When a partnership pays a state more nonresident withholding than its partners owe, who can get the excess back, and can the partnership move it to other partners or carry it to next year?

What the question covers

A partnership that pays a state for its nonresident partners can pay more than the partners owe. The payment may be withholding (tax paid for the partner out of the partner's income), estimated tax (advance payments toward the partner's annual tax) or composite tax (tax paid for several owners on one entity-level return). The overpayment takes one of three forms:

• an excess, where the amount paid for a partner who owed tax is larger than that partner's liability;
• an error, where the partnership should not have paid for the partner at all, as with an exempt partner or, in New Jersey, a resident partner; and
• a misallocation, where the right total went to the wrong partner.

This article takes eight states: California, New York, New Jersey, Illinois, Georgia, Rhode Island, Oregon and Pennsylvania. It states nothing about Maryland or Massachusetts, which were not researched. For each state it asks four questions. Who may recover the money? Can statements be corrected or credits moved after they issue? Can an amount be carried forward (applied against next year's tax instead of refunded)? How long does a claim stay open? The article starts after the payment is made. Separate articles in this library cover whether and on whom to withhold, exemption certificates and real estate investment trust (REIT) partners, the way a lower-tier credit climbs through tiers of partnerships, a Utah underpayment (the opposite direction), and the California forms calendar.

Whose payment the state treats the money as

The first question is whose payment the state treats the money as. Where a partnership pays withholding or estimated tax on behalf of a partner, the state posts the amount to the partner's account, and the partner claims it on a return.

• California credits withholding to the recipient of the income (Cal. Rev. and Tax. Code section 19002(a), which says the withholding "shall be allowed to the recipient of the income as a credit").
• New York treats a payment for an individual partner as that partner's own estimated tax payment (N.Y. Tax Law section 658(c)(4)(B)). The rule for a corporate partner rests on the form instructions.
• New Jersey credits the tax to each nonresident partner's account as paid by the partner (N.J.S.A. 54:10A-15.11).
• Illinois treats the amount withheld as a payment of the partner's liability (35 ILCS 5/709.5(b)).
• Georgia, Oregon and Pennsylvania give the credit to the member or owner on the partnership's statement.

A payment made at the partnership level is different. A composite return is one return on which the entity pays for several owners. On it the entity acts as the owners' agent, but the entity itself files and pays. Oregon and Pennsylvania both let the entity receive a refund on a composite return. Illinois (by regulation) and Georgia (by statute) give the entity no refund of an amount paid for a partner. New Jersey refunds the entity only its payments above what the form computes for the partners, and Rhode Island does the same from tax year 2023.

California: the test is whether the amount was withheld from the partner

California lets a partnership recover an overpayment only to the extent the amount was not withheld from the partner. In this setting the partnership is the withholding agent, the party required to withhold and pay the tax, and the partner is the payee. Revenue and Taxation Code section 19361 provides that "refund or credit shall be made to the employer or to the withholding agent, as the case may be, only to the extent that the amount of the overpayment was not deducted and withheld by the employer or withholding agent," and that "No interest shall be allowed on the overpayment." The statute covers tax imposed by section 18662, the domestic withholding that Forms 592-PTE and 592-B report, and by section 18666, the foreign-partner withholding that Form 592-F reports. The test is whether the amount was withheld from the payee, not whether the withholding was in error.

The regulation fits inside the statute. If a withholding agent "discovers that an amount was withheld in error," it files an amended Form 592, 592-PTE or 592-F showing the proper amount. It then either remits more or requests a refund or credit of the erroneous amount, payable to the agent or to the payee, as appropriate. Sometimes the agent has already repaid the payee and asks that the amount stand as a credit against its future withholding. In that case the Franchise Tax Board (FTB) holds the credit in the agent's name, and the agent applies it to a later remittance as a prior payment (Cal. Code Regs., tit. 18, section 18662-8(c)(4)). A partnership that has withheld the money from its partner and not repaid it recovers nothing under either text.

The amount withheld from a partner is that partner's credit, claimed on the partner's own return. Section 19307 treats a return as a claim for refund of the excess if it shows a withholding credit above the tax due and is filed within four years of the last day prescribed for filing. The regulation adds that "No refund or credit of withholding may be made to an individual or entity that fails to file a tax return for the year" (Cal. Code Regs., tit. 18, section 18662-4(f)).

