18039: AL - Electing Pass-Through Entities (PTET)

Alabama law allows certain pass-through entities to make an election to pay AL tax at the entity level. If the S-corporation or Partnership makes this election, they are then called an "Electing Pass-Through Entity." Members of an Electing Pass-Through Entity are eligible for a refundable credit on their individual return.

Making the Election

A pass-through entity must submit Form PTE-E online if they want to make the election to be treated as an Electing Pass-Through Entity. The election must be filed no later than the 15^th day of the 3^rd month following the close of the tax year. Once the pass-through entity makes this election, it will be subject to the PTE tax for that tax year and future tax years unless the entity decides to change their election status by making the change online through the AL DOR. To make or change the election status, log into My Alabama Taxes. On the Pass-Through Entity account, click on the Update Election Status link and follow the on-screen instructions. For more information, and FAQs, see the AL DOR. 

Note that changes can be made "...at any time during a subsequent tax year or on or before the fifteenth day of the third month following the close of that tax year for which the entity elects to no longer be taxed as an Electing Pass-Through Entity."

Payment Return (1065/1120-S)

To create Form EPT for the electing partnership or S-corporation, go to AL > EPT tab > EPT screen. Check the box Generate form EPT (overrides form PTE-C) and make any other necessary entries. In View/Print mode, Forms AL EPT and AL EPT K1 are generated. The credit amount is carried to each member's AL K1, line Z.

e-Filing

Form AL EPT is e-fileable. Note that payments under $750 may be made with form PTE-V, Pass-Through Entity Payment Voucher. Payments in excess of $750, must be completed electronically, either through the PMT screen or online. If the payment is made online, on AL screen EPT, mark the box Payment was made electronically.

Paper-filing

If paper filing the return, electronic payments are required if the balance due is more than $750. If less than $750, the payment can be mailed with Form PTE-V. 

Credit (1040)

On the partner's individual return, the credit is entered by going to screen K1P and entering the tax amount on the 1065 K1 12-20 tab > State tax withheld. The amount is carried to AL SCHCP and then to AL 40, line 26 (or AL 40NR, line 23). 

On the shareholder's individual return, the credit is entered by going to screen K1S and entering the tax amount on the 1120S K1 11-17 tab > State tax withheld. The amount is carried to AL SCHCP and then to AL 40, line 26 (or AL 40NR, line 23).