California Pass-Through Entity Tax Election: A 2025 Guide for S-Corp Owners

If you are an S‑Corp owner in California with serious income flowing through your K‑1s, the California pass-through entity tax (PTET) is no longer a niche idea. It is one of the few tools that can claw back part of the federal SALT cap and keep more cash inside your business and family plan.

The tradeoff: the rules for 2025 are strict, the deadlines are tight, and one missed payment can wipe out the benefit for the entire year. You cannot afford guesswork when six or seven figures of tax are on the line.

This guide walks you through how PTET works in 2025, what you must do as an S‑Corp owner, and how to decide if the election fits your broader Business Tax strategy.

What The California Pass‑Through Entity Tax Actually Does

At its core, PTET lets your S‑Corp pay California tax at the entity level at a 9.3% rate. Your share of that payment then flows to you as a credit on your California individual return.

Why that matters: since the 2018 federal cap on state and local tax deductions, you have been limited to a $10,000 SALT deduction on your federal return. By shifting California tax to the S‑Corp, PTET turns some of that state tax into a business deduction instead of a capped personal itemized deduction. The state’s summary of the program is here on the Franchise Tax Board pass-through entity elective tax page.

You stay taxed as an S‑Corp under California rules, but you gain a different path for state tax payments and federal deductions. Think of PTET as a separate “tax overlay” on top of your existing S‑Corp, not a new entity type.

Who Qualifies In 2025 As An S‑Corp Owner

Not every S‑Corp can make the election, and not every owner benefits.

For 2025:

• Your S‑Corp must already be a valid S‑Corp under federal and California rules.
• Owners must be individuals, estates, or trusts that are subject to California personal income tax.
• C‑corporations, partnerships, and disregarded entities cannot be owners if you want qualified income for PTET.

California’s S‑Corp rules are explained in more detail on the FTB S corporation guide. If your ownership structure is complex, you may need to revisit it so you can qualify, or so that the benefit is worth the effort. That kind of review often pairs well with entity structuring services for California businesses.

For many owners doing $5 million or more in annual revenue, the biggest gains show up when most shareholders are California residents with high personal tax rates and large state tax payments.

The 2025 PTET Deadlines You Cannot Miss

2025 is a “no second chances” year for PTET timing. The prepayment rules from earlier years still apply, and missing them cancels your election for the year.

Key dates for calendar‑year S‑Corps:

Step	Due date for 2025 income year	What you do
PTET prepayment	June 16, 2025	Pay the greater of $1,000 or 50% of your 2024 PTET amount
Final PTET payment and election	March 16, 2026	File the S‑Corp return, formally elect PTET, and pay the balance
Owners claim credit	April 15, 2026 (typical)	Each owner claims the PTET credit on their 2025 California return

You make the prepayment using Form FTB 3893 and pay electronically through Web Pay. The detailed rules sit in the 2025 instructions for Form FTB 3893.

A few points that often catch owners:

• The election must be on a timely filed original S‑Corp return, not an extended return.
• The prepayment keeps your option open, but it does not force you to elect PTET.
• If you skip the June payment and you are not a short‑year entity, you are locked out of PTET for 2025.

California has extended the overall PTET program through 2030, but 2025 is still a hard‑line year for prepayments.

For larger S‑Corps, this is the kind of detail that, if missed, can trigger notices and penalties. To stay on the right side of the Franchise Tax Board, it helps to stay aware of California FTB audit triggers to avoid.

When The Election Actually Saves You Money

Not every S‑Corp owner gains from PTET. The benefit comes from converting non‑deductible state tax into a deductible business expense and then using the credit on your California return.

PTET usually helps when:

• You already hit or exceed the federal $10,000 SALT cap every year.
• Your S‑Corp generates high California net income, often mid six‑figures and up.
• You itemize deductions and have few ways left to increase them.

Consider a simple example. Suppose your S‑Corp has $2 million of qualified California income and elects PTET. It pays $186,000 in PTET (9.3%). That payment is deductible at the entity level, reducing federal taxable income. You, as the shareholder, receive a corresponding California credit that reduces your state bill.

The exact savings depend on your federal bracket, other deductions, and whether your other SALT already uses up the $10,000 cap. Some firms, such as those sharing examples of California’s pass-through entity tax, show that the benefit can reach tens of thousands of dollars per year for high earners.

PTET can work poorly or even hurt you if:

• Owners are in lower federal brackets.
• You have material non‑California owners who cannot fully use the credit.
• The S‑Corp already has large NOLs or other tax attributes that lower current tax.

You should treat the election as a one‑way door for the year. Once your S‑Corp elects PTET on a timely original return, you cannot reverse it.

Step By Step: How To Make The 2025 PTET Election

For a California S‑Corp owner, a clean process usually looks like this:

1. Run the numbers early. Have your CPA or advisor model PTET using projected 2025 income. Include federal and state impact, owner by owner.
2. Fund the June prepayment. If the analysis looks good, wire the greater of $1,000 or 50% of your 2024 PTET amount by June 16, 2025, using Form 3893.
3. Track PTET separately. Set up clear ledger codes so PTET payments and related credits never mix with standard estimates.
4. Confirm eligibility at year‑end. Make sure no ownership changes or restructures knocked you out of PTET status.
5. Elect on the return. File the 2025 S‑Corp return by March 16, 2026, with the PTET election box checked and the remaining PTET paid.
6. Coordinate owner returns. Each shareholder’s California preparer needs accurate PTET credit data so the credit actually converts into savings.

Because PTET is one piece of a larger strategy, it fits best inside a broader plan that includes tax mitigation strategies for business owners. You want PTET working alongside retirement plans, entity choices, real estate moves, and charitable strategies, not fighting against them.

Connect PTET To Your Bigger Business Tax Picture

If your company is doing $5 million or more in revenue, PTET should never be a one‑off decision made in March. It should plug into a year‑round Business Tax plan that aligns with growth, exit timing, and family wealth goals.

You might already work with a tax accountant Los Angeles or a team of tax advisors Los Angeles for your day‑to‑day compliance. You may also have operations in other markets and use a tax accountant San Diego, a tax accountant Las Vegas, or a tax consultant Phoenix for local issues. PTET sits on top of all of that, so your advisory team needs to speak to each other and look at the full multi‑state picture.

A specialized tax consultant Los Angeles who understands PTET, SALT workarounds, and high‑income planning can coordinate with your internal finance team, your legal counsel, and your other advisors. At Herbert Financial, that often includes:

• Reviewing entity structure and ownership for PTET eligibility.
• Mapping PTET into retirement plan design, such as 401(k) or cash balance plans.
• Pairing PTET with estate and succession planning for long‑term protection.

When those pieces live under one roof, you get what founder Tania Herbert calls “financial clarity that supports growth and protection at the same time.”

Bring It All Together For 2025

California’s PTET gives you a rare chance to legally push back against the federal SALT cap, but it rewards owners who plan early and punishes those who treat it as an afterthought.

You now know what the California pass-through entity tax does, who qualifies, which deadlines matter, and how to approach the election with clear eyes. The next step is to see how it plays out with your actual S‑Corp numbers, ownership mix, and long‑term plans.

If you want a tailored answer instead of generic rules, schedule your appointment with Herbert Financial and review your 2024 and 2025 projections together. You will walk away with a clear yes or no on PTET, an action plan for deadlines, and a coordinated strategy that ties tax, retirement, and succession planning into one cohesive path. Reach out to learn more and put this decision to work for you before the 2025 clock runs out.