What Is Schedule 3K-1? Apportionment, PTET Credit, and Withholding

Schedule 3K-1 is the Massachusetts form a partnership gives each partner to report that partner’s share of income, deductions, and credits as calculated under Massachusetts tax law. It travels with the partnership’s state return (Form 3) and is the document you use to prepare your own Massachusetts individual return. There is no federal equivalent: the IRS uses Schedule K-1, and the two forms will show different numbers because Massachusetts defines taxable income differently than the Internal Revenue Code does.¹

What the Form Does

Federal partnerships file Form 1065 and issue each partner a Schedule K-1. The partnership itself pays no federal income tax; the income flows through to each partner’s Form 1040.¹ Massachusetts needs its own translation of those federal numbers into state figures, and the 3K-1 is where that translation lives.

Schedule 3K-1 is part of Form 3, the Massachusetts Partnership Return of Income.² The partnership runs all of the state-level adjustments and apportionment math, then hands each partner a completed 3K-1. That shifts the multi-state tax work off the individual partner and onto the entity, which is the point. Massachusetts requires all partnerships to file Form 3 and the accompanying 3K-1s electronically, with no partner-count or income threshold for exemption.³

Why the Numbers Don’t Match Your Federal K-1

The ordinary business income line on your 3K-1 is a Massachusetts figure, not a copy of what sits in the same box on the federal K-1. The differences come from items the state taxes differently than the IRS does. Two common ones push in opposite directions:

Interest on U.S. debt obligations is taxable federally but exempt in Massachusetts. The 3K-1 breaks it out separately so you can subtract it on your state return.⁴
Interest on municipal bonds from other states is exempt federally but taxable in Massachusetts. The 3K-1 adds it back in so the state can tax it.⁴

Guaranteed payments get their own line. Massachusetts treats guaranteed payments made to nonresident partners as ordinary partnership income for apportionment purposes, so the state can reach those payments even when the partner never set foot in Massachusetts.⁴ The form also carries state-specific add-backs, including certain state and local income taxes deducted at the entity level for federal purposes but not deductible under Massachusetts law. Every income and deduction line on the 3K-1 has already been filtered through Massachusetts rules before it reaches you.

Apportionment for Nonresident Partners

If you live outside Massachusetts, apportionment is the most important figure on your 3K-1. It sets the slice of partnership income the state can actually tax you on. Massachusetts uses a single sales factor formula: the ratio of the partnership’s Massachusetts sales to total sales everywhere.⁵ A partnership earning 40% of its revenue from Massachusetts customers apportions 40% of its income to the state.

A nonresident partner’s 3K-1 typically shows two columns: the total distributive share and the apportioned Massachusetts amount. Only the apportioned figure flows to your Massachusetts nonresident return. One exception: interest on U.S. debt obligations is reported in full without apportionment because that income is exempt in Massachusetts regardless of sourcing.

The PTET Credit on Your 3K-1

Since 2021, Massachusetts partnerships can elect annually to pay a 5% entity-level excise known as the Pass-Through Entity Tax, or PTET. The election is a workaround for the $10,000 federal cap on state and local tax deductions: paying at the entity level moves the deduction off the capped partner return and onto the partnership books.⁶

When your partnership makes this election, the 3K-1 calculates each qualified partner’s share of the entity-level tax and reports a refundable credit equal to 90% of that amount. The credit sits on line 42e and flows to your individual Massachusetts return.² A detail that trips people up: you still report your full distributive share of partnership income on your individual return. You cannot reduce reported income by the PTET the partnership paid. The credit is what compensates you.

Publicly traded partnerships cannot make the election. Single-member LLCs disregarded for federal purposes are also ineligible because they are not treated as pass-through entities.⁶

Withholding and the Composite Return Option

Massachusetts does not simply trust nonresident partners to file and pay on their own. Partnerships must withhold tax on each nonresident partner’s Massachusetts-source income at the Part B individual rate. Withholding is based on the lesser of 80% of the current-year distributive share or 100% of the prior-year share, and the entity remits it in quarterly installments.⁷

A partner can avoid withholding by certifying to the partnership that they will file their own Massachusetts return, by electing to participate in a composite return, or by demonstrating an exemption.⁷ Without one of those steps, the partnership withholds.

A composite return lets the partnership file and pay Massachusetts tax on behalf of two or more qualifying nonresident partners as a group, sparing those partners from filing individual Massachusetts returns. To qualify, a nonresident partner must have no other Massachusetts-source income for the entire year and must waive the right to claim individual deductions, exemptions, and credits on a Massachusetts return.⁸ If the Department of Revenue later finds you had other Massachusetts-source income, composite participation will not satisfy your individual filing obligation.

Putting the Numbers on Your Individual Return

Nonresident partners carry the apportioned figures from the 3K-1 onto Form 1-NR/PY, the Massachusetts Nonresident and Part-Year Resident Income Tax Return. The form includes Schedule R/NR, which calculates the portion of income taxable by Massachusetts.⁹ You transfer the line items (ordinary income, capital gains, interest adjustments) to the corresponding schedules on your individual return. Any entity-level credits that pass through to you, including the PTET credit, appear on the 3K-1 with the lines they belong on.

If you live in another state, you report the full distributive share on your home-state return and then claim a credit for taxes paid to Massachusetts. Your home state’s credit form will ask for the Massachusetts tax, which you compute from the 3K-1’s apportioned figures and the Massachusetts rate. The 3K-1 is the supporting document your home state will want if questions come up.

One figure worth checking against your other income: Massachusetts imposes an additional 4% surtax on taxable income above a threshold that adjusts annually. For tax year 2025, the threshold is $1,083,150.¹⁰ Partners whose Massachusetts taxable income crosses that line owe 9% on the excess (the standard 5% rate plus the 4% surtax).¹¹ A large distributive share from a profitable partnership can push you over on its own.

When to Expect Your 3K-1

Massachusetts partnerships filing on a calendar year must file Form 3 and all 3K-1s by March 15. For 2026 the deadline falls on March 16 because of the weekend.² An automatic six-month extension pushes the deadline to September 15, 2026, for calendar-year filers.¹²

If your 3K-1 has not arrived, the partnership’s filing timeline is almost certainly the reason. A late Form 3 means late 3K-1s, and every partner in the entity is stuck waiting to file their own Massachusetts return. The late-filing penalty on the partnership is $5 for every day the return is late.¹³

1
Internal Revenue Service. About Form 1065
2
Commonwealth of Massachusetts Department of Revenue. 2025 Instructions for Massachusetts Partnership Return Form 3
3
Mass.gov. DOR E-filing and Payment Requirements
4
Mass.gov. Massachusetts Partnership Form 3 Instructions – Schedule 3K-1
5
Mass.gov. Single Sales Factor
6
Mass.gov. Elective Pass-through Entity Excise
7
Mass.gov. Tax Guide for Pass-Through Entity Withholding
8
Mass.gov. Letter Ruling 98-13 Composite Return Filing
9
Massachusetts Department of Revenue. 2025 Form 1-NR/PY Instructions
10
Mass.gov. Massachusetts 4% Surtax on Taxable Income
11
Mass.gov. Massachusetts Tax Rates
12
Mass.gov. Massachusetts DOR Tax Due Dates and Extensions
13
Mass.gov. AP 612 Interest and Penalties