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                     tax.utah.gov

                                                                                                       Publication 68
                                                                                                       Revised 10/18

Pass-through Entity 

    Withholding

        Utah State Tax Commission
        210 North 1950 West
        Salt Lake City, Utah 84134                                                                     If you need an accommodation under the Americans 
        801-297-7705                                                                                   with Disabilities Act, call 801-297-3811, or TDD 
        1-800-662-4335, ext. 7705                                                                      801-297-2020. Please  allow three working days for 
        tax.utah.gov                                                                                   a response.

Contents
Introduction ......................................................................................1   Introduction
General Information .........................................................................1         This guide provides information to help pass-through entities 
Pass-through Entity Taxpayers Subject to Utah Withholding ...........2                                 and pass-through entity taxpayers understand and comply 
Withholding Requirements ..............................................................2               with Utah’s pass-through entity withholding requirements.
Withholding Calculation ...................................................................2           For tax years beginning on or after Jan. 1, 2009, pass-through 
Credits .............................................................................................2 entities must withhold Utah income tax on income from Utah 
Multi-level Pass-through Entities......................................................2               sources for nonresident individual partners, members and share-
Withholding Requirement Exceptions ..............................................2                     holders, and for resident and nonresident non-individual partners, 
Disregarded Entities ........................................................................3         non-individual members and non-individual shareholders.  
Income Subject to Withholding ........................................................3                For tax years beginning on or after Jan. 1, 2013, estates 
Withholding Tax Rate .......................................................................3          and trusts are considered to be pass-through entities if they 
Withholding Due Date ......................................................................3           are required to divide income, gains, losses, deductions 
Reporting Withholding to the Pass-through Entity Taxpayer ............3                                or credits and pass them through to beneﬁ ciaries. Pass-
Waiver of Withholding Tax ................................................................3            through entity estates and trusts must withhold Utah income 
Partnership, LLC, S Corporation or Trust ...................................3                          tax on income from Utah sources for nonresident individual 
Trust with a Dependent Beneﬁ ciary ...........................................3                        beneﬁ ciaries and for resident and nonresident non-individual 
Partnership Extension Due Date .....................................................4                  beneﬁ ciaries. The determination of whether trust income is 
Forms ..............................................................................................4  required to be distributed currently depends on the terms of 
Filing Responsibilities ......................................................................4        the governing instrument and applicable state and local law.
Frequently Asked Questions ............................................................5
Deﬁ nitions ........................................................................................5  Tax Commission publications are reference tools. They are 
                                                                                                       not all-inclusive and should not be used as legal references. 
                                                                                                       For more information, see Utah Code §§59-10-1401 through 
                                                                                                       1405 and Administrative Rule R865-9I-13.
                                                                                                       Tax laws may change due to legislative action. Changes to 
                                                                                                       law will supersede information in this publication.

                                                                                                       General Information
                                                                                                       A pass-through entity is an entity whose income, gains, 
                                                                                                       losses, deductions and credits ﬂ ow through to partners, 
                                                                                                       members, shareholders and beneﬁ ciaries for federal tax 
                                                                                                       purposes. For purposes of Utah withholding, pass-through 
                                                                                                       entities include:
                                                                                                       • general partnerships, limited partnerships, limited liability 
                                                                                                       partnerships;
                                                                                                       • limited liability companies if classiﬁ ed as a partnership for 
                                                                                                       federal income tax purposes;
                                                                                                       • S corporations; and
                                                                                                       • estates and trusts that are required to divide and pass-
                                                                                                       through income, gains, losses, deductions or credits.

