The pass-through entity tax election lets partnerships and S corporations pay state income tax at the entity level, shifting what would be a capped individual SALT deduction into an uncapped business expense. 36 states now offer some version of this workaround, each with its own rates, deadlines, and credit mechanics.
This guide covers which states have active PTET elections, how the federal deduction works, state-by-state rules and rates, and a framework for deciding whether the election makes sense for a particular client. Where specific rates, deadlines, or mechanics are cited, practitioners should confirm current figures against the governing state statute or regulation before relying on them for filing positions or client advice. State rules change frequently, and this guide identifies key provisions to verify rather than serving as a substitute for primary authority.
A pass-through entity tax, or PTET, is an optional state-level income tax that partnerships, S corporations, and certain LLCs can elect to pay at the entity level. The term "pass-through entity" refers to business structures where income flows through to owners' individual tax returns. S corporations, partnerships, and multi-member LLCs taxed as partnerships all work this way. Normally, the entity itself doesn't pay income tax. Instead, owners report their share of income on their personal returns and pay tax there.
When an entity makes a PTET election, the business pays state income tax directly. Owners then receive a credit on their personal state returns to avoid paying tax twice on the same income.
The federal Tax Cuts and Jobs Act of 2017 originally capped the state and local tax deduction at $10,000 for individuals. The One Big Beautiful Bill Act of 2025 raised that cap significantly. For the 2026 tax year, the individual SALT deduction limit is $40,400 ($20,200 if married filing separately), up from $40,000 in 2025, with 1% annual increases continuing through 2029. The cap is reduced for taxpayers with modified adjusted gross income exceeding $505,000 ($252,500 if married filing separately) for 2026, but cannot fall below $10,000 ($5,000 if married filing separately). For owners of pass-through businesses in high-tax states, the individual SALT cap can still significantly limit the tax benefit of itemizing deductions.
States responded by creating entity-level taxes. The idea is straightforward: if the business pays the state tax instead of the owner, the payment is taken into account at the entity level rather than as an individual itemized deduction. Entity-level deductions are not subject to the individual SALT cap.
The IRS confirmed in Notice 2020-75 that it would respect these state-level elections, stating that specified income tax payments made at the entity level are deductible by the entity in computing non-separately stated income or loss. That guidance gave taxpayers confidence that the federal deduction would hold up to scrutiny. The OBBBA did not include any further limitation on state PTETs, meaning the workaround remains available alongside the higher SALT cap.
When an entity makes a PTET election and pays state income tax, that payment is deductible by the partnership or S corporation in computing its non-separately stated taxable income or loss, as described in IRS Notice 2020-75. Because the deduction occurs at the entity level as part of the entity's income computation, it is not subject to the individual SALT deduction cap.
The mechanics flow through to owners in a few ways:
The landscape of PTET availability continues to evolve as states add or modify their programs. For the 2026 tax year, 36 states have active PTET elections, though several states have recently let their programs expire or are operating under short-term extensions that practitioners should monitor.
The following 36 states currently have enacted and effective PTET legislation for the 2026 tax year: Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, Missouri, Montana, Nebraska, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Rhode Island, South Carolina, Utah, Virginia, West Virginia, and Wisconsin.
Each state's rules differ in meaningful ways. Rates, eligible entities, election timing, and credit mechanics all vary. The detailed breakdown appears in the next section.
States without individual income taxes generally have no PTET regime because there is no state income tax for the election to address. Texas, Florida, Wyoming, Nevada, Washington, Alaska, South Dakota, Tennessee, and New Hampshire fall into this category. New Hampshire's Interest and Dividends Tax was repealed effective January 1, 2025 (per NH DRA), meaning the state no longer imposes any individual-level income tax. Some of these states may have entity-level taxes, withholding requirements, or composite return regimes that serve adjacent purposes, but they are not structured as PTET elections under the Notice 2020-75 framework.
Among states with income taxes, Delaware, North Dakota, and Pennsylvania have not enacted PTET legislation. Vermont considered a PTET bill (S.B. 45) during its 2024 legislative session, but the bill did not advance to enactment.
