California PTE Elective Tax Guide for Union City S Corps and Partnerships

If you own an S corporation, a partnership or a multi-member LLC in Union City, the next three months decide how much value you get from California’s pass-through entity (PTE) elective tax. The California PTE tax lets your business pay a 9.3% state tax at the entity level so owners can get a federal deduction that the personal state and local tax (SALT) cap would otherwise limit. The rules changed for 2026, the program was extended through 2030, and the timing of your year-end payment affects which federal return the deduction lands on.

Accountico Inc. is a CPA firm in Union City, CA that works with business owners in Fremont, Newark, Hayward, San Leandro, Castro Valley and across the Bay Area. This guide is general information based on Franchise Tax Board (FTB) and IRS guidance available as of October 7, 2026. It is not tax advice for your specific situation.

What the California PTE tax is and why Union City owners use it

Normally, an S corporation or partnership passes its profit through to the owners, and each owner pays California personal income tax on their share. On the individual return, state income taxes count toward the federal SALT deduction limit. Under the PTE election, the business pays a 9.3% tax on that income itself, and consenting owners receive a credit for it on their California returns.

According to the FTB’s PTE elective tax page, the key mechanics are:

• Rate: the elective tax is 9.3% of the entity’s qualified net income (QNI).
• Credit: each consenting owner gets a nonrefundable credit for the tax paid on their share. Unused credit can be carried over for up to 5 years.
• Years: the election is available for taxable years beginning on or after January 1, 2021, and before January 1, 2031. Senate Bill 132 extended it to cover 2026 through 2030.
• Annual and irrevocable: the election is made each year on a timely filed original return with form FTB 3804. It cannot be made on an amended return, and once made it binds all owners for that year.

The federal side comes from IRS Notice 2020-75. It says state income taxes imposed on and paid by a partnership or S corporation are deductible by the entity in the taxable year of payment, and they are not taken into account in applying the SALT limit to the individual owners. For California purposes, the FTB requires the entity to add the deducted PTE tax back when it computes California net income, so the benefit is federal.

Who qualifies for the California PTE tax election

FTB defines a qualified entity as one taxed as a partnership or an S corporation. That covers many Union City and Tri-City businesses: S corporation consulting firms, contractors and medical or dental practices, plus partnerships and multi-member LLCs that own rental property or operate restaurants and shops.

Not eligible:

• Publicly traded partnerships and entities permitted or required to be in a combined reporting group.
• Sole proprietors and single-member LLCs that are disregarded for tax purposes. The FTB help page states that a disregarded entity cannot be a qualified entity because it is not taxed as a partnership or S corporation.

Owners matter too. A qualified taxpayer is an individual, fiduciary, estate or trust subject to California personal income tax, or a disregarded single-member LLC owned by one of them. Corporations and partnerships that own part of the business are not qualified taxpayers. Each owner chooses whether to consent. If an owner consents, all of their pro rata or distributive share and guaranteed payments go into QNI. A partner who does not consent does not stop the entity from electing; that owner’s share is simply left out.

A single-member LLC owner who wants access to the election would first need to be taxed as an S corporation. The IRS Form 2553 instructions allow the election to be filed during the tax year before it takes effect or within 2 months and 15 days after the year begins, which means by March 15, 2027 for S status starting January 1, 2027. That decision involves payroll, a reasonable salary and an extra return, so treat it as a broader planning question. Our post on the cheapest way to register an LLC or S corp covers the setup basics.

What changed for 2026: the June 15 payment and the 12.5% credit reduction

From 2022 through 2025, an entity had to pay the greater of $1,000 or 50% of the prior year’s elective tax by June 15. If it missed that payment, it lost the election for the year.

For taxable years beginning in 2026 through 2030, FTB says a missed or short June 15 payment no longer disqualifies the election. Instead, each consenting owner’s credit is reduced by 12.5% of their pro rata share of the unpaid amount that was due on June 15.

This matters right now. A Union City S corporation that never paid in June 2026 can still elect for 2026 on its return. Two illustrations using FTB’s formula:

• First-time election: with no elective tax paid for 2025, the required June 15, 2026 payment was the $1,000 minimum. If nothing was paid, the total credit reduction across consenting owners is 12.5% of $1,000, or $125.
• Repeat election: if the entity paid $18,600 of elective tax for 2025, the required June 15, 2026 payment was $9,300. Skipping it means a total reduction of 12.5% of $9,300, or $1,162.50.

