Bill > SB396

This bill introduces a new optional tax mechanism for pass-through entities (such as partnerships and S corporations) in Pennsylvania that allows them to elect to pay state income tax at the entity level, which provides potential tax benefits for their owners. The bill enables pass-through entities to annually choose to pay state income tax on behalf of their partners or shareholders, which can help mitigate the impact of federal tax deduction limitations. Under this election, the pass-through entity would pay tax on each owner's share of income at the applicable tax rate, with different rules for resident and nonresident owners. Owners would then receive a refundable tax credit for their share of taxes paid by the entity, which can be claimed on their individual tax returns. The bill includes detailed provisions about how and when entities can make this election, reporting requirements, credit calculations, and administrative procedures. Notably, the bill specifies that only one election can be made per taxable year, and the election is irrevocable for that year. The new tax mechanism is designed to provide flexibility for pass-through entities and potentially reduce the tax burden on their owners, with the provisions primarily applying to taxable years beginning after December 31, 2022.

Budget and Finance

https://www.legis.state.pa.us/cfdocs/billinfo/bill_history.cfm?syear=2025&sind=0&body=S&type=B&bn=396