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Pass-through Entity                                                      Withholding Requirement 
Taxpayers Subject to                                                     Exceptions
                                                                         The following entities may be exempt from withholding:
Utah Withholding
   Pass-through entity taxpayers subject to Utah withholding             • A publicly traded partnership meeting the requirements 
   tax are:                                                              of Utah Code §59-10-1403.2(1)(b)(iii) is not required to 
   • nonresident individual partners, members, shareholders              withhold tax on its partners.  However, a publicly traded 
   and beneﬁ ciaries; and                                                partnership that is a downstream entity is not exempt from 
                                                                         having money withheld on Utah income allocated to it by an 
   • all general partnerships, limited partnerships, limited liabil-     upper tier entity, and therefore, may have Utah withholding it 
   ity partnerships, limited liability companies, S corporations,        needs to allocate and pass-through to its partners.
   C corporations, and estates and trusts.
                                                                         • A pass-through entity is not required to withhold tax if the 
                                                                         pass-through entity is a plan under IRC §§401, 408 or 457 
Withholding Requirements                                                 and is not required to ﬁ le a Utah individual or corporation 
   A pass-through entity must withhold a 4.95% income tax on             return.
   its:                                                                  • A pass-through entity is not required to withhold tax on 
   • Utah business income allocated to its pass-through entity           behalf of a directly related pass-through entity taxpayer 
   taxpayers, and                                                        if the taxpayer is exempt under Utah Code §59-7-102(1) 
                                                                         and the income is not unrelated business income. Section 
   • non-business income derived from or connected with Utah 
                                                                         59-7-102(1) includes IRC §501 entities (such as religious 
   sources allocated to its pass-through entity taxpayers.  
                                                                         and charitable organizations), IRC §528 homeowners 
                                                                         associations, admitted insurers taxed under Utah Code 
Withholding Calculation                                                  §59-9, and farmer’s cooperatives.
   To arrive at the total Utah income subject to withholding, the 
                                                                          Example 1:
   entity uses:
                                                                         Partnership A is an LLC with Utah business income. 
   • TC-20S Schedule A, if it is taxed as an S corporation;              It has three partners. Partner #1 is a homeowner’s 
   • TC-65 Schedule A, if it is taxed as a partnership; or               association under IRC §528, Partner #2 is an S 
   • TC-41 Schedule W, if it is taxed as an estate or trust.             corporation, and Partner #3 is a nonresident in-
                                                                         dividual. Partnership A is not required to withhold 
   It then uses the Schedule N for the respective return to cal-         Utah tax for Partner #1 as long as Partner #1 is not 
   culate the Utah withholding tax for each pass-through entity          required to treat the income as unrelated business 
   taxpayer.                                                             income. Partnership A must withhold on behalf of 
                                                                         Partners #2 and #3.*
Credits
   The only credits that may be used to reduce the withholding           • An individual retirement account (IRA) as deﬁ ned under 
   are the Utah mineral production withholding credit and Utah           IRC §408(a) is exempt from withholding only if the IRA 
   withholding from an upper tier pass-through entity that ﬂ ows         is not required to treat the income from the pass-through 
   down to the pass-through entity.                                      entity as unrelated business income.
   An upper-tier pass-through entity is one in which the taxpayer         Example 2 :
   is a partner, member, shareholder or beneﬁ ciary, and for 
   whom the upper-tier pass-through entity withholds and pays            Partnership A has two partners and Utah business 
   Utah income tax as reported on the Utah Schedule K-1.                 income. Partner #1 is an IRA, and Partner #2 is an 
                                                                         LLC that is not a disregarded entity.  Partnership A 
   Other credits, such as the Historic Preservation Credit and the       is not required to withhold Utah tax for Partner #1 
   Commercial Energy Systems Credit, along with the allocated            as long as Partner #1 is not required to treat the 
   Utah mineral production withholding credit and Utah withhold-         income as unrelated business income. Partnership 
   ing from an upper tier pass-through entity, must be passed            A must withhold Utah tax on behalf of Partner #2.*
   through to the pass-through entity taxpayers and claimed on 
   the ultimate pass-through entity taxpayers’ income tax returns.
                                                                         • A real estate investment trust (REIT) is exempt from with-
                                                                         holding if all of its earnings are distributed to the owners of 
Multi-level Pass-through                                                 the REIT.
Entities                                                                  Example 3:
   A pass-through entity that has another pass-through entity as         Partnership A is an LLC with Utah business income 
   a partner, member, shareholder or beneﬁ ciary is called a ﬁ rst       and has two partners. Partner #1 is a REIT that dis-
   tier or upper-tier entity. The partner, member, shareholder or        tributes all of its earnings to its owners, and Partner 
   beneﬁ ciary is a second tier entity or a downstream entity. A         #2 is an S corporation. Partnership A must withhold 
   pass-through entity is directly related to a pass-through entity      Utah tax on behalf of its S corporation partner but 
   taxpayer if they occupy consecutive tiers.                            does not need to withhold Utah tax on behalf of its 
   For example, a ﬁ rst tier entity is directly related to a second      REIT partner* because the REIT distributes all of 
   tier entity. A second tier entity is directly related to a third tier its earnings to its owners.
   entity. A ﬁ rst tier entity is not directly related to a third tier 
   entity. Application of these rules is discussed in some of the 
   following examples.                                                            *See Waiver of Withholding Tax on page 3
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    Example 4:                                                  Pay online by e-check or credit card at tap.utah.gov. You 
   Partnership B has Utah business income and two                may also send a check or money order to:
   partners who are both partnerships. Partnership B              Utah State Tax Commission
   is a ﬁ rst tier entity. Partner #1, a partnership, has a       210 N 1950 W
   partner that is a REIT. Partner #2 is a partnership            Salt Lake City, UT 84134 
   whose partners are all Utah resident individuals.             When paying by check or money order, include:
   Partners #1 and #2 are both second tier entities. 
   Partnership B must withhold Utah tax for both of its          • for a partnership or LLC, form TC-544, Partnership Return 
   partners, even though a partner of one of its partners         Payment Coupon; 
   (a third tier entity) is a REIT. Partnership B and the        • for an S corporation, form TC-559, Corporate/Partnership 
   REIT are not directly related. Partnership B is only           Payment Coupon; or
   exempt from the withholding requirement if a directly         • for an estate or trust, form TC-549, Fiduciary Income Tax 
   related pass-through entity taxpayer is a REIT, an             Return Payment Coupon.
   individual Utah resident, or otherwise exempt.*