The FTB’s own example on its help page uses a partnership that paid $10,000 on June 15, 2026 instead of the required $23,250. Each of three consenting partners had $100,000 of QNI, a $9,300 credit before the reduction, and a $552 reduction, leaving an $8,748 credit.

FTB also notes that an entity whose short first taxable year does not include June 15, such as a business formed in July 2026, is not subject to the June 15 payment requirement for that year. If you are forming a new entity, our company formation services can plan the election from day one.

How the California PTE tax is calculated

QNI is the sum of each consenting owner’s pro rata or distributive share and guaranteed payments that are subject to California personal income tax. The FTB 3804 instructions explain how to compute it from the California Schedule K-1:

• S corporations: generally Schedule K-1 (100S) income lines 1 through 10, minus deduction lines 11 and 12. An owner’s payroll salary is reported on a W-2, not on the K-1, so it is not part of the S corporation’s QNI.
• Partnerships and LLCs taxed as partnerships: generally Schedule K-1 (565/568) lines 1, 2, 3 and 4c through 11, minus deduction lines 12 and 13. Guaranteed payments to partners are included.
• Losses: if an owner’s share adds up to a negative number, it is left out of QNI and that owner gets no credit.
• Nonresident owners: only income subject to California personal income tax is included, using California sourcing rules.

Illustration: a Union City S corporation with one consenting shareholder and $200,000 of 2026 QNI would owe 9.3% × $200,000 = $18,600 of elective tax. The shareholder would claim an $18,600 credit on their 2026 California return with form FTB 3804-CR. On the federal side, the $18,600 is deducted by the S corporation, which lowers the shareholder’s federal taxable income by the same amount. At a 32% federal marginal rate, that is about $5,952 of federal tax. The actual result depends on the owner’s bracket, other deductions and the qualified business income deduction, so treat this as an illustration, not a projection.

Accurate QNI starts with accurate books. If your 2026 numbers are behind, our bookkeeping services can bring them current before you size a year-end payment.

Is the PTE election still worth it with the higher SALT cap?

The federal SALT cap is higher than it used to be, so the answer is less automatic than it was. Under 26 U.S.C. § 164(b), the cap is $40,000 for 2025 and $40,400 for 2026 ($20,200 if married filing separately). It is reduced by 30% of modified adjusted gross income above $505,000 for 2026, but not below $10,000. The cap rises by 1% a year through 2029 and returns to $10,000 for taxable years beginning after 2029. The IRS Schedule A instructions apply the same rules on the 2025 return.

In practice, the election tends to help most when:

• Your income is high. Using the statute’s formula, a household with $650,000 of 2026 modified AGI would lose 30% of $145,000, or $43,500, of cap. That puts it back at the $10,000 floor, and property tax on a Bay Area home can use much of that.
• You take the standard deduction. If you do not itemize, state income tax paid personally gives you no federal deduction, while the entity-level payment reduces business income.
• Your California tax plus property tax already exceeds the cap, as is common for Fremont and Union City homeowners with profitable businesses.

It tends to help least when an owner’s total SALT stays under $40,400 and they itemize anyway, when the owner’s share is a loss, or when the owner cannot fully use a nonrefundable California credit. Keep two limits in mind: the FTB says the credit cannot reduce the 1% behavioral health services tax, and the election does not change the 7% withholding required for nonresident owners. Our tax strategy and planning team can model both scenarios before you decide.

California PTE tax deadlines for 2026 and 2027

For calendar-year entities in Union City and the Bay Area:

• December 31, 2026 (Thursday): the last day to make a 2026 PTE payment that IRS Notice 2020-75 would treat as paid in 2026 for the federal deduction. Payments after this date are generally deducted on the 2027 federal return.
• March 15, 2027 (Monday): the remaining 2026 elective tax is due. The 2026 FTB 3893 instructions say payment 2 is due by the original return due date without extensions, which is March 15, 2027 for calendar-year filers. The same date is the original due date for Form 100S and for partnership returns on the FTB business due dates page.
• Extended returns: the election itself is made on the timely filed original return, which can be filed on extension. For S corporations, the extended due date is the 15th day of the 9th month, or September 15, 2027. An extension does not extend the March 15 payment.
• June 15, 2027 (Tuesday): the 2027 prepayment, which is the greater of $1,000 or 50% of the 2026 elective tax paid. In the $18,600 illustration above, that is $9,300.