Minnesota's PTET expired for tax years beginning after December 31, 2025, based on the Minnesota Department of Revenue's published guidance, meaning it is no longer available for the 2026 tax year. Utah's original PTET authorization (HB 444, 2022) also expired after December 31, 2025, but the 2026 General Session omnibus tax bill (HB 77) extended the PTET by amending Section 59-10-1403.2, effective May 6, 2026, and applying to tax years beginning on or after January 1, 2026. Virginia's PTET was made permanent in February 2026 when the General Assembly's "caboose" budget legislation (HB 29/SB 29, signed by Governor Spanberger on February 20, 2026) removed the sunset date entirely. Several other states have PTET programs with sunset dates in the coming years, making it important to verify each state's current statutory status before advising clients.
Pennsylvania has had a PTET bill under consideration in recent legislative sessions, though it has not enacted legislation as of this writing. The list of pending bills changes frequently as legislative sessions progress, so monitoring developments in states without current PTET options can be worthwhile for practitioners advising multi-state clients.
Each state sets its own rate structure, eligible entity types, and election procedures. The table below provides a quick reference for some of the larger states. All rates shown reflect 2026 tax year provisions unless otherwise noted. Rates linked to individual or corporate income tax rates may shift as states continue adjusting their tax codes.
Election deadlines vary significantly across states. Some states require elections before the tax year begins, while others allow elections on extended returns. Missing a deadline typically means losing the benefit for an entire year. For the complete state-by-state breakdown, the sections below cover each state's specific requirements.
Alabama partnerships and S corporations may elect to pay a 5% tax on their Alabama taxable income. Starting in 2025, entities can make or revoke the election directly on their Alabama income tax return, including extensions. Previously, the election required a separate online filing through My Alabama Taxes by March 15. Partners and shareholders receive a refundable credit equal to their pro rata share of the tax paid. The program has been available since the 2021 tax year.
Partnerships and S corporations may elect to pay a 2.5% flat tax (matching Arizona's individual income tax rate) on their Arizona business taxable income. The election is made annually on a timely filed return, including extensions. Arizona has a notable requirement: all partners and shareholders must be notified at least 60 days before filing that an election is being made and given the right to opt out. Partners or shareholders who do not respond are automatically included. Owners claim a credit on their individual returns for their share of tax paid.
Partnerships, S corporations, and LLCs with one or more members may elect to pay a 5.9% flat tax on net Arkansas business taxable income. The election is annual and must be made before the due date for filing the entity's income tax return (or, if extended, before the extended due date). Once made, the election is binding on all members of the entity. Entities can make the election by filing Form AR362 or through the entity's tax return. Confirm current owner-consent requirements and the applicable rate against the Arkansas Department of Finance and Administration's guidance, as these may have been updated. The program has been available since the 2022 tax year.
Partnerships, S corporations, and LLCs taxed as partnerships may elect to pay a 9.3% tax on each consenting partner's or shareholder's pro rata share of the entity's California taxable income. The election is made on the entity's timely filed return.
California's PTET was originally set to expire after 2025. Multiple secondary sources report that the program was extended through 2030, with new flexibility for the estimated payment requirement starting with the 2026 tax year. Confirm this extension against enacted California law. Under the reported new rules, entities can make a valid election even if they miss or underpay the June 15 deadline, but each owner's PTET credit is reduced by 12.5% of the proportionate share of the unpaid amount. This relief is reported to apply only starting with the 2026 tax year.
Partners and shareholders who consent to the election receive a nonrefundable credit for the tax paid on their share of income. Unused credits carry forward for up to five years. C corporation income is excluded from the tax base when computing the PTET.
Partnerships, S corporations, and LLCs may elect to pay a 4.40% flat tax on their Colorado business taxable income. The rate is tied to the state's individual income tax rate. The election is annual and binding on all owners. It is made by checking a box on the entity's Colorado income tax return. Note that Colorado is one of several states where the election must be made on the timely filed return, with no clear provision for making the election on an extended return.
Connecticut's pass-through entity tax applies to all pass-through entities and was mandatory when first enacted. Starting with the 2024 tax year, the tax became elective. Tax is calculated using either the Standard Base (default) or an Alternative Base method, with a rate of 6.99% applied to the applicable base. Partners claim a refundable PE Tax credit on their personal returns. The program has been in effect since the 2018 tax year.