For foreign partners, the FTB's Publication 1017 (FAQ 134) addresses a partnership whose estimate of allocable income produced over-withholding at year end. When the partnership files Form 592-F, it "can either request that the excess credits be applied to the next year's withholding liability or be refunded." On that form, line 9 is "Overpayment," line 10 is "Credit to next year" and line 11 is "Refund." The 2025 instructions for Form 592-PTE, which domestic pass-through withholding uses, describe no overpayment, refund or carryforward line.

A California regulation on credits for withholding bars a refund of tax withheld from payments to a pass-through entity (Cal. Code Regs., tit. 18, section 19002(b)). That rule applies when a partnership is the payee of another entity's withholding, the lower-tier case that the library article on lower-tier credits covers. It does not govern a partnership's own over-withholding on its partners. Section 19361 and regulation 18662-8(c)(4) govern that.

A payee on the regulation's exclusion list raises a harder case. Regulation 18662-4(b) provides that "withholding of tax at source is optional and not required on payments of California source income to the following:" The list includes qualified pension and profit sharing plans (subdivision (b)(12)). The text read does not make that exclusion depend on an exemption certificate. The FTB would likely say that optional withholding on a listed payee is not withholding in error, and that once the amount is withheld the credit is the payee's. Publication 1017 (FAQ 141) says that an agent that has not returned excess withholding to the payee is liable for the amount withheld from the payee, plus interest and penalties. The Office of Tax Appeals (OTA) wrote in Appeal of Jacqueline Mairghread Patterson Trust (2021-OTA-187P, precedential): "Because the withholding agent withheld this amount, appellant was entitled to a credit or refund even if the withholding agent had failed to remit the withholding over to respondent." No source read states whether optional withholding on a listed payee is "withheld in error" under subdivision (c)(4).

No source read states the period for an agent's request either. The FTB's publication tells an agent that finds an error to call the FTB for instructions. The 2025 instructions for Form 592-PTE say that "Only withholding agents file amended forms" and set no deadline. The general framework is section 19306, which governs any "credit or refund," and section 19322, which requires a written claim. Section 19002(c)(1) deems withholding "paid on the last day prescribed for filing the return," but it does so for the recipient of the income, not for the withholding agent. The agent's one-year period would therefore plausibly run from its own remittance. That last step is reasoning, not a stated rule.

New York: an entity refund found only in the form instructions

New York refunds the partnership only an amount paid for a partner it was not required to pay for, and that rule sits in form instructions, not in the statute. Tax Law section 658(c)(4) provides that a qualifying entity "shall pay estimated tax on such income on behalf of such partners, members or shareholders," and that a payment for a partner who is an individual "shall be deemed to be a payment of estimated tax by the partner, member or shareholder." The paragraph says nothing about a refund or an overpayment.

Form IT-2658-I (2026) supplies the refund rule: "If the partnership or S corporation overpays estimated tax for the year, a refund will be issued to the entity only if the entity can establish that the overpayment was attributable to payments made on behalf of a partner or shareholder for whom it was not required to pay estimated tax (for example the entity or partnership erroneously made a payment for a partner that is a trust)." The instructions for corporate partners (Form CT-2658-I) carry the same refund sentence. They are also the source for treating a corporate partner's share as that partner's own payment, because the statute's deemed-payment sentence names only an individual.

The instructions also say the underpayment penalty "does not take into account whether the entity properly allocated the total payment among the nonresident partners and shareholders." A misallocation between partners is therefore not a ground the instructions give for any refund. The instructions do not address reissuing statements or carrying an overpayment forward. Searches for a New York Technical Services Bureau memorandum on refunds under section 658(c)(4) found none.

New Jersey: a statutory bar and a form route

New Jersey bars a refund of payments credited to nonresident partners. Separately, it refunds or carries forward a payment above the total tax computed on the partners. N.J.S.A. 54:10A-15.11 b. provides that "a partnership that pays tax pursuant to this section shall not be entitled to claim a refund of payments credited to any of its nonresident partners," and that "each amount of tax so credited shall be deemed to have been paid by the respective partner in respect of the privilege period or taxable year of the partner." Only a nonresident partner that files a New Jersey return reporting the income may apply the credit.

