Montana Pass-Through Entity Tax: How to Elect & Pay

Overview

Senate Bill 554, passed during the 68th Legislature, created an elective tax for pass-through entities (PTEs) that are partnerships and S corporations.

The pass-through entity tax (PTET) is a 5.9% of an affected owner’s distributive share of Montana source income. The election is made annually by the entity on its timely-filed Form PTE.

Making the PTET Election

The PTET election is made annually by a representative designated by the PTE. This representative has the sole authority to act on behalf of the PTE regarding the PTET.

Once made, the election applies to the distributive share of Montana source income allocable to all owners that are affected owners. Affected owners are individuals, estates, trusts, and PTEs owned directly or indirectly by individuals, estates, and trusts. The election is irrevocable and cannot be made after the extended due date of the return. The distributive share of Montana source income allocable to C corporations and tax-exempt entities is not subject to PTET.

The PTET is calculated based on each affected owner’s distributive share of income apportioned or allocated to Montana. However, the entity may choose to make an election* to allow Montana resident owners to be assessed on their entire distributive share of income, regardless of apportionment and allocation rules. Additionally, PTEs that are not doing business in Montana but that have Montana resident owners can also file a Form PTE and elect to pay PTET.

*Great care should be exercised by S corporations in the use of this election when the entity has resident and nonresident owners, as such election may create a second class of stock. Consult a tax professional.

PTET Estimated Taxes

Estimated tax payments are required if a PTE elects to page PTET and the amount of annual estimated taxes owed, after any flow-through payments or overpayments from a previous tax period are applied is more than $500.

Estimated tax payments are not required if the PTE meets any one of the following criteria:

  • It is the first year the PTE is making an election to pay PTET.
  • The prior year tax period covered 12 months and the Montana PTET liability was zero.
  • The current year PTET liability after PTET credits and/or pass-through withholding is less than $500.
  • The PTE was not required to file a Form PTE for the prior year.
  • At least two-thirds of the PTE's gross income is derived from farming or ranching operations. 

If the PTE makes a PTET election, estimated tax payments are required if the entity paid PTET in the preceding tax year and none of the above criteria are met.

Calculating Estimated Payment Amounts

The amount of estimated taxes owed for each installment is the lesser of:

  • Four equal installments of 100% of the tax owed in the prior year, or
  • Four equal installments of 90% of the tax owed in the current year.

Use Worksheet PTE-ESW in the Form PTE instructions to calculate these amounts.

Seasonal or Irregular Income: Annualization Method

If the PTE's income varies during the year because, for example, the entity operates on a seasonal basis, the annualization method may reduce or eliminate the amount of one or more required installment payments.

  • This method allows the PTE to calculate estimated tax and each installment based on the total amount of income received since the beginning of the year, and up until the end of the quarter.
  • Use Worksheet PTE-ESA in the Form PTE instructions to determine estimated payments using the annualization method.

Payment Responsibility and Limitations

  • Estimated payments must be made by the PTE itself.
  • The department will not transfer estimated tax payments from an owner’s account to a PTE account.
  • A PTE cannot make estimated payments on behalf of another PTE, even if that PTE is owned by the same owner(s).

Estimated Tax Payment Due Dates

PTET estimated tax payments are due in four installments:

  • 15th day of the 4th month (April 15 for calendar-year filers)
  • 15th day of the 6th month (June 15)
  • 15th day of the 9th month (September 15)
  • 15th day of the 1st month following the end of the tax year (January 15 of the next year)

Note: If a due date falls on a weekend or holiday, the payment is due the next business day.

Estimated Payment Worksheets for Tax Year 2024

The department has prepared a spreadsheet to use to determine estimated payments for Tax Year 2024. The spreadsheet includes:

  • A worksheet for the default method (equal quarterly payments)
  • A worksheet for the annualized method (for seasonal or irregular income)

Download the spreadsheet (.XLSX, 25 KB) and the instructions (PDF, 116 KB).

Flow-Through Payments

A flow-through payment is a payment made by a third or related party and received by a pass-through entity to use as a credit against a PTE’s liability. These include:

  • Mineral royalty withholding
  • Pass-through withholding
  • PTET credit passed to a PTE from a lower-tier PTE. 

PTEs receiving flow-through payments must use them in whole or in part to pay PTET.

Making an Estimated Payment

Electing pass-through entities can make estimated payments on the Transaction Portal (TAP).

  1. Go to TAP and select “Make Payment” in the Quick Links section.
  2. If the PTE doesn’t have a TAP account, you can use its FEIN to log in and make a payment.
  3. Select the entity’s income tax type (e.g., Payment or S Corporation) as the account to make the payment.

Penalties and Interest

The PTET is subject to the same interest and penalties as individual income tax.

The PTE is required to make estimated tax payments throughout the year if it expects to owe a PTET liability of at least $500. If the PTE was required to make estimated PTET payments and it did not pay the required amounts, it must pay interest on any underpayment. Interest on the underpayment of estimated tax is not assessed if no tax was due in the preceding year. PTET estimated payments made for the first year of the election are not subject to interest on the underpayment of estimated tax.

The PTE must make estimated payments if it elects to pay PTET for the preceding tax year and makes an election for the current year. Any underpayment will be subject to underpayment interest. Underpayment of estimated tax is subject to interest.

See Form EST-PTI for more information.

A return filed after the due date, including the automatic six-month extension may not make a PTET election and is subject to the information return late filing penalty.

The penalty is $10 multiplied by the number of owners at the close of the tax year for each month or fraction of a month that the entity does not file the PTE information return. This penalty is calculated for up to five months and may not exceed $2,500.

See 15-30-3302, MCA.

Any PTET liability not paid when due is subject to the same interest rate as individuals, estates, and trusts. View interest rates.

Income Tax Credits

Income tax credits and the Contractor’s Gross Receipts Credit cannot be used to offset PTET. These credits must be passed to owners to claim on the Montana Individual Income Tax Form (Form 2) or Montana Income Tax Return for Estates and Trusts (Form FID-3).

Resident individual, estate, and trust owners may claim a credit for income taxes paid to another state, including a payment of another state’s PTET. The credit is calculated on the owner’s income tax return. Individuals use the Credit for Income Taxes Paid to Another State or Country Schedule on the Form 2 for tax years beginning before January 1, 2024. For tax years beginning after December 31, 2023, individuals will use the Form 2, Schedule III, Part II.

Estates and trusts use Worksheet I, found in the Form FID-3 instructions. For tax years beginning after December 31, 2023, estates and trusts use the Form FID-3, Schedule III.