Partnerships and S corporations may elect to pay tax at the entity level at a rate tied to the state's individual income tax rate. Georgia's PTET regulation (Ga. Comp. R. & Regs. R. 560-7-3-.03) sets the rate at 5.75% or, if subsequently changed by statute, the applicable income tax rate. The Georgia DOR's 2026 withholding guide references a rate of 5.19% for employer withholding, and the state has enacted a series of rate reductions. Practitioners should confirm the 2026 PTET rate against the current Georgia income tax statute, as there is pending legislation (HB 463) that could further reduce the rate to 4.99%. The election is made by checking a box and completing applicable schedules on Form 600S (S corporations) or Form 700 (partnerships). Per Georgia DOR, the election must be made by the due date or extended due date of the entity's income tax return and is irrevocable after the applicable due date passes. Electing entities are required to make estimated tax payments in the same manner as a C corporation. The program has been available since the 2022 tax year.
Partnerships and S corporations may elect to pay an 11% entity-level tax. The election must be made each year, with the deadline falling on April 20 of the taxable year (for tax years after December 31, 2023). Members claim a credit equal to their pro rata share of tax paid. The 11% rate is the highest flat PTET rate among the states and reflects Hawaii's high individual income tax rate structure.
Partnerships, S corporations, and LLCs taxed as partnerships may elect to pay tax at the entity level at a rate pegged to the state's corporate income tax rate. The election is made on the entity's timely filed return. All partners or shareholders must agree. Resident partners and shareholders receive a credit for their distributive share of tax paid. Idaho's PTET rate has declined as the state has lowered its corporate income tax rate in recent years.
Partnerships and S corporations may elect to pay a 4.95% tax on their Illinois taxable income. The Illinois PTET was originally enacted in 2021 with a sunset for tax years beginning on or after January 1, 2026. Multiple secondary sources report that the legislature removed the sunset provision in December 2025, making the program permanent. Confirm this change against the enacted Illinois statute before relying on it for 2026 planning. The election is made on the entity's Illinois income tax return. Partners and shareholders receive a credit for their distributive share of tax paid.
Illinois also broadened the definition of "qualifying investment securities" effective for tax years ending on or after December 31, 2023, to include partnership interests that qualify as securities under federal securities law. This means certain partnerships (such as private equity funds) holding interests in operating partnerships may now qualify as investment partnerships under the Illinois PTET.
Partnerships and S corporations may elect to pay a flat tax on their Indiana business taxable income at the state's individual income tax rate, which is 2.95% for 2026 (down from 3.00% in 2025). The election is made annually by an authorized person and is irrevocable for the year. Partners and shareholders claim a refundable credit on their individual returns. The program was enacted in 2023, retroactive to 2022.
Partnerships and S corporations may elect to pay tax at the entity level. Iowa consolidated its individual income tax brackets into a single 3.8% flat rate starting in 2025, which affects the PTET rate. Iowa's PTET is one of several state programs that automatically continues as long as any limitation on the federal SALT deduction is in place. The election must be made by the due date of the partnership or S corporation return.
Partnerships and S corporations may elect to be taxed on the entity's Kansas taxable income. The rate is commonly cited as 5.7%, though this should be confirmed against the current Kansas statute (Kan. Stat. Ann. § 79-32,286 confirms the annual election mechanism but the rate provision should be verified separately). The election is made on the entity's annual tax return. Partners and shareholders receive a credit for their direct share of the tax paid. The program has been available since the 2022 tax year.
Partnerships and S corporations may elect to pay a 4.0% flat tax on their Kentucky business taxable income (the rate was reduced from 4.5% as the state lowered its individual income tax rate). The election requires consent from members holding more than 50% ownership and is binding on all members. Partners and shareholders claim a nonrefundable credit on their individual returns. The program was enacted in 2023, retroactive to 2022.
Louisiana's approach is distinctive: eligible entities may elect to be taxed as if they were a C corporation on their Louisiana taxable income, using the state's corporate income tax rate structure. Under 61 La. Admin. Code pt. I, § 1001, the election is made by filing Form R-6980 (not on the entity's income tax return) and requires approval from owners holding more than one-half ownership. For the first effective year, the election must be timely if made by the 15th day of the fourth month after year-end. Once made, the election remains in effect for the year and all succeeding years until a separate termination procedure is completed. The program has been available since the 2019 tax year.