   • An individual exempt from Utah income tax under Utah 
   Code §59-10-104.1 is exempt from pass-through entity          Reporting Withholding to 
   withholding from the pass-through entity to whom they are 
   directly related.                                             the Pass-through Entity 
                                                                 Taxpayer
    Example 5:                                                  The pass-through entity must provide each of its partners, 
   Partnership A is a family partnership with two                members, shareholders or beneﬁ ciaries a statement show-
   nonresident individual partners. Each partner’s               ing the pass-through entity’s federal identiﬁ cation number 
   federal adjusted gross income is less than the                (EIN) and the amount of Utah pass-through entity withhold-
   sum of the federal personal exemption and the                 ing tax it reported on behalf of the partner, member, share-
   federal standard deduction and as a result, both              holder or beneﬁ ciary. 
   are exempt from Utah income tax under Utah                    The pass-through entity must provide a Utah Schedule K-1 
   Code §59-10-104.1. Partnership A is not required              to its pass-through entity taxpayers showing the allocated 
   to withhold Utah tax for these partners. Note: Each           Utah income and withholding amount.
   partner’s total income must be below the ﬁ ling 
   limit, not just the amount of income attributable to 
   Partnership A.                                                Waiver of Withholding Tax

    Example 6:                                                  Partnership, LLC, S Corporation or Trust
                                                                 A pass-through entity (including a downstream pass-through 
   Partnership B has a partner that is a family partner-         entity) that is a partnership, LLC, S corporation, estate or 
   ship with some nonresident individuals who meet               trust may request a waiver of the Utah withholding require-
   the exemption from Utah income tax. Partnership               ment by checking a box on the Schedule N of the applicable 
   B must withhold Utah income tax for that partner.*            return. A pass-through entity may request waiver of the with-
   Partnership B, the ﬁ rst tier partner, is not directly        holding requirement on all or some of its partners, members, 
   related to the partners of the second tier family             shareholders or beneﬁ ciaries by completing the box on the 
   partnership.                                                  Schedule N and on the Utah Schedule K-1 it provides to the 
                                                                 partner, member, shareholder or beneﬁ ciary.
                                                                 If a downstream entity or taxpayer for whom the waiver is 
Disregarded Entities                                             claimed fails to ﬁ le a return and make the required payment 
   Entities that are disregarded for federal tax purposes are    in a timely manner, the pass-through entity is not eligible for 
   disregarded for purposes of pass-through entity withholding.  the waiver and is liable for the Utah withholding on those 
   See Q-8 in Frequently Asked Questions for more information.   amounts, plus any penalties and interest.

