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Q-8: Are interest and penalties charged on late Utah
Frequently Asked
withholding tax payments?
Questions A-8: Interest is charged on the unpaid amount of withhold-
Q-1: Is a partnership required to withhold Utah tax if all ing tax from the return due date to the date paid. Penalties
of the ultimate downstream pass-through entity taxpay- may also be charged for failure to pay the required extension
ers are resident individuals? payment amount, for filing the return late and for paying late.
See Publication 58, Utah Interest and Penalties.
A-1: Yes. However, the partnership may request a waiver
if all of the downstream entities and taxpayers file and pay
Q-9: What happens if the pass-through entity does not
the Utah tax on or before the partnership’s filing due date,
withhold the tax?
including extensions.
A-9: The pass-through entity is required to withhold, pay and
(See Downstream Pass-through Entity Taxpayer in the
report tax, unless one of the exceptions applies or it qualifies
Definitions.)
for a waiver. If the pass-through entity does not withhold the
tax and does not qualify for waiver or any of the exceptions,
Q-2: Is Utah withholding tax required when a pass- we will assess and collect the withholding tax amount and
through entity taxpayer is a professional corporation any penalties and interest from the pass-through entity.
and the professional corporation has withheld income
taxes on all of its shareholders sufficient to pay the tax?
A-2: Yes. See answer to previous question. Definitions
Business Income
Q-3: In the past, partnerships that have all Utah resident Income from transactions and activity arising in the regular
partners have not been required to file a Utah partner- course of the entity’s trade or business. It includes income
ship return. Has this changed? from tangible and intangible property if the acquisition, man-
A-3: Yes, the rule now requires a partnership that is a pass- agement and disposition of the property are an integral part
through entity taxpayer (a second tier partnership) to file a of the entity’s regular trade or business operation.
Utah partnership return. Therefore, a partnership that has
Utah withholding tax credit from another pass-through entity Dependent Beneficiary
must file a Utah partnership return, allocate the withholding An individual beneficiary of a pass-through entity trust who is
credit to its partners, and give each partner a Utah Schedule claimed as a dependent on another person’s federal income
K-1 showing the allocated withholding. tax return.
Q-4: How does a trust or estate handle the Utah with- Downstream Pass-through Entity Taxpayer
holding as a pass-through entity taxpayer? A pass-through entity taxpayer that is a pass-through entity
A-4: For any portion of the withholding allocated or apportioned taxpayer of any entity that is itself a pass-through entity
to beneficiaries, the trust or estate should allocate and pass taxpayer. The first pass-through entity is the first tier entity,
through its Utah withholding tax credit to its beneficiaries using its pass-through entity taxpayers are second tier entities, any
a Utah Schedule K-1. pass-through entity taxpayers of the second tier entities are
third tier entities and so on.
Q-5: Is Utah withholding required when the IRS consid-
ers a partner or shareholder a disregarded entity? Nonbusiness Income from Utah Sources
All income that is not business income and that is derived
A-5: It will depend on how IRS classifies the partner or share- from or connected with Utah sources.
holder for federal tax purposes. If the entity is disregarded for
federal purposes, it is disregarded for pass-through entity Utah Pass-through Entity
withholding tax purposes. For example, if the pass-through en- An entity whose income, gains, losses, deductions and cred-
tity taxpayer is a single member LLC and when disregarded is its flow through to partners, members and shareholders for
treated as an individual Utah resident, then no Utah withholding federal tax purposes. For purposes of Utah withholding tax,
is required. However, if the single member LLC when disre- pass-through entities include:
garded is treated as a nonresident individual or a corporation,
withholding is required unless one of the exceptions applies. • General partnerships, limited partnerships, limited liability
partnerships;
Q-6: How does a pass-through entity report the Utah • Limited liability companies if classified as a partnership for
withholding tax to its partners, members, shareholders federal income tax purposes; and
or beneficiaries? • S corporations.
A-6: Pass-through entities must complete the Utah Sched- A pass-through includes an estate or trust.
ule K-1 showing the withholding for each partner, member,
shareholder or beneficiary. Pass-through Entity Taxpayers Subject to Utah
Withholding Tax
Q-7: When is the Utah withholding tax due? • Nonresident individual partners, members, shareholders
A-7: The Utah withholding tax payment is due on the original and beneficiaries; and
due date of the pass-through entity’s return, even if the entity • Resident and nonresident general partnerships, limited
takes an extension to file. An extension applies only to filing partnerships, limited liability partnerships, limited liability
a return, not paying tax. companies, S corporations, C corporations, and estates
and trusts.
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