Maine enacted its PTET as part of LD 2212, the supplemental budget bill signed by Governor Mills on April 10, 2026. The election is available for tax years beginning on or after January 1, 2026 and must be made annually. The tax rate is 7.15%, which is Maine's top individual income tax rate (excluding the new high-earner surtax enacted in the same legislation). For resident owners, the tax applies to 100% of the member's distributive share of income. For nonresident owners, the tax applies to the apportioned share of income based on the entity's Maine apportionment factor. Withholding of the remaining 10% of the tax due is required for nonresident members. Nonresidents whose only Maine-source income is through a fully paying electing PTE and who have no other Maine-source income generally are not required to file a nonresident Maine income tax return.
Partnerships, S corporations, and LLCs taxed as partnerships may elect to pay an 8% tax on Maryland taxable income for individual members (8.25% for corporate members). The 2025 BRFA (H.B. 352) expanded the PTET base for resident owners, providing that resident members are subject to PTET on their full distributive share of entity income from all sources, while nonresident owners remain subject to PTET only on Maryland-source income. The Maryland Comptroller issued a tax alert in April 2026 addressing changes to 2026 estimated payments. Practitioners should review the most recent Comptroller guidance to determine whether the expanded resident-owner base is in effect for the 2026 tax year or has been modified by subsequent legislation, as 2026 BRFA provisions may have altered the effective date. The election is made on Form 511. S corporations with mixed-residency ownership should evaluate the potential federal single-class-of-stock implications of the expanded base before electing.
Partnerships, S corporations, and LLCs may elect to be taxed at 5% of their Massachusetts taxable income. The election is made using Form 63D-ELT, filed electronically with the entity's tax return. Partners and shareholders receive a credit equal to 90% (not 100%) of their distributive share of the tax paid. This 90% credit is a notable distinction from most other states. The program has been available since the 2021 tax year.
Partnerships and S corporations may elect to be taxed at 4.25% on their Michigan taxable income. Multiple secondary sources report that Michigan enacted a significant deadline extension for tax years 2024 and later, allowing entities until the last day of the ninth month following the year-end to make the election (September 30 for calendar-year filers). Confirm this deadline against the current Michigan statute or Department of Treasury guidance. The election is reported to be binding for three years and irrevocable. Partners and shareholders claim a refundable credit equal to their allocated share of tax paid.
Partnerships and S corporations may elect to pay tax at the entity level. Under Miss. Code Ann. § 27-7-26, the election may be made during the tax year, by the due date of the return, or by the date the return is filed, whichever is latest. Once made, the election remains in effect until revoked. Partners and shareholders receive a credit equal to their pro rata or distributive share of tax paid by the electing entity. The program has been available since the 2022 tax year.
Partnerships and S corporations may elect to pay tax at the entity level at the state's highest individual tax rate. Partners and shareholders claim a nonrefundable credit equal to their pro rata share of tax paid, with unused credits carrying forward to subsequent years. The election must be made each year. The program has been available since the 2023 tax year.
Partnerships, S corporations, and LLCs may elect to pay tax at the entity level. Montana's top individual income tax rate is 5.65% for 2026, down from 5.9% in 2025, with additional reductions scheduled for 2027. Confirm the applicable PTET rate against current Montana statutory authority, as the PTET rate may track either the individual or corporate rate. Under Mont. Code Ann. § 15-30-3327, the election must be made annually no later than the due date, including extensions, of the entity's return. The election is irrevocable for the year in which it is made. A Montana PTE representative must be designated when the election is made.
Partnerships and S corporations may elect to pay tax at the entity level. Nebraska's top individual income tax rate drops to 4.55% for 2026, continuing a phased reduction that will reach 3.99% by 2027. The PTET rate is linked to the individual rate. The election is made on the entity's return. Check the Nebraska Department of Revenue for current filing procedures.
Partnerships, S corporations, and LLCs may elect to pay the Pass-Through Business Alternative Income Tax on a graduated rate structure: 5.675% on the first $250,000, 6.52% on income between $250,001 and $1 million, 9.12% on income between $1 million and $5 million, and 10.9% on income above $5 million. The election requires registration with the New Jersey Division of Revenue and Enterprise Services. The election is made on the entity's return by the original due date, including extensions. The program has been available since the 2020 tax year.