The credited amount is likely the share computed for each partner on the Partners Directory (the partner-by-partner schedule on the partnership return). On that reading, an installment paid above the total computed tax is an entity-level overpayment and not a payment credited to a partner. The partnership reports the nonresident partners' tax on Form NJ-CBT-1065, which the 2025 NJ-1065 instructions require "if the entity calculated a tax due on its nonresident partner(s)." On that form, line 12 is "Overpayment," line 13 is "Credit to 2026" and line 14 is "Refund," and the line instructions direct the filer to forward the wanted part of the line 12 overpayment on line 13 and to take the rest as a refund on line 14. The filing fee under N.J.S.A. 54A:8-6 is a separate item, refunded to the partnership on the NJ-1065 itself.

An amended return cannot lower a partner's credit. Where an amendment yields a smaller tax for a partner, the 2025 NJ-1065 instructions direct the filer to report the original amount, "since the partner is entitled to claim credit for the originally reported amount," and to report no less than the original on an amended Schedule NJK-1, which "must be forwarded to the Division of Taxation and to each partner."

A resident partner mistakenly treated as a nonresident is the harder case. The instructions say, "Partnerships are not to remit tax on behalf of resident partners," and "Resident partners will not receive a credit on their resident New Jersey tax returns for any payments made on their behalf by the partnership." If the partnership finds the mistake before it files the original NJ-CBT-1065, the amount would be a line 12 overpayment. If the original already lists the partner, no source read states whether the Division lets an amended NJ-CBT-1065 drop the amount from line 2 and refund it on line 14. For an exempt entity whose tax the partnership paid, the Division's bulletin TB-55(R) (July 13, 2016) says the entity "may file a claim for refund, which must include proof of the tax payment."

For 2024 and later returns, the Division's page on the nonresident partner's share of tax says the tax is based on the partner's share of New Jersey income. The Division will waive the 2024 late filing penalty and the 2025 interest on underpayment of estimated tax that resulted from the earlier method, after the charges are assessed (page last updated July 28, 2025). The page also directs that third and fourth quarter 2025 estimated payments be adjusted. Payments made under the earlier method may therefore differ from the new computation.

Illinois: the owner files the claim

Illinois bars the partnership from claiming any refund or credit for an overpayment of withholding with respect to an owner, so the owner files the claim. The Department of Revenue's regulation says so in terms: "A pass-through entity may not claim a refund or credit for any overpayment of withholding due under subsection (a) with respect to any owner." The owner "has no right of action against the pass-through entity for overpayment of withholding," and the remedy is for the owner "to file a timely claim for credit or refund for any amount withheld under subsection (a) with respect to it" (86 Ill. Adm. Code 100.7035(e), amended at 40 Ill. Reg. 15575, effective November 2, 2016). An owner that was exempt but was withheld on has no claim against the entity either: "Instead, the owner must file a timely claim for refund of the withholding" (100.7035(g)(2)). The statute treats the amount withheld as a payment of the partner's liability and has no refund sentence (35 ILCS 5/709.5(b)).

The Department's Publication 129 (R-12/25) reads differently. It says: "If a pass-through entity overpays pass-through withholding or PTE tax, the pass-through entity may request a refund." It adds that an entity cannot amend a return for the sole purpose of requesting such a refund. It also says: "In the case of any overpayment, the member must file a timely claim for credit or refund of any pass-through withholding or PTE tax credit overpaid by the pass-through entity." The publication cites only section 709.5 and names no form or line, and the statute it cites has no sentence supporting a refund to the entity. The regulation governs. The publication's sentence is the Department's own statement and should be read together with the regulation.

The Department's likely reading is that the publication's sentence fits the regulation only if it means the entity's own payments above the withholding and tax that the entity reports. The structure of the 2025 IL-1065 (R-07/26) supports that reading. Line 65b takes the entity's payments, and line 65c takes withholding the entity received from other entities. Line 68 is the election to carry an overpayment to the next year, and line 69 is the refund line. An amount reported as withheld for a member on line 59a and on a Schedule K-1-P is the member's. No instruction says so in terms, and no instruction states that lines 68 and 69 apply to a pass-through withholding overpayment.

