment submitted with the return (IT 4738P). When completing the UPC:
    • Indicate the reporting period by providing the filing period start date and end date;
    • Specify the appropriate payment type (IT 4738ES or IT 4738P);
    • Enter the correct entity type code in the box above the payment amount (*see codes on instructions page above UPC); AND
    • Enter the amount of payment as a whole number without a decimal, as the UPC features a preprinted “.00”.

USING PAYMENT COUPONS CREATED BY THIRD PARTY SOFTWARE

Before submitting a payment coupon created by third party software, please verify the reporting period end date matches the software-generated Key ID numbers and the number string at the bottom of the payment coupon, in the format MMYY. If mismatched, the payment will be misdirected. Please contact the third-party software support line to resolve.

MISMATCH EXAMPLE: The reporting period end 06/30/2018 (0618) was listed as 0617 in the Key ID and along the bottom of the payment coupon, which directed the payment to the incorrect reporting period end 06/30/2017.

INCLUDE A CHECK OR MONEY ORDER WITH UNIVERSAL PAYMENT COUPON (UPC)

Along with the UPC, include a check or money order payable to “Ohio Treasurer of State” with identifying information on the memo line, including:

  • Federal employer identification number (FEIN) or SSN for estate payments only;
  • Tax form using the payment (IT 1041 Trust or IT 1041 Estate, IT 4708, IT 4738, or IT 1140);
  • Tax year end for the payment.

Calendar Year and Fiscal Year Filers

Pursuant to R.C. 5747.08(G), the IT 4708 is due on or before April 15th of the calendar year after the close of the PTE’s taxable year.

Calendar Year and Fiscal Year Filers

Pursuant to R.C. 5747.42, the IT 1140 return is due on or before the 15th day of the 4th month following the end of the qualifying entity's taxable year.

Calendar Year and Fiscal Year Filers

Pursuant to R.C. 5747.08(G), the IT 1041 return is due on or before April 15th of the calendar year after the close of the PTE’s taxable year.

Calendar Year and Fiscal Year Filers

Pursuant to R.C. 5747.42, the IT 4738 is due on or before April 15th of the calendar year after the close of the PTE’s taxable year.

A PTE or fiduciary that receives a federal extension from the IRS will automatically receive an extension to the same due date as provided by the IRS, provided that the federal extension due date is beyond the unextended due date for the Ohio return. The PTE or fiduciary must attach a copy of its IRS extension to its PTE or fiduciary tax return. Please note that an extension of time to file the PTE or fiduciary tax return does NOT extend the payment due date.

See R.C. 5747.08(G) and Ohio Adm. Code 5703-7-05.

Ohio’s pass-through entity (PTE) and fiduciary income taxes have a four-year statute of limitations. The Department has four years to issue an assessment from the later of when the return was due or filed. The PTE or fiduciary has four years from the date of the payment to request a refund.

Out-of-Statute Table

 

Yes. A PTE or fiduciary can electronically file an amended return provided the software vendor it is utilizing is an approved vendor for the form and year.

A non-qualifying investor (such as a C corporation or pension plan) cannot request a refund of taxes paid on its behalf. Instead, only the PTE investor that paid the tax can request a refund.

If the non-qualifying investor is a direct investor in the PTE, the PTE that paid the tax must file an amended IT 1140 or IT 4708 return reflecting only the income of its qualifying investors (i.e., removing the non-qualifying investor's income) and request a refund of the tax paid on behalf of the non-qualifying investor.

Example:

  • PTE A has two investors, a nonresident individual and a C corporation, that each own 50%.
  • PTE A earns $100,000 and reports that amount on an IT 1140. It withholds $2,500 for the nonresident's share and $4,250 for the C corporation's share.
  • Since the C corporation is not a qualifying investor, PTE A should not have withheld on its share of the income.
  • PTE A must file an amended return, using only the income from the nonresident investor, and request a refund of the $4,250 withheld for the C corporation.

If the non-qualifying investor is an indirect investor of the PTE, again the PTE that paid the tax must file an amended return to remove the income of the indirect non-qualifying investor and request a refund of taxes paid on those amounts. The return should also include documentation that the indirect investor is a non-qualifying investor, and a narrative/diagram showing how the income flows from the PTE to the non-qualifying investor.

Example:

  • PTE B owns 100% of PTE A.
  • PTE A earns $100,000 and reports that amount on an IT 1140. It withholds $8,500 on the income on behalf of PTE B.
  • PTE B has three investors, a C corporation that owns 50% and two nonresident individuals who each own 25%.
  • When PTE B files the IT 1140 or IT 4708, it does not include the C corporation's share of the income from PTE A, and thus cannot claim a credit for the C corporation's share of the tax paid.
  • Instead, PTE B must instruct PTE A that one of PTE B's investors is a non-qualifying investor, and thus PTE A should not have included the non-qualifying investor's share of income on its IT 1140.

Note: To avoid the need to request a refund in future tax years, a PTE should not include the direct or indirect non-qualifying investor's distributive share of income on the return. Excluding the income will result in no taxes paid on behalf of the non-qualifying investor. A PTE that has indirect non-qualifying investors may utilize either the "deemed investor" or the "non-qualifying investor" exception (as applicable). The investor will need to advise the PTE if it is a non-qualifying investor, or if it has indirect non-qualifying investors. 

See the FAQ "What is a qualifying investor?" for a list of non-qualifying investors.

See R.C. 5747.11, 5747.401, 5733.402 and 5733.41

Common reasons the Department disallowed a filer’s credit or withholding despite supporting documents received include no return filed, nonpayment, or a discrepancy in the amount withheld/paid by the PTE issuing the IT K-1/1099/W-2 for the period. The Department advises the filing entity contact the entity that issued the IT K-1/1099/W-2 to request the status of its filing and/or payment.

Additional Resources

Additional Resources