Partnerships, S corporations, and LLCs taxed as partnerships may elect to pay tax at the entity level at a rate of 5.9% (the higher of the maximum individual or corporate income tax rate). The election must be made annually by filing an entity-level return with New Mexico. Entity owners receive an income tax exemption on their individual New Mexico returns rather than a credit. The program has been available since the 2022 tax year.
Partnerships, S corporations, and LLCs may elect to pay tax on their New York taxable income at graduated rates ranging from 6.85% (for taxable income of $2 million or less) to 10.9% (for taxable income above $25 million). The election is made online through the entity's Business Online Services account and must be made by March 15 of the tax year. Only an authorized person of the entity can make the election; accountants and tax professionals cannot make it on the entity's behalf.
Entities that elect must make quarterly estimated payments by March 15, June 15, September 15, and December 15. New York City also has a separate PTET that may apply. Partners and shareholders receive a credit on their New York State returns. The program has been available since the 2021 tax year.
Partnerships and S corporations may elect to pay tax at the entity level at a rate tied to the state's individual income tax rate, which drops to 3.99% for 2026. Partnerships may only make the election if all partners are individuals, estates, trusts, or certain exempt organizations. The election is made on the entity's North Carolina income tax return and must be made annually. Partners and shareholders receive a credit for their distributive share of tax paid. The program has been available since the 2022 tax year.
Partnerships and S corporations may elect to pay tax at the entity level. Ohio is moving to a flat 2.75% individual income tax rate on income above $26,050 for 2026. The PTET rate follows the individual rate structure. The election is made on the entity's return. Check Ohio Department of Taxation guidance for current procedures and any specific election requirements.
Partnerships and S corporations may elect to pay tax at the entity level. Oklahoma's top individual income tax rate drops to 4.5% for 2026, with a simplified three-bracket system replacing the prior six-bracket structure. Oklahoma extended its PTET election deadline starting with the 2024 tax year, aligning it with the return due date including extensions. Previously, the election required filing Form 586 within 2.5 months of the beginning of the tax year.
Partnerships, S corporations, and LLCs taxed as partnerships or S corporations may elect to pay the Pass-Through Entity Elective (PTE-E) Tax. Per the Oregon Department of Revenue, Senate Bill 1510 (signed March 31, 2026) extends the PTE-E program through tax years beginning before January 1, 2028. The rate is 9% on the first $250,000 of distributive proceeds and 9.9% on any amount exceeding $250,000. The election is made annually by filing Form OR-21 by the due date including extensions. Returns can only be filed electronically. Estimated payments are required, with due dates of April 15, June 15, September 15, and January 15 (note: for the 2026 tax year only, the first and second quarterly payments are both due on June 15). The PTE-E statute includes a provision that the law will expire if the federal SALT deduction limitation expires or is repealed.
Partnerships and S corporations may elect to pay tax at the entity level. The election is made on the entity's return. Partners and shareholders receive a credit for their share of tax paid. Check the Rhode Island Division of Taxation for current rates and filing requirements.
Partnerships and S corporations may elect to pay tax at the entity level. The election is made on the entity's return. Partners and shareholders receive a credit for their share of tax paid. Check the South Carolina Department of Revenue for current rates and filing requirements.
Utah's PTET was originally enacted under HB 444 (2022 General Session) for tax years beginning on or after January 1, 2022, through December 31, 2025. The 2026 General Session omnibus tax bill (HB 77, "Tax Modifications," sponsored by Rep. Eliason) extended the PTET by amending Utah Code Ann. § 59-10-1403.2, effective May 6, 2026, and applying to tax years beginning on or after January 1, 2026. Partnerships, S corporations, estates, and trusts may elect to pay Utah income tax on voluntary taxable income on behalf of all Final Pass-Through Entity Taxpayers. Utah's PTET rate is tied to the individual income tax rate, which was lowered to 4.50% for 2025. The election is made by electronically filing the TC-75 SALT Report and submitting payment on or before the last day of the entity's taxable year. The election is annual and cannot be revoked once made. The 2025 legislature also extended the PTET credit carryforward from 5 to 10 years (HB 60).
Partnerships and S corporations may elect to pay a 5.75% tax on their Virginia taxable income. Virginia's PTET was made permanent in February 2026 when the General Assembly's "caboose" budget legislation (HB 29/SB 29, signed February 20, 2026) removed all sunset dates for the PTET and the corresponding refundable PTET credit. The election is made by filing Form 502PTET electronically on or before the extended due date, or by making an estimated or extension payment for the tax year. Shareholders and partners receive a refundable credit equal to 100% of their distributive share of PTET paid. Beginning with tax year 2023, electing PTEs must make quarterly estimated payments.