All PTE payments must be made through FTB Web Pay, electronic funds withdrawal from tax software or the FTB 3893 voucher. They must be marked as PTE payments and cannot be combined with the entity’s $800 minimum tax, LLC fee or estimated tax payments. For the $800 side of your entity’s bill, see our California $800 franchise tax guide for Union City.

Year-end California PTE tax checklist for Union City owners

1. Confirm the entity is taxed as a partnership or S corporation and list which owners are qualified taxpayers.
2. Confirm which owners consent to having their share included in QNI. Form FTB 3804 lists only consenting owners.
3. Close the books through September or October and project 2026 QNI for each consenting owner.
4. Check whether a June 15, 2026 payment was made and estimate any 12.5% credit reduction.
5. Decide how much to pay by December 31, 2026 for a 2026 federal deduction and confirm the entity has the cash.
6. S corporations: review owner salary and fourth-quarter payroll before year-end, because wages change the K-1 income that drives QNI. Our year-end payroll checklist covers the W-2 side, and our payroll services can run owner payroll.
7. Owners: use the expected credit to recalculate personal California estimated payments. FTB says the PTE credit reduces the estimated tax computation for qualified taxpayers.
8. Calendar March 15, 2027 for the balance and June 15, 2027 for the 2027 prepayment.
9. Review the rest of your Q4 deadlines with our Fremont small business year-end tax checklist, which applies across the East Bay.

Frequently asked questions

What is the California PTE elective tax?

It is an optional 9.3% state tax that a partnership, an LLC taxed as a partnership or an S corporation can elect to pay on its qualified net income. Consenting California owners then receive a matching credit against their California personal income tax. The program now runs for taxable years beginning before January 1, 2031.

Can my Union City business still elect the PTE tax for 2026 if it missed the June 15, 2026 payment?

Yes. Starting with 2026, a missed or short June 15 payment no longer blocks the election. The election is still allowed, but each consenting owner’s credit is reduced by 12.5% of their share of the amount that was due on June 15 and not paid.

When is the rest of the 2026 PTE elective tax due?

For calendar-year partnerships, LLCs and S corporations, the remaining 2026 elective tax is due by March 15, 2027, the original due date of the return without extensions. It must be paid with Web Pay, electronic funds withdrawal or form FTB 3893, and cannot be combined with the entity’s other tax payments.

Should I pay the PTE tax before December 31, 2026?

It depends on your federal goals. IRS Notice 2020-75 says a partnership or S corporation deducts a state income tax it pays in the taxable year the payment is made. Paying by December 31, 2026 generally puts the deduction on the 2026 federal return, while paying in early 2027 moves it to 2027. Run the numbers with your CPA before you send a large payment.

Can a single-member LLC or sole proprietor make the PTE election?

No. FTB says a qualified entity must be taxed as a partnership or S corporation, and a disregarded entity cannot be a qualified entity. A single-member LLC that has elected S corporation status is taxed as an S corporation and can qualify.

Does Accountico help Union City businesses with the California PTE tax?

Yes. Accountico Inc. is a CPA firm in Union City that helps S corporations, partnerships and multi-member LLCs in Union City, Fremont, Newark, Hayward, San Leandro, Castro Valley and the Bay Area decide whether to elect, calculate qualified net income, schedule PTE payments and claim the credit on owners’ returns.

Plan your California PTE tax before December 31

The California PTE tax rewards Union City owners who plan ahead: a December payment sized from current books, consent from the right owners, and a June 15 prepayment for 2027 so no credit is lost. Accountico’s Union City team handles tax planning, business and personal tax returns and the FTB 3804 and 3804-CR forms for owners across the Tri-City area and the Bay Area.

Book a free 30-minute consultation, call (510) 400-9341, or contact our Union City team.

This article is general information based on Franchise Tax Board and IRS guidance and federal law available as of October 7, 2026. It is not tax or legal advice for your specific business. Rules, forms, rates and due dates can change. Confirm current instructions for your situation.