Quick Answer
California's AB 150 PTE election allows LLCs and partnerships to pay state taxes at the entity level (up to 9.3%) and provides a federal deduction that can save high earners $1,000-$5,000+ annually. Single-member LLCs cannot elect, but multi-member LLCs and partnerships can benefit significantly in the 32%+ federal brackets.
Best Answer
Priya Sharma, Small Business Tax Analyst
Best for freelancers operating through multi-member LLCs or partnerships earning $150,000+
What is California's AB 150 PTE election?
California Assembly Bill 150 allows eligible pass-through entities (PTEs) to elect to pay California income tax at the entity level, rather than having owners pay individually. This creates a workaround for the $10,000 federal SALT deduction cap by converting what would be personal state tax payments into business deductions.
Who can make the AB 150 election?
Only certain business structures qualify:
Single-member LLCs cannot elect because California treats them as disregarded entities for tax purposes.
Example: $200,000 freelancer with multi-member LLC
Let's say you're a consultant earning $200,000 through a multi-member LLC with your spouse:
Without PTE election:
With PTE election:
How the election works
1. Annual election required - Must elect by March 15th (extended to September 15th with extensions)
2. Entity pays tax - LLC/partnership pays 9.3% on California-sourced income
3. Members get credit - Individual owners receive credit on personal returns
4. Federal deduction - Entity deducts the payment as a business expense
Tax rate and calculation
The PTE tax rate mirrors California's individual rates:
Key benefits for high-earning freelancers
Important limitations and considerations
Structure requirements:
Tax planning impacts:
What you should do
If you're a high-earning freelancer (federal tax bracket 24%+) with a multi-member LLC or partnership:
1. Calculate potential federal tax savings using our quarterly estimator tool
2. Ensure your entity structure qualifies
3. Make the election by March 15th (or September 15th with extension)
4. Coordinate with your tax preparer to optimize timing
Key takeaway: AB 150 PTE election can save freelancers in multi-member LLCs $1,000-$5,000+ annually by converting capped state tax deductions into unlimited business deductions, but single-member LLCs cannot participate.
*Sources: [California FTB Notice 2021-05](https://www.ftb.ca.gov/tax-pros/law/ftb-notices/2021-05.html), [IRC Section 164](https://www.law.cornell.edu/uscode/text/26/164)*
Key Takeaway: AB 150 PTE election can save high-earning freelancers with multi-member LLCs $1,000-$5,000+ annually by bypassing the federal SALT deduction cap.
Federal tax savings from AB 150 PTE election by income and tax bracket
| California Income | PTE Tax Paid | Federal Bracket | Without Election (SALT Cap) | With PTE Election | Annual Savings |
|---|---|---|---|---|---|
| $100,000 | $9,300 | 22% | $2,200 | $2,046 | $-154 |
| $150,000 | $13,950 | 24% | $2,400 | $3,348 | $948 |
| $200,000 | $18,600 | 32% | $3,200 | $5,952 | $2,752 |
| $300,000 | $27,900 | 35% | $3,500 | $9,765 | $6,265 |
More Perspectives
Priya Sharma, Small Business Tax Analyst
Best for W-2 remote workers in California considering forming an LLC for side consulting
Should remote workers form LLCs for AB 150 benefits?
If you're a California remote worker considering forming an LLC for side consulting work, AB 150 adds another layer to consider — but it's not a silver bullet.
The single-member LLC limitation
Most solo consultants naturally form single-member LLCs, which cannot elect AB 150 treatment. California treats single-member LLCs as disregarded entities, so the income flows directly to your personal return anyway.
Multi-member options for couples
If you're married, you could form a multi-member LLC with your spouse to access AB 150:
Example scenario:
The reality check
For most side consultants earning under $100,000 from freelancing, the AB 150 benefits are modest:
When it makes sense
Consider AB 150-eligible structures if:
Key takeaway: Most remote workers with side consulting won't see significant AB 150 benefits unless earning substantial freelance income in higher tax brackets.
Key Takeaway: Remote workers considering AB 150 need substantial side income ($75,000+) and higher tax brackets to justify the multi-member LLC complexity.
Priya Sharma, Small Business Tax Analyst
Best for established consultants already operating through partnerships or multi-member LLCs
Optimizing existing partnerships for AB 150
If you're already operating through a partnership or multi-member LLC, AB 150 represents a significant planning opportunity with minimal structural changes required.
Partnership considerations
Automatic qualification: Partnerships automatically qualify for PTE election, unlike single-member LLCs.
Member consent requirement: All partners must agree to the election. Consider adding PTE election clauses to partnership agreements for future flexibility.
Allocation issues: The PTE tax must be allocated among partners based on their distributive share of California-sourced income.
Multi-member LLC advantages
Flexibility: Can elect PTE treatment annually based on tax planning needs
Credit optimization: Excess PTE credits carry forward indefinitely, providing flexibility for fluctuating income years
Cash flow management: Entity-level payment due March 15th can help with cash flow timing compared to individual estimated payments
Strategic considerations for 2026
Federal bracket planning: With potential federal rate changes, the value of the PTE deduction may fluctuate
Multi-state issues: If partners live in different states, coordinate to avoid double taxation
Safe harbor planning: Use PTE payments to meet safe harbor requirements for both entity and individual estimated payments
Implementation checklist
1. Review partnership/LLC agreement for election authority
2. Calculate break-even analysis for your specific situation
3. Coordinate with all members on election timing
4. Update estimated payment strategies
5. Plan for potential credit carryforwards
Key takeaway: Existing partnerships and multi-member LLCs are perfectly positioned to benefit from AB 150 with minimal structural changes required.
Key Takeaway: Existing partnerships and multi-member LLCs can immediately benefit from AB 150 elections with minimal structural changes, often saving 2-3% of federal taxes on California income.
Sources
- California FTB Notice 2021-05 — Pass-Through Entity Tax Election
- IRS Publication 535 — Business Expenses
Related Questions
Reviewed by Priya Sharma, Small Business Tax Analyst on February 28, 2026
This content is for educational purposes only and is not a substitute for professional tax advice. Consult a qualified tax professional for advice specific to your situation.