Partnerships and other pass-through entities may elect annually to pay tax at the entity level on West Virginia taxable income. Confirm the current rate against West Virginia statutory authority, as the rate cited in secondary sources (6.5%) is not confirmed by the regulation excerpts alone. Under W. Va. C.S.R. § 110-21G-5, the election is made by timely filing the form directed by the Tax Commissioner and is binding for that taxable year. The annual return is due on the 15th day of the third month after year-end, with an automatic six-month extension available if application and payment requirements are met (W. Va. C.S.R. § 110-21G-9). Nonresident owners whose only West Virginia source income is through a fully paying electing PTE generally need not file a nonresident return (W. Va. C.S.R. § 110-21G-12). The program has been available since the 2022 tax year.
Partnerships and S corporations may elect to pay tax at the entity level. The election is made on a timely filed return, including extensions. Partners and shareholders receive a credit for their share of tax paid. Check the Wisconsin Department of Revenue for current rates and filing requirements.
The PTET only works as a tax benefit if owners can avoid double taxation. Without a credit mechanism, owners would pay entity-level tax and then pay again on their personal returns. States handle this through different credit approaches.
Most states provide resident owners with a credit equal to their share of PTET paid by the entity. You claim this credit on your personal state return, which offsets the tax you would otherwise owe on your share of pass-through income. In most cases, the credit fully eliminates double taxation for resident owners. Massachusetts is a notable exception, limiting the credit to 90% of the owner's share. Credit percentages and refundability vary by state, so check the specific statute before assuming a full dollar-for-dollar offset.
Nonresident owners face more complexity. If you live in State A but own a share of an entity that pays PTET to State B, your benefit depends on whether State A gives you credit for taxes paid to other states.
Some states provide full credit, others provide partial credit, and a few provide none. When a home state does not provide credit, the owner may face double taxation on the same income. Maryland's 2025 expansion of its PTET base for resident owners is an example of how states are working to address these resident/nonresident mismatches.
When partnerships own interests in other partnerships, PTET rules get complicated quickly. Some states allow the credit to flow through multiple tiers, while others limit or disallow credits in tiered structures. State-specific research is essential for these situations, as getting the credit allocation wrong can create double taxation, Section 111 recapture issues, or allocation mismatches.
Timing requirements vary dramatically across states. Some require elections before the tax year begins, others allow elections on the original return, and a few permit elections on extended returns.
Missing an election deadline typically means losing the PTET benefit for the entire tax year. For multi-state practices, tracking these dates becomes critical. States where the election must be made on the timely filed return (not on extension) include Colorado and Idaho. Note that Louisiana's election is made on a separate Form R-6980, not on the entity's income tax return, and has its own timing rules.
The PTET election is not automatically beneficial for every entity. A structured analysis helps determine whether it makes sense for a particular client.
Verify that the entity type qualifies under the state's rules and that all owners are eligible. Some states exclude certain owner types from participating, including C corporations, tax-exempt entities, or nonresident aliens. Confirm the state has an active PTET regime for the 2026 tax year, as several states have recently let their programs expire.
Model whether paying tax at the entity level produces a better outcome than owner-level taxation. If owners are in lower tax brackets than the PTET rate, the election might actually increase total tax liability. This analysis has become more nuanced since the OBBBA raised the individual SALT cap to $40,400 for 2026 ($20,200 MFS), because some owners may now be able to fully deduct their state taxes at the individual level without the PTET workaround. The PTET remains clearly beneficial for owners whose SALT obligations exceed $40,400 or whose MAGI triggers the phase-down (beginning at approximately $505,000 for 2026).
Calculate whether each owner will receive full credit for their share of PTET paid. For owners in states without PTET or without credit reciprocity, the math may not work in their favor. Pay attention to states that provide less than 100% credit (Massachusetts at 90%) and to whether the credit is refundable or nonrefundable. Verify current credit percentages against state statutes, as these can change.
Confirm the election window has not closed and understand the cash flow implications of estimated payment requirements. Some states require substantial estimated payments throughout the year. California's June 15 deadline, New York's March 15 election deadline, and Michigan's September 30 extended deadline all represent different planning horizons.
