Ic 6-3-2.1-5 - Computation of Tax; Refundable Credit; applicability of Other Credits

Sec. 5. (a) Each electing entity shall compute each direct owner's share of the tax imposed by section 4 of this chapter and reflect that amount in the form and manner prescribed by the department.

     (b) Each entity owner shall be entitled to a refundable credit in an amount equal to the amount of tax under this chapter credited to the entity owner.

     (c) An electing entity or pass through entity shall be permitted to claim a credit for taxes withheld or paid on the entity's behalf.

     (d) An electing entity that has direct owners that would be permitted to claim a credit under IC 6-3-3-3 for taxes paid to another state with regard to a taxable year may elect to claim a credit under this chapter for:

(1) an amount equal to the income of a resident direct owner attributable to a state other than Indiana multiplied by the rate imposed by IC 6-3-2-1(a) (before July 1, 2025) or IC 6-3-2-1(b) (after June 30, 2025) or maximum individual income tax rate imposed by that other state, whichever rate is less, if:

(A) the electing entity makes an election to tax resident direct owners in the manner prescribed in section 4(a)(2)(A) of this chapter; and

(B) the other state grants a credit to the Indiana residents substantially similar to the credit as provided under IC 6-3-3-3; and

(2) an amount equal to the income attributable to Indiana multiplied by the rate imposed by IC 6-3-2-1(a) (before July 1, 2025) or IC 6-3-2-1(b) (after June 30, 2025) or the maximum individual income tax rate by the nonresident direct owner's state of residence, whichever rate is less, if the nonresident direct owner would be permitted a credit under IC 6-3-3-3(b) for the income attributable to Indiana and derived from the electing entity.

     (e) An electing entity may elect to claim a credit for any credit under IC 6-3-3 or IC 6-3.1, other than the credits under subsections (b) through (d), and arising from the operations of the electing entity, or which are passed through to or assigned to the electing entity for the taxable year. For purposes of this subsection, the following apply:

(1) The credit must be allowable to pass through to the direct owners of the electing entity under the provisions of the credit.

(2) The credit must be first allowable to the direct owners of the pass through entity in a taxable year ending on or after the taxable year of the electing entity.

(3) The amount of the credit that the entity may claim against the tax attributable to any direct owner under subsection (a) may not exceed the credit that is available to be passed through to the direct owner.

     (f) For purposes of subsections (d) and (e), the following apply:

(1) The elections under subsections (d) and (e) are separate elections to which the following apply:

(A) An election under subsection (e) applies to all credits other than the credits described in subsections (b) through (d). No allowance for an election to apply to one (1) or more credits and to not apply to one (1) or more credits is permitted.

(B) The election to claim the credits under subsections (d) and (e) must be made on the original return filed by the electing entity. A failure to claim a credit shall be treated as if the credit was not allowable to the electing entity.

(C) An election to apply a credit applies to the tax for all direct owners of the electing entity, provided that an election under subsection (d) applies only to direct owners that are individuals, estates, or trusts.

(2) If an electing entity claims credits under both subsections (d) and (e), the electing entity shall apply the credit under subsection (d) first, then any amount allowable under subsection (e).

(3) The sum of the credits attributable to a direct owner of an electing entity shall not exceed the tax computed by the electing entity for the direct owner under this chapter.

(4) A provision under IC 6-3-3 or IC 6-3.1 requiring a credit to be passed through shall not prevent an electing entity from applying the credit against the tax imposed under this chapter.

(5) An entity owner shall be permitted to claim any credit otherwise allowable to the owner to the extent otherwise permitted by IC 6-3-3 or IC 6-3.1.

As added by P.L.1-2023, SEC.5. Amended by P.L.230-2025, SEC.71.