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Virginia Announces 2022 Pass-Through Entity Tax Rules

Virginia released the draft guidance on their pass-through entity tax for 2022 and beyond. The tax allows pass-through entity owners to pay tax at the entity level instead of their individual return, which can effectively work around the state and local tax deduction limitation. Virginia allows this work around for 2021, but the guidance has not yet been released. Virginia is allowing public comment on these rules, so they may be subject to change. 

Generally, taxpayers will benefit if:

  • They have more than the state and local tax limitation on Schedule A of their 1040 ($10,000 married filing jointly, $5,000 everyone else); and
  • They own a partnership or S Corporation.

The proposed rules are available here:

For a summary on important points:

Making the Election

A qualifying PTE has the option to make the election to pay PTET for the taxable year. Such election can be made by:

  • During Taxable Year 2022, filing Form 502V and submitting a payment of PTET with such form, 
  • During Taxable Years 2023 and after, making an estimated payment of PTET for the taxable year, 
  • Making an extension payment of PTET for the taxable year, 
  • Filing a PTET return (“Form 502PTET”) on or before the extended due date for the taxable year

Eligible Companies

A PTE qualifies to make the election only if it is 100 percent owned by natural persons. A natural person means a human being as distinguished from a person created by operation of law, such as a corporation or a PTE. Natural people include D/Es and grantor trusts.

Tax Amount

5.75 percent * VA taxable pass-through entity taxable income.

Form VA 502PTET Due Date

PTET returns (“Form 502PTET”) are due by the 15th day of the 4th month following the close of the taxable year. For calendar year filers, that means April 15. Virginia allows an automatic 6-month filing extension for PTEs. No application for an extension is required.

2022 Estimated Payments

For Taxable Year 2022, an electing PTE is not required to make estimated payments of PTET and will not be subject to an addition to tax charge for not making estimated payments

2023 And Beyond Estimated Payments

For taxable years after Taxable Year 2022, an electing PTE is required to make estimated payments if it’s PTET for the taxable year can reasonably be expected to exceed $1,000.

Contact your local YHB advisor today to see if you can benefit from this new work around!

About the Author

Nick Preusch, CPA, JD, LLM

Nick’s expertise includes helping high wealth individual and large business entities with complex tax compliance, along with specializing in international, non-for-profit tax issues, and tax ethics issues. He has used his tax expertise not only to serve his clients, but also his peers.

He has authored publications for the AICPA’s Journal of Accountancy, AICPA’s Tax Advisor, NATP’s Tax Pro Journal, and CCH’s Journal of Tax Practice and Procedure and co-authored a textbook, Tax Preparer Penalties and Circular 230 Enforcement, published by Thomas Reuters. He has also lectured nationally on topics such as ethics, complex tax transactions, and IRS practice and procedure.