Some states require owner consent before making the election. Documenting the analysis and decision protects both you and your client regardless of state requirements. Ensure the election does not create unintended consequences for S corporations, such as a second class of stock through disproportionate allocations. Maintain documentation of payment dates, amounts, K-1 tie-outs, and state worksheets to support the deduction and owner credits.
The OBBBA's changes to the SALT cap create a more complex decision environment for PTET elections. For the 2026 tax year, the individual SALT deduction cap is $40,400 ($20,200 MFS), up from $40,000 in 2025, with 1% annual increases continuing through 2029. The cap phases down for taxpayers with MAGI exceeding approximately $505,000 ($252,500 MFS) for 2026, reduced by 30% of the excess, but cannot fall below $10,000 ($5,000 MFS). These figures mean some pass-through entity owners can now deduct a meaningful amount of state and local taxes at the individual level without the PTET workaround.
However, the PTET remains valuable in several scenarios. Owners with SALT obligations exceeding the $40,400 cap still benefit from the entity-level deduction. High-income owners affected by the MAGI-based phase-down may see their effective SALT cap reduced well below $40,400, making the PTET more attractive. For partnerships, the PTET may also reduce the self-employment tax base in certain circumstances, depending on the character of the underlying income and the partner's status, though this outcome is not guaranteed in all cases and should be analyzed on its specific facts.
The SALT cap reverts to $10,000 ($5,000 MFS) permanently starting in 2030, which would restore the PTET's full value as a workaround. States have responded to the OBBBA differently. Some states have made their PTETs permanent (Illinois removed its sunset in December 2025; Virginia removed its sunset in February 2026). California extended its program through 2030. Oregon extended through tax years beginning before January 1, 2028 via SB 1510 (signed March 31, 2026). Other states have PTETs with statutory language tying continuation to the existence of a federal SALT limitation, though practitioners should confirm each state's specific continuation or sunset provisions against enacted state law before advising clients on multi-year planning. Minnesota allowed its program to expire after December 31, 2025, while Utah's original authorization lapsed but was re-extended via HB 77 in the 2026 session.
Practitioners should model the PTET election alongside the current SALT cap provisions for each client, as the optimal strategy depends on the specific facts: income level, state(s) involved, entity type, and owner composition.
Tracking PTET rules across 36 states takes time. Each state has different rates, deadlines, and credit mechanics, and the rules change frequently.
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Most states treat the PTET election as an annual choice. You make the election each tax year, which allows you to reassess whether it still makes sense as circumstances change. However, once made for a given year, the election is typically irrevocable for that year. Michigan is a commonly cited exception, with secondary sources reporting that its election is binding for three years. Confirm multi-year binding provisions against the specific state statute before relying on them.
Generally, no. Single-member LLCs taxed as disregarded entities do not qualify because they are not treated as partnerships for federal tax purposes. The entity would need to elect partnership or S corporation treatment to become eligible. Some states explicitly address this in their statutes (Utah, for example, states that a disregarded entity can never make the SALT election).
It depends on their home state's rules. Nonresident owners benefit if their resident state allows a credit for PTET paid to other states. If the home state does not provide credit, the owner may face double taxation.
States handle this differently. Some allow both PTET and composite returns, others require choosing one approach, and some have specific ordering rules for how credits apply. Check the specific state's guidance before assuming both options are available.
States without individual income taxes generally have no PTET regime because there is no state income tax for the election to address. These states include Texas, Florida, Wyoming, Nevada, Washington, Alaska, South Dakota, Tennessee, and New Hampshire. New Hampshire repealed its Interest and Dividends Tax effective January 1, 2025, and no longer imposes any individual-level income tax. Some of these states may have other entity-level tax, withholding, or composite return mechanisms that serve adjacent purposes.
Owner consent requirements vary by state and are not always what secondary sources report. Some states require all partners or shareholders to agree (Idaho). Others, like Kentucky and Louisiana, require consent from owners holding more than 50% or more than one-half ownership. Some states leave the consent mechanics to the entity's discretion (Georgia and West Virginia). Arizona requires that all owners be notified at least 60 days before the election and given the right to opt out. Review the specific state statute or regulation before making the election, as consent rules are one of the areas where secondary summaries most frequently diverge from the actual authority.