The member's claim period is three years after the return was filed or one year after the tax was paid, whichever is later (35 ILCS 5/911(a)(1)). The regulation deems withheld tax paid no later than the last day of the entity's taxable year, but only for computing penalty and interest, so that date is not the refund clock. The instructions for Form IL-1065-X, the partnership's amended return, allow an amended return that decreases the entity's own Illinois tax. It must be filed within three years of the due date (with extensions), three years of the filing date, or one year of the Illinois payment date, whichever is latest. Illinois investment partnerships withhold under section 709.5(d) and are outside this article.

Rhode Island: two excesses and two claimants from tax year 2023

Rhode Island is the clearest example of law that moved. Under the 2020 instructions the entity could not recover excess withholding. From tax year 2023 it can recover its own excess payments. The 2020 instructions for Form RI-1096PT said: "Excess withholding amounts cannot be refunded or carried forward. They must be passed through to the entity's members." Only the 2020 instructions were read, so the bar is stated for the 2020 series, and it is not the current rule.

For tax year 2023 the Division of Taxation discontinued the RI-1096PT series and replaced it with Schedule PTW, filed with the RI-1065 or RI-1120S. Advisory ADV 2024-12 (March 7, 2024) says: "Any excess payments may be refunded to the entity or trust and/or may be a carryforward to the following tax year." It also says that filing the return with Schedule PTW "does not allow for excess withholding to be claimed by a nonresident member," and that "The nonresident member claims withholding in the same manner in which an employee claims withholding remitted by their employer on the wages they earn." The advisory does not address refunds of payments made under the earlier forms.

The advisory and the 2023 and 2024 RI-1065 lines together describe two excesses and two claimants. Schedule PTW line 13 carries to RI-1065 line 7c. On the RI-1065, line 14 is the overpayment, line 15 is the amount credited to next year's estimated tax and line 16 is the refund. The entity's payments above its Schedule PTW amount are the entity's to refund or carry forward. The member is credited the computed amount on its Schedule K-1 and is refunded on its own return if that credit exceeds its tax. The member cannot claim the entity's excess. That is a reading of the forms, since no RI-1065 instruction read uses the word "excess." The Rhode Island statute on pass-through withholding (R.I. Gen. Laws section 44-11-2.2) contains neither the 2020 rule nor the 2023 rule, so the Division's advisory and forms are the source.

Pennsylvania: pass the overpayment through, except on a composite return

Pennsylvania requires an entity that overpaid nonresident withholding to pass the overpayment through to its owners. On a composite return, the overpayment can instead be refunded to the entity or credited forward. The 2025 instructions for Schedule NW say: "If the entity overpaid the nonresident tax withholding, the entity MUST PASS THROUGH the overpayment to their nonresident owners on the PA Schedule NRK-1, Line 6, where the owner can then claim a credit on their individual income tax return." The instructions add that the schedule is not a return on which a refund or carryforward credit can be indicated. Line B of the schedule is labeled "Total Nonresident Withholding Payments, Extension Payment, and Carry-forward Credits." It takes any carryover credit of nonresident withholding from the prior year's PA-20S/PA-65 or PA-40 NRC.

A composite return is the exception. On Form PA-40 NRC (2025), line 13 is the overpayment, line 14a is the "Amount of Line 13 to be refunded to the Partnership, LLC or PA S Corporation," and line 14b is the portion credited forward to the entity's pass-through account, to be reported on Schedule NW the next year. The instructions for an amended composite return also require owners to file amended Pennsylvania returns to obtain refunds where the amended return corrects over-reported income. That sentence governs the amended composite return. It is not a condition of the line 14a refund.

The statute gives the entity the withholding duty and the partner the credit (72 P.S. sections 7324(a) and 7324.2(a)). Neither section is a rule against refunds. A petition for refund must be made "within three years of actual payment of the tax, interest or penalty" (72 P.S. section 10003.1(a)).

The 2017 instructions for Schedule NW told an entity that had not passed an overpayment through, and had filed no PA-40 NRC, to submit a written request to the Department of Revenue for a refund or a carryforward. Those sentences are absent from the 2025 instructions, so the 2025 text states the rule. Whether the Department still accepts such a request is unpublished.