                                                                 Trust with a Dependent Beneficiary
Income Subject to                                                A trust that is a pass-through entity may also request a 
Withholding                                                      waiver of the Utah withholding requirement if the beneﬁ ciary 
   All business and non-business income from Utah sources        is a dependent of another taxpayer and makes the required 
   net of expenses is subject to Utah income tax withholding for Utah tax payment in a timely manner, or the dependent 
   pass-through entity taxpayers.                                beneﬁ ciary’s adjusted gross income for the taxable year 
                                                                 does not exceed the basic federal standard deduction for the 
                                                                 dependent beneﬁ ciary and the trustee of the trust retains a 
Withholding Tax Rate                                             statement:
   The Utah withholding tax rate is 4.95% (.0495).
                                                                 • signed by the person who claims the dependent beneﬁ -
                                                                  ciary as a dependent on their federal income tax return;
Withholding Due Date                                             • attesting that the dependent is a dependent beneﬁ ciary; 
   Pass-through entity withholding is due on or before the        and
   original due date of the pass-through entity’s return without 
   regard to an extension.
                                                                           *See Waiver of Withholding Tax on this page
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   • indicating that the person expects the dependent beneﬁ -      Example 9:
   ciary’s adjusted gross income for that year will not exceed    Partnership E has two partners, Partnerships F and 
   the basic federal standard deduction.                          G.  Partnership F has two nonresident individual 
   Use Utah form TC-41DB for this purpose. Keep this form with    partners and Partnership G has two partners that 
   your tax records. Do not send it to the Tax Commission. This   are professional corporations. Partnership E’s 
   form must be provided to the Tax Commission upon request       accountant prepares returns for all of the partner-
   (see Utah Code §59-10-1403.2(6)(c)(ii)(B)).                    ships including the nonresident individuals, the 
                                                                  professional corporations and their shareholders.  
                                                                  Consequently, Partnership E can verify that all the 
Partnership Extension                                             downstream partners, including the nonresident 
Due Date                                                          individual partners and the professional corporation 
   The extension period for a partnership return is ﬁ ve months.  shareholders, ﬁ led and paid Utah tax on or before 
   Therefore, to qualify for the waiver, the entity should ensure Partnership E’s extended return due date. Partner-
   that all downstream entities and taxpayers for whom the        ship E may elect to not withhold the tax and apply 
   waiver is claimed ﬁ le and pay their Utah tax on or before the to the Tax Commission for waiver of tax, penalty 
   ﬁ ve-month extension period expires.                           and interest, by checking the waiver request box 
                                                                  on Schedule N for all pass-through entity taxpayers 
    Example 7:                                                   on the tax return.
   Partnership A has two partners, Partnerships B and 
   C. Partnership B has two partners, both Utah resident 
                                                                   Example 10:
   individuals. Partnership C has three nonresident 
   partners, all of whom are subject to Utah income               A trust has eight beneﬁ ciaries for which it is re-
   tax. Partnership A has no involvement or informa-              quired to withhold Utah tax. Two of the beneﬁ ciaries 
   tion regarding Partnership C’s nonresident partners.           are claimed as dependents on their parents’ federal 
   Partnership A’s responsibility for withholding is based        income tax returns (dependent beneﬁ ciaries). The 
   on Partnerships B and C. Partnership A is not directly         trust receives signed forms TC-41DB for each 
   related to the partners of Partnerships B and C. Ac-           dependent beneﬁ ciary. The trust may elect to not 
   cordingly, Partnership A must withhold tax on behalf           withhold Utah tax for the dependent beneﬁ ciaries 
   of Partnerships B and C. However, if both Partnership          and apply to the Tax Commission for a waiver by 
   B and the partners of Partnership B ﬁ le returns and           checking the waiver request box on TC-41, Sched-
   pay any tax due by the ﬁ ling due date for Partnership         ule N for each dependent beneﬁ ciary.
   A, including extensions, Partnership A may elect to 
   not withhold those amounts and may apply to the Tax 
   Commission, by completing the waiver request box 
   for Partnership B on Schedule N of the tax return, for         Forms
                                                                  The withholding is reported on the following forms:
   a waiver of tax, penalty and interest on the amount 
   Partnership A should have collected and remitted for           • Utah partnership and LLC Return (TC-65) – calculated on 
   Partnership B, but did not.                                    Schedule N and reported on page 1 of the return,
                                                                  • Utah S corporation return (TC-20S) – calculated on Sched-
                                                                  ule N and reported on Schedule A, and
    Example 8:
                                                                  • Utah trust return (TC-41) – calculated on Schedule N and 
   Partnership D is a family partnership with two                 reported on page 2 of TC-41.
   resident individual partners and one partner that 
   is a family partnership with some nonresident                  Each pass-through entity must complete Utah Schedules K 
   individual partners. The federal adjusted gross                and K-1 for each pass-through entity taxpayer.
   income of each of the individual partners (both 
   the resident partners of the ﬁ rst tier partnership 
   and the nonresident partners of the second tier                Filing Responsibilities
                                                                  If a pass-through entity taxpayer (partner, member, share-
   partnership) is less than the sum of their federal 
                                                                  holder or beneﬁ ciary) has Utah withholding tax withheld by 
   personal exemption and their federal standard 
                                                                  the pass-through entity on the taxpayer’s behalf, and the tax-
   deduction. As a result, all the individual partners 
                                                                  payer has no other Utah source income or Utah credits, the 
   are exempt from Utah income tax under Utah 
                                                                  taxpayer is not required to ﬁ le a Utah return. However, if the 
   Code §59-10-104.1. Partnership D is not required 
                                                                  taxpayer has any other Utah source income or Utah credits, 
   to withhold Utah tax for the Utah resident partners. 
                                                                  the taxpayer must ﬁ le a return reporting such income and 
   In addition, Partnership D may apply for a waiver 
                                                                  claiming such credits, including the credit for the withholding 
   of withholding on the second tier partnership by 
                                                                  tax paid on the taxpayer’s behalf by the pass-through entity.
   checking the waiver request box on Schedule N, 
   because no Utah tax will ultimately be due from 
   any of the downstream taxpayers.

