Indiana Pass-Through Entity Tax: Who Benefits From the Election

The Indiana pass-through entity tax, often called the Indiana PTE tax or PTET, lets an eligible business pay Indiana income tax at the entity level instead of leaving it entirely to the owners. The election is voluntary, the entity makes it, and it has to be made again each year. This guide covers what the Indiana PTE election does, who it tends to help, who it does not, and what to confirm before you file.

This guide is informational only and is not legal or tax advice. Pass-through rules affect federal and state returns, so confirm your situation with the Indiana Department of Revenue and a qualified CPA or tax attorney before you elect.

What the Indiana PTE tax is

Indiana's pass-through entity tax was created by Senate Enrolled Act 2, signed on February 22, 2023. It applies to taxable years beginning on or after January 1, 2022. Without the election, a partnership, S corporation or LLC taxed as one of those reports its income on the owners' personal returns, and each owner pays Indiana individual income tax on their share. With the election, the entity pays a tax on its Indiana income at the entity level. The owners then receive a credit tied to that payment, covered below.

Who can make the election

The election is limited to specific entity types. According to the Department of Revenue's PTET FAQ:

• Eligible: partnerships, S corporations, and LLCs taxed as either a partnership or an S corporation.
• Not eligible: C corporations, trusts, sole proprietorships, LLCs taxed as C corporations, single-member disregarded LLCs, and qualified subchapter S subsidiaries.

If your business is a sole proprietorship or a single-member LLC that is disregarded for tax purposes, the election is not available to you. Check how the entity is actually taxed, not just how it is organized, because an LLC's federal tax classification controls which rules apply.

Who tends to benefit

The election is a planning tool, and it helps some owners more than others. It tends to be worth modeling for:

• Owners who lose part of a federal deduction for state and local taxes. The main reason owners consider the election is federal. Under federal rules, a tax paid by the entity may be treated differently from a tax paid by the owner personally. How that works depends on federal law for the year you file and on your numbers, so have a CPA model both paths.
• Owners with income taxed by more than one state. Owners who also pay pass-through taxes to another state may be able to claim a credit for those payments on their Indiana return, as described in the Department of Revenue's guidance.
• Entities with steady, sizable Indiana income. The election only makes sense when there is meaningful income to tax. A year with a loss or very little income gives you little to shift.

On the Indiana side alone, the owner credit is designed to offset the entity-level tax, so the election mostly changes who pays the tax and when. That is why the federal analysis usually decides the question.

Who may not benefit

The election adds work and cash-flow timing, so it is not automatically the better choice. It may not be worth it if:

• The entity has little or no Indiana income in the year.
• The owners have no federal limit on state and local tax deductions, so the federal benefit is small.
• The business cannot comfortably make quarterly estimated payments during the year.
• The county income tax question affects your calculation and you have not confirmed it yet (see below).

Rates by tax year

The PTE rate equals the individual adjusted gross income tax rate for the tax year. The rate is set on the last day of the entity's tax year. The Department of Revenue's FAQ lists the following rates:

Tax year	Rate per the DOR FAQ	Notes
2022	3.23%	Listed in the DOR FAQ
2023	3.15%	Listed in the DOR FAQ
2024	3.05%	Listed in the DOR FAQ
2025	3.00%	Listed in the DOR FAQ
2026	Not listed in the FAQ	The individual rate for 2026 is 2.95%. Confirm the 2026 PTE rate with the Department of Revenue before you model it.
2027	Not listed in the FAQ	The individual rate is scheduled to fall to 2.90%. Confirm the rate for this year with the Department of Revenue when it is published.

Do not assume the 2026 or 2027 PTE rate equals the individual rate without checking the Department of Revenue's guidance for that year.

How and when to make the election

The election must be made every year. It does not carry over from one year to the next, so a choice you made for 2025 does not apply to 2026. Under the rules for 2023 and later:

• The election may be made at any time during the taxable year.
• It may also be made on the entity's timely filed return, including any extension.
• It cannot be made after the original return is filed, and it cannot be made by amending the return.

Once the entity elects, the owners are bound by that election. Treat the decision as final for that year and make it only after the numbers are modeled. Do not describe the election to your partners or members as something you can easily undo later.

Owner credits

Owners who share in an electing entity's income receive a refundable credit equal to the tax the entity paid on their share. A refundable credit can produce a refund if it is larger than the tax you owe. Owners may also receive a credit for pass-through taxes paid to other states. Confirm how the credit appears on your individual return and which forms it requires, since the mechanics of the credit are the part most likely to be handled wrong.

Estimated payments and Form IT-6WTH

Entities that elect pay the tax through estimated payments using Form IT-6WTH. For calendar-year filers in 2026 and later, the payments are due:

• April 20
• June 20
• September 20
• December 20

The Department of Revenue assesses a penalty for underpaying estimated payments for 2025 and later tax years. Confirm the penalty rules and the payment schedule against the current Form IT-6WTH instructions and the Department of Revenue's guidance before the first payment is due, because a missed installment can cost more than the election saves.

The county income tax question

Indiana owners also pay county income tax on top of the state rate. The Department of Revenue's FAQ describes the PTE rate as the state individual rate and does not address whether county income tax is part of the PTE computation. Whether the county tax is included is unverified, so do not assume either answer. Ask the Department of Revenue or a tax professional to confirm it for your county before you run the numbers.

Questions to answer before you elect

1. Is the entity eligible under the list above, based on its actual federal tax classification?
2. How much Indiana income will the entity have this year, and how confident are you in that estimate?
3. What is the federal result of the entity-level payment compared with the owners paying the tax personally? Have a CPA run both scenarios.
4. Which Indiana rate applies to this tax year, and has the Department of Revenue confirmed it?
5. Does county income tax change the result for your owners?
6. Can the business make each estimated payment on time, and do you know the penalty exposure if it cannot?
7. Do any owners pay pass-through taxes to other states that would make the owner credit more useful?

Official resources

Start with the official sources for current rules and forms:

• Indiana Department of Revenue: https://www.in.gov/dor/. Search the site for the PTET FAQ, the Form IT-6WTH instructions and the current rate for each tax year.
• Indiana Secretary of State, Business Services Division: https://www.in.gov/sos/business/. Use this to confirm your entity is registered and in good standing before you make tax decisions based on its status.
• Indiana Small Business Development Center: https://isbdc.org/. Useful for general business planning help, but it does not provide tax advice on the PTE election.

The PTE election involves federal and state rules that change from year to year. Treat this guide as a starting point for the questions to ask, then confirm each figure with the Department of Revenue and have a qualified CPA or tax attorney model your specific entity before you elect.