Georgia and Oregon: credit to the member or owner, no published entity route

Georgia's statute gives the nonresident member the refund. Where the entity remits withholding during the year that exceeds a nonresident member's Georgia income tax liability, "that member shall be entitled to a refund of the excess withholding at the end of the taxable year" (O.C.G.A. section 48-7-129(a)(2)). The entity and its members are "jointly and severally liable" for the withholding tax (subsection (a)(4)). The Department of Revenue's rule credits the member on the entity's Form G-2-A, claimed for the member's tax year in which the entity's withholding year ends (Ga. Comp. R. and Regs. 560-7-8-.34(6)(d), as amended effective June 11, 2026).

Neither the statute, the rule nor the forms read publish a refund route for the entity. Georgia does publish a general refund claim form, Form IT-550, that it says may be used to request a refund of withholding, composite and partnership income taxes. The form's pass-through entity section shows that the entity holds a nonresident withholding tax account. Whether the Department would entertain an entity claim on that form for an amount remitted for a person who was never a nonresident member is unpublished.

Oregon credits owners with the payments on Form OR-19 only after the entity files its annual report: "The owners will not receive credit for payments made on their behalf until the annual report has been filed by the entity" (OAR 150-314-0520(5)). Oregon is not silent on moving payments, but its moves run between an owner's account and a composite account, not between owners. The OR-19 instructions let the entity direct part of a payment to its Form OR-OC account. The composite return rule lets an entity file an amended composite return for a refund of tax paid on a corporate owner's share, or request a transfer of that tax to the owner's account (OAR 150-314-0515(3)(b)). A refund on a composite return filed after the due date goes to the entity, subject to an exception (OAR 150-314-0515(4)(c)).

The Oregon Department of Revenue's likely reading is that, before the OR-19 allocates the payments, they are the entity's payments on its own liability, because the entity "is liable to the State of Oregon for amounts of tax required to be withheld and paid under this section" (ORS 314.781(7)). On that reading, a claim under ORS 305.270 filed within the period in ORS 314.415(2)(a) is the general route. After the OR-19, the owner holds the credit. That is the general refund statute and not a published withholding route, and no source read states a withholding-specific refund of OR-19 payments.

Reallocation after statements issue

No source read lets a partnership move a correctly computed credit from one partner to another after statements issue. Every state's statement is the partner's proof of credit, and the sources read allow correction of errors but say little about moving a correct credit.

• California. Only the withholding agent amends Forms 592-PTE and 592-B, with the Amended box checked, and the instructions set no deadline. The 2025 instructions for Form 592-PTE say "Only withholding agents file amended forms." A misallocation among payees is an error corrected by an amended Form 592-PTE, which is how the library article on California K-1 mismatches reads. What no source authorizes is moving a correctly computed credit from one partner to another.
• Illinois. The partnership issues revised Schedules K-1-P, marked as revised, when the reported amounts change, and the instructions state no deadline.
• New Jersey. Amended Schedules NJK-1 go to the Division and to each partner, and the reported amount cannot go below the original.
• Pennsylvania. The 2025 text allows an amended PA-40 NRC only to adjust amounts for amendments the entity made to Schedule NRK-1 or to correct errors. It bars an amended PA-40 NRC that adds an electing owner or reverses an election by removing a non-qualifying owner.
• Georgia. A composite return cannot be amended after its due date to include or exclude members (Ga. Comp. R. and Regs. 560-7-8-.34(3)(a)). Passing withholding between tiers requires Form G-2-A and its allocation schedule, or the credit is disallowed ((4)(b)).
• Oregon. The composite rules move payments between an owner's account and the composite account, not between owners.
• New York and Rhode Island. The instructions read are silent on reissuing statements and moving credits.

Carryforward

Six of the eight states allow some carryforward, and each limits it to a specific payment.