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A-8: It will depend on how IRS classiﬁ es the partner or share-
Frequently Asked
holder for federal tax purposes. If the entity is disregarded for
Questions federal purposes, it is disregarded for pass-through entity Utah
withholding tax purposes. For example, if the pass-through en-
Q-1: Is a partnership required to withhold Utah tax if all tity taxpayer is a single member LLC and when disregarded is
of the ultimate downstream pass-through entity taxpay- treated as an individual Utah resident, then no Utah withholding
ers are resident individuals? is required. However, if the single member LLC when disre-
A-1: Yes. However, the partnership may request a waiver garded is treated as a nonresident individual or a corporation,
if all of the downstream entities and taxpayers ﬁ le and pay withholding is required unless one of the exceptions applies.
the Utah tax on or before the partnership’s ﬁ ling due date,
including extensions. Q-9: How does a pass-through entity report the Utah
(See Downstream Pass-through Entity Taxpayer in the withholding tax to its partners, members, shareholders
Deﬁ nitions.) or beneﬁ ciaries?
A-9: Pass-through entities must complete the Utah Sched-
Q-2: Is Utah withholding tax required when a pass- ule K-1 showing the withholding for each partner, member,
through entity taxpayer is a professional corporation shareholder or beneﬁ ciary.
and the professional corporation has withheld income
taxes on all of its shareholders sufﬁ cient to pay the tax? Q-10: When is the Utah withholding tax due?
A-2: Yes. See answer to previous question. A-10: The Utah withholding tax payment is due on the origi-
nal due date of the pass-through entity’s return, even if the
Q-3: In the past, partnerships that have all Utah resident entity takes an extension to ﬁ le. An extension applies only to
partners have not been required to ﬁ le a Utah partner- ﬁ ling a return, not paying tax.
ship return. Has this changed?
A-3: Yes, the rule now requires a partnership that is a pass- Q-11: Are interest and penalties charged on late Utah
through entity taxpayer (a second tier partnership) to ﬁ le a withholding tax payments?
Utah partnership return. Therefore, a partnership that has A-11: Interest is charged on the unpaid amount of withhold-
Utah withholding tax credit from another pass-through entity ing tax from the return due date to the date paid. Penalties
must ﬁ le a Utah partnership return, allocate the withholding may also be charged for failure to pay the required extension
credit to its partners, and give each partner a Utah Schedule payment amount, for ﬁ ling the return late and for paying late.
K-1 showing the allocated withholding. See Publication 58, Utah Interest and Penalties.

