On May 11, 2023, Iowa Gov. Kim Reynolds signed Iowa House File (HF) 352 into law, effective immediately. HF 352 allows a pass-through entity (PTE) to elect to pay its tax liability at the entity level on behalf of its partners, members, or shareholders for taxable years beginning on or after January 1, 2022. This is a retroactive measure and a key component of HF 352.
Other key components of Iowa’s HF 352 include:
- The PTE election is only available for years in which the federal limitation on the state and local tax deduction applies under Internal Revenue Code Section 164(b)(6).
- The PTE election is to be made by a partnership or S corporation annually and is irrevocable for the tax year once made.
- The PTE election is binding on all partners and shareholders of the PTE.
- The PTE tax is filed and paid—in lieu of the composite return—with the taxpayer’s return on or before the last day of the fourth month following the close of the PTE’s tax year.
- The PTE tax rate is the highest individual rate for the tax year: 8.53% for tax year 2022.
- Owners of an electing PTE are allowed to claim a refundable credit based on the owner’s pro rata share of the PTE tax paid. This refundable credit can apply to individual income tax, corporate income tax, or franchise tax, as applicable. If the PTE is itself a partner or shareholder in another taxpayer making a PTE election, the PTE can claim the credit on its return.
- No estimated payments are required for tax years beginning before the effective date of HF 352.
- For tax years beginning after the effective date of HF 352, estimated payments shall be made quarterly if the amount of tax is expected to be more than $1,000 for the taxable year.
FORVIS will continue to monitor developments in this area as the state issues additional guidance and forms. If you have any questions or need assistance, please reach out to a professional at FORVIS or use the Contact Us form below.