• California. An agent that repaid a payee may keep the erroneously withheld amount as a credit against future withholding (regulation 18662-8(c)(4)). A partnership filing Form 592-F may put excess foreign-partner credits on line 10 as a credit to next year. A partner may elect to apply its own overpayment to next year's estimated tax, and Revenue and Taxation Code section 19002(e) then provides that "no claim for credit or refund of the overpayment shall be allowed for the taxable year in which the overpayment arises."
• Illinois. Line 68 of the IL-1065 elects a carryforward. On the reading above, it reaches withholding only for the entity's own excess payments.
• Rhode Island. From tax year 2023, the entity may carry forward its payments above the Schedule PTW amount (RI-1065 line 15). The 2020 instructions barred any carryforward.
• Pennsylvania. A composite return allows a carryforward on line 14b, and Schedule NW line B carries forward a credit already in the pass-through account.
• Georgia. Form 700 lets a partnership credit its own overpayment to next year's estimated tax. The credits on that form are the partnership's own, as recipient of withholding from lower tiers. The form does not say they cover amounts the partnership paid for its own members.
• New Jersey. Form NJ-CBT-1065 line 13 is the credit to 2026 of an overpayment shown on line 12.
• New York. The instructions read describe no carryforward of a partner-payment overpayment.
• Oregon. The sources read do not address one.

Claim periods and the closed-year trap

The partner's claim period is the state's general refund period, run from a deemed payment date (a date the law treats as the payment date, whatever the actual date). Each partner's clock runs separately.

• California. Three prongs apply, and the latest controls: four years from the date a timely return was filed (extensions included), four years from "the last day prescribed for filing the return" (without regard to extension), or one year from the date of the overpayment (Revenue and Taxation Code section 19306(a)). Section 19002(c)(1) deems withholding paid on the last day prescribed for filing the return. The OTA applied the three prongs to withholding in Patterson Trust: "The date Form 593 was filed or when the withholding was credited to appellant's tax account are irrelevant." For a 2025 return, the floor is April 15, 2030 (four years from the April 15, 2026 due date). A partner that files on its extended due date of October 15, 2026 has until October 15, 2030. The one-year prong, from the April 15, 2026 deemed payment date, ends April 15, 2027 and does not control. No source read states the agent's own period.
• New York. A claim for credit or refund must be filed within three years of the return or two years of payment, whichever is later (Tax Law section 687(a)). Withholding and estimated tax are deemed paid on the fifteenth day of the fourth month after the close of the taxable year (section 687(i)).
• New Jersey. Three years from filing or two years from payment, with tax paid early treated as paid on the fifteenth day of the fourth month (N.J.S.A. 54A:9-8(a) and (h)).
• Illinois. The member's period is three years after the return was filed or one year after the tax was paid, whichever is later (35 ILCS 5/911(a)(1)).
• Georgia. A claim is due within three years after "the later of the date of the payment of the tax or fee to the commissioner or the due date for filing the applicable income tax return, including any extensions which have been granted" (O.C.G.A. section 48-2-35(c)(1)(A)(ii)). The statute has no deemed-paid sentence for withholding. The sentence that withholding is treated as paid on the regular due date appears in the Department's statute of limitations FAQ only.
• Rhode Island. For the individual, three years from filing or two years from payment, with withholding deemed paid on the fifteenth day of the fourth month, which for tax year 2025 is April 15, 2026 (R.I. Gen. Laws section 44-30-87(a) and (i)). The entity's own period under chapter 44-11 was not read.
• Oregon. Three years from filing or two years from payment, unless a claim under ORS 305.270 is filed first (ORS 314.415(2)(a)). The text has no deemed-payment rule for withholding.
• Pennsylvania. A petition for refund within three years of actual payment (72 P.S. section 10003.1(a)), and an amended return for a refund "within three years of the original due date or the actual payment of tax, whichever is later" (Form PA-40 NRC, 2025).

The trap is a partner whose year closes before the partnership finds the over-withholding. The partner's claim period keeps running from the original due date whether or not the partner knows the credit exists. In California, a return that shows the credit and is filed within four years from the last day prescribed for filing is itself the claim (section 19307). A partner that filed without the credit must amend within the periods in section 19306(a).

Exempt, resident and tiered partners

The library articles on exemption certificates and on REIT partners cover who is exempt and how a certificate is kept. This article adds only the route for money already paid for an exempt or resident partner.