Q-4: Can a pass-through entity use credits it qualiﬁ es for Q-12: What happens if the pass-through entity does not
to offset the withholding? withhold the tax?
A-4: The only credits that may be taken into account in A-12: The pass-through entity is required to withhold, pay
calculating the required withholding tax are the Utah mineral and report tax, unless one of the exceptions applies or it
production withholding and Utah withholding tax by an upper qualiﬁ es for a waiver. If the pass-through entity does not
tier pass-through entity. Other credits, such as the Historic withhold the tax and does not qualify for waiver or any of
Preservation Credit, along with the Utah mineral production the exceptions, we will assess and collect the withholding
withholding and the Utah withholding tax by an upper tier tax amount and any penalties and interest from the pass-
pass-through entity, must be allocated and claimed on the through entity.
ultimate pass-through entity taxpayer’s return.

Q-5: Is a trust or estate required to withhold Utah tax? Definitions
A-5: Effective Jan. 1, 2013, trusts and estates are considered Business Income
pass-through entities for purposes of Utah withholding. Income from transactions and activity arising in the regular
course of the entity’s trade or business. It includes income
Q-6: How does a trust or estate handle the Utah with- from tangible and intangible property if the acquisition, man-
holding as a pass-through entity taxpayer? agement and disposition of the property are an integral part
A-6: For any portion of the withholding allocated or apportioned of the entity’s regular trade or business operation.
to beneﬁ ciaries, the trust or estate should allocate and pass
through its Utah withholding tax credit to its beneﬁ ciaries using Dependent Beneficiary
a Utah Schedule K-1. An individual beneﬁ ciary of a pass-through entity trust who is
claimed as a dependent on another person’s federal income
tax return.
Q-7: Does Utah allow a composite partnership ﬁ ling on
Utah form TC-65?
Downstream Pass-through Entity Taxpayer
A-7: No. Composite partnership returns are no longer an A pass-through entity taxpayer that is a pass-through entity
option effective for tax years beginning in 2009. They were taxpayer of any entity that is itself a pass-through entity
replaced by the Utah pass-through entity withholding tax taxpayer. The ﬁ rst pass-through entity is the ﬁ rst tier entity,
requirements. its pass-through entity taxpayers are second tier entities, any
pass-through entity taxpayers of the second tier entities are
Q-8: Is Utah withholding required when the IRS consid- third tier entities and so on.
ers a partner or shareholder a disregarded entity?

68 page 5

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Nonbusiness Income from Utah Sources Portfolio Income
All income that is not business income and that is derived Portfolio income listed on federal return schedules may be
from or connected with Utah sources. either business or nonbusiness income.
The following types of portfolio income are apportionable
Pass-through Entity business income:
An entity whose income, gains, losses, deductions and cred-
its ﬂ ow through to partners, members and shareholders for 1. Interest, dividends, royalties, gains, etc. from the ordinary
federal tax purposes. For purposes of Utah withholding tax, course of a pass-through entity’s trade or business
pass-through entities include: 2. Interest, dividends, gains, etc., of an entity whose pri-
• General partnerships, limited partnerships, limited liability mary business activity is investing funds (such as with a
partnerships; brokerage ﬁ rm),
• Limited liability companies if classiﬁ ed as a partnership for 3. Income received from holdings in or the sale of partner-
federal income tax purposes; and ship interests.
• S corporations. Nonbusiness portfolio income is treated as nonbusiness
income on the Utah return. The burden of proof is on the
A pass-through includes an estate or trust. taxpayer to justify the manner in which the income is claimed
on the return.
Pass-through Entity Taxpayers Subject
to Utah Withholding Tax Utah Source Income
• Nonresident individual partners, members, shareholders • For a C corporation, income derived from or connected
and beneﬁ ciaries; and with Utah sources per Utah Code §59-7, Part 3.
• Resident and nonresident general partnerships, limited • For a partnership, S corporation, estate, trust, or individual,
partnerships, limited liability partnerships, limited liability income derived from or connected with Utah sources (see
companies, S corporations, C corporations, and estates Utah Code §§59-10-117 and 59-10-118).
and trusts.

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