• California. The agent's route runs only to the extent the amount was not withheld from the payee, and the payee otherwise claims on its own return.
• New York. The entity may recover a payment it was not required to make, a rule stated in the instructions (Form IT-2658-I).
• New Jersey. An exempt entity may file a claim for refund with proof of payment. A resident partner receives no credit on the resident return. The NJ-CBT-1065 route exists only if the error is found before the original return is filed.
• Illinois. An owner withheld on despite an exemption has no claim against the entity and files its own claim.
• Georgia. The member's refund is statutory.

For a tiered structure, the lower tier's payment is the upper tier's credit, and the library article on lower-tier credits carries those mechanics.

A worked example

Facts (invented). A calendar-year operating LLC taxed as a partnership (not a New Jersey qualified investment partnership or an Illinois investment partnership) has four partners. Partner A and Partner D are individuals living in a state with no income tax. Partner B is a qualified pension plan trust. Partner C is an individual who lives in New Jersey. For tax year 2025 the partnership paid a total of $180,000 to three states. The figures are invented round numbers, not derived from any rate or income figure.

• California: Partner A $40,000; Partner B $30,000; Partner C $0; Partner D $20,000; total $90,000.
• New Jersey: Partner A $30,000; Partner B $0; Partner C $20,000; Partner D $0; total $50,000.
• Pennsylvania: Partner A $25,000; Partner B $0; Partner C $0; Partner D $15,000; total $40,000.
• By partner: Partner A $95,000; Partner B $30,000; Partner C $20,000; Partner D $35,000; total $180,000.

Check: $90,000 plus $50,000 plus $40,000 is $180,000, and $95,000 plus $30,000 plus $20,000 plus $35,000 is $180,000.

Forms 592-B, Schedules NJK-1 and Schedules NRK-1 were issued in March 2026, and the partnership filed its 2025 Form NJ-CBT-1065 in March 2026 listing Partner C at $20,000. The partnership found the errors in September 2026, in a year-end review that compared each payment with the partner's liability. It had filed no Pennsylvania PA-40 NRC. Partner A's liabilities equal the payments in all three states. Partner D's liabilities are $12,000 in California and $9,000 in Pennsylvania. The excess arose because the payments rested on an estimate of allocable income that proved too high at year end, the cause that Publication 1017 (FAQ 134) describes for foreign partners. Partner B is on the California payee list for qualified pension plans, and no exemption certificate was on file when the payment was made. Partner C was coded as a nonresident in error.

The route for each piece.

1. Partner A, $95,000. The amount is correct. Each state's statement carries the credit, and nothing needs recovery.
2. Partner B, California $30,000. The regulation makes withholding on a qualified pension plan "optional and not required" and does not condition that on a certificate, so the missing certificate did not make the payment required. Two routes follow. In the first, Partner B files a 2025 California return and claims the Form 592-B credit as the payee; a payee that files no return receives no refund. In the second, the partnership repays Partner B, files an amended Form 592-PTE with a letter explaining the correction, and requests a refund or credit under section 19361 and regulation 18662-8(c)(4), to the extent the amount was not withheld from the payee. No interest is paid on the agent's refund, and the partnership may ask to keep the repaid amount as a credit against future withholding. While the partnership holds back the money, it recovers nothing. Whether optional withholding on a listed payee is "withheld in error," and the period for the agent's request, are open.
3. Partner C, New Jersey $20,000. The error was found after the original NJ-CBT-1065 listed Partner C at $20,000. The statute bars a refund of payments credited to a nonresident partner, and the instructions bar an amended return or amended Schedule NJK-1 that reports less than the original. No source read states whether the Division lets an amended NJ-CBT-1065 drop the amount and refund it on line 14, so the piece is open. Had the partnership found the error before it filed the original, the $20,000 would have been a line 12 overpayment, taken as a credit on line 13 or a refund on line 14.
4. Partner D, California $8,000 excess ($20,000 less $12,000). The amount was withheld from Partner D, so section 19361 gives the partnership nothing. The credit is Partner D's, claimed on its 2025 California return. The claim period is the latest of the three section 19306(a) prongs: at least April 15, 2030 and, if Partner D files on its extended due date of October 15, 2026, October 15, 2030. The one-year prong ends April 15, 2027 and does not control. Partner D is a domestic partner, so the Form 592-F route for foreign partners does not apply.
5. Partner D, Pennsylvania $6,000 excess ($15,000 less $9,000). With no PA-40 NRC filed, the partnership passed the overpayment through on Schedule NRK-1, line 6, and Partner D claims it on its Pennsylvania return within three years of actual payment. Had the partnership filed a PA-40 NRC for Partner D, the line 13 overpayment could be refunded to the partnership (line 14a) or credited forward (line 14b).

Arithmetic. The pieces needing action are $30,000 plus $20,000 plus $8,000 plus $6,000, or $64,000. The remainder is $180,000 less $64,000, or $116,000, made up of Partner A's $95,000 and Partner D's liabilities of $12,000 plus $9,000, or $21,000.

What the example shows. The same $180,000 splits into four recovery paths. On these facts, the only piece with an entity route among the sources read is the California amount for Partner B, and only after the partnership repays Partner B. The New Jersey piece would have an entity route had the error been found before the original return. What it leaves out: interest, penalties, the New York, Illinois, Rhode Island, Oregon and Georgia pieces, and the open points above.

What remains open

The sources read leave these points unanswered.

1. Illinois. No instruction states whether line 68 of the IL-1065 reaches only the entity's own excess payments, as the structure of lines 59a, 65b, 68 and 69 suggests.
2. Georgia. Whether the Department would entertain an entity claim on Form IT-550 for an amount remitted for a person who was never a nonresident member is unpublished.
3. New Jersey. No source read states whether the Division allows an amended NJ-CBT-1065 to drop a resident partner's amount after the original lists the partner.
4. California. No source read states the period for a withholding agent's request, or whether optional withholding on a listed payee is "withheld in error." The research found no FTB ruling or notice on an agent's refund under section 18662.
5. New York and Rhode Island. The instructions read do not address reissuing statements or moving credits, and no New York Technical Services Bureau memorandum on section 658(c)(4) refunds was found.
6. Pennsylvania. Whether the Department still accepts the 2017 written request is unpublished.
7. Rhode Island and Oregon. The 2025 RI-1065 instructions, the entity's claim period under chapter 44-11, a withholding-specific refund route for OR-19 payments, and the destination of a timely composite return's overpayment were not found or read.
8. Maryland and Massachusetts. These states were not researched, and nothing is stated about them.

Practice notes

Classify each payment before seeking recovery. It is either an excess (the partner's liability is lower than the amount paid) or an error (no payment was required for that partner). Then ask whether the state treats the amount as withheld from the partner. In California, recover only to the extent the overpayment was not withheld from the payee. For a domestic partner, that means repaying the payee first and then amending the Form 592-PTE (Revenue and Taxation Code section 19361; Cal. Code Regs., tit. 18, section 18662-8(c)(4)). Put excess foreign-partner credits on Form 592-F lines 10 and 11. In New York, expect a refund to the entity only for a payment made for a partner it was not required to pay for (Form IT-2658-I).

Keep a state-by-state register of the partner statements issued (Form 592-B, Schedule NJK-1, Schedule K-1-P, Schedule NRK-1, Form G-2-A, the Oregon OR-19 statements and the Rhode Island Schedule K-1) and the date each was issued, so that a correction is dated against the partner's refund period. Tell each affected partner in writing, with the statement and the date, that a credit exists. Tell exempt or resident partners that the partnership is seeking return of the amount. A partner that files no California return receives no refund.

Where New Jersey tax was paid on a partner, do not file an amended return that reports a lower amount for that partner after the original return is filed. Before the original NJ-CBT-1065 is filed, take a payment above the computed total tax on line 13 or line 14 of that form. Before treating Pennsylvania or Illinois excess as an entity refund, read the current form instructions and the Illinois regulation. Pennsylvania's 2025 text requires the pass-through on Schedule NRK-1, and in Illinois the member files the claim (86 Ill. Adm. Code 100.7035(e)). For Rhode Island excess from tax years 2023 forward, review whether the refund or carryforward in ADV 2024-12 was used, and do not apply the 2020 instruction. G&G State Tax Group advises partnerships and their partners on nonresident withholding, refund claims and multistate procedure alongside its state and local tax practice.