PTET Tax Savings Calculator — 2026
The pass-through entity tax (PTET) election is the most valuable — and most frequently missed — federal tax strategy for S-corp and partnership owners in high-tax states. By paying state income tax at the entity level instead of personally, you convert a partially-deductible (and for many high earners, barely-deductible) SALT item into a fully deductible business expense. For an S-corp owner with $600,000 in California business income, this single election can save $15,000–$25,000 in federal taxes per year. Enter your numbers below.
How the PTET Election Works
The mechanics are straightforward, but understanding them is key to seeing why this strategy adds value.
Under IRS Notice 2020-75,1 state income taxes paid at the entity level by S-corps and partnerships are fully deductible business expenses at the federal level — not subject to the individual SALT cap. This is the core of the strategy.
Step-by-step mechanics
- The entity elects PTET with your state — usually an annual election, often with an early-year deadline (New York requires election by March 15 of the tax year for calendar-year entities).
- The entity pays estimated PTET quarterly (required in many states to get a current-year deduction; check your state's rules).
- The entity deducts the PTET as a business expense — this flows to each owner as a smaller K-1 income, effectively delivering a federal deduction that bypasses the SALT cap entirely.
- Your state issues you a personal credit for your share of the entity-level tax paid. You don't pay twice — the credit on your personal return offsets the personal state income tax you would otherwise owe.
The 2026 SALT Cap — And Why High Earners Still Need PTET
The OBBBA (One Big Beautiful Bill Act, July 2025) temporarily raised the individual SALT deduction cap from $10,000 to $40,400 for 2026.2 At first glance, this might seem to reduce the value of PTET. For many high-income business owners, it does not — for two reasons.
1. The SALT cap phases out for high earners
The OBBBA cap increase comes with an income phaseout. Above $505,000 in MAGI (2026), the cap is reduced by 30 cents per dollar of MAGI over that threshold, down to a floor of $10,000.
| MAGI (2026) | Effective SALT cap | PTET value |
|---|---|---|
| Under $505,000 | $40,400 | Meaningful if state income tax + property taxes exceed $40,400 |
| $505,000–$607,000 | $40,400 → $10,000 (phasing out) | High value — rapidly shrinking cap |
| Above $607,000 | ~$10,000 | Maximum value — near TCJA floor |
2026 SALT cap per OBBBA; phaseout: 30% of (MAGI − $505,000), floor $10,000.
2. State income taxes alone often exceed even the full $40,400 cap
An S-corp owner with $500,000 of pass-through income in California faces roughly $46,000–$50,000 in state income tax at the 9.3%–10.3% marginal rate. That's already above the full $40,400 cap before counting property taxes. PTET converts the entire $46,000–$50,000 into a federal deduction — producing $15,000–$20,000 in federal tax savings at the 35%–37% marginal rate.
The 2030 sunset risk
The OBBBA SALT cap increase is temporary. Under current law, the cap reverts from $40,400 to $10,000 on January 1, 2030. If this sunset occurs, the value of PTET increases further — owners who previously got most of their SALT deducted will face a much tighter cap. Building the PTET election habit now also positions your entity for maximum benefit post-2029.
States with PTET Available for 2026
Over 34 states have enacted PTET regimes.3 Major states include Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Georgia, Idaho, Illinois, Louisiana, Maryland, Massachusetts, Michigan, Minnesota (note: MN's PTET expired after tax year 2025 — not available for 20264), Mississippi, New Jersey, New Mexico, New York, New York City, North Carolina, Ohio, Oklahoma, Oregon, Rhode Island, South Carolina, Utah, Virginia, and Wisconsin.
The § 199A QBI Deduction Interaction
For business owners who claim the § 199A qualified business income deduction, the PTET election creates a partial offset that reduces (but does not eliminate) the net benefit.
Here's the mechanics: when the entity pays PTET as a business expense, it reduces the entity's net income — which reduces the QBI flowing to your personal return — which reduces your § 199A deduction. At a 20% QBI deduction rate and 37% federal rate, each dollar of PTET entity deduction produces $0.37 in federal savings but costs approximately $0.074 in reduced QBI benefit (20% × 37%). Net saving per dollar of state tax rerouted via PTET: approximately $0.296 rather than $0.37.
The net is still highly positive. But owners in the QBI phaseout range or with complex multi-entity structures should have a tax advisor model the exact interaction rather than relying on this calculator's top-line estimate.
→ Estimate your QBI deduction: Section 199A QBI Deduction Calculator.
PTET vs. Individual SALT Deduction: Side-by-Side
| Item | Without PTET | With PTET election |
|---|---|---|
| State income tax deductibility | Limited to your MAGI-adjusted SALT cap ($10K–$40,400) | Fully deductible at entity level — no cap |
| Where the deduction appears | Schedule A (if you itemize) | Reduced K-1 income (business deduction) |
| Must itemize to benefit? | Yes (must exceed standard deduction) | No — entity deduction reduces income regardless |
| Net state tax paid | No change | No change (personal credit offsets entity payment) |
| Eligibility | All taxpayers who itemize | S-corps and partnerships only |
Common PTET Mistakes That Cost Business Owners Thousands
- Missing the election deadline. Many states require an annual PTET election early in the tax year (New York: March 15; other states vary). If you miss it, you cannot elect PTET for that tax year — there are no extensions. The penalty is a full year of lost savings.
- Skipping estimated PTET payments. Most states require estimated PTET payments on the same schedule as corporate estimated taxes (April, June, September, December). If you wait until year-end, many states will deny the current-year deduction. Check your state's payment schedule before electing.
- Forgetting to claim the personal credit. The PTET credit flows to each owner's personal return through the K-1. If your personal return doesn't correctly reflect this credit, you'll pay state tax twice. Coordinate with whoever prepares both returns.
- Assuming PTET works for all entity types. Sole proprietors and single-member LLCs filing Schedule C cannot elect PTET — there is no entity to make the payment. This is one reason many advisors recommend S-corp election for business owners with significant income. See our Entity Structure Guide for the full analysis.
- Electing PTET in Minnesota for 2026. Minnesota's PTE tax expired after December 31, 2025. It is not available for tax year 2026 under current law.
Get matched with a PTET specialist
PTET strategy involves your entity structure, state-specific election deadlines, quarterly payment scheduling, and interaction with your QBI deduction and retirement plan contributions. A business tax advisor who specializes in pass-through entities can model the full picture and make sure you don't miss the election window.
Frequently Asked Questions
Does PTET work for S-corps and partnerships equally?
Yes — both S-corps and partnerships are eligible in most states that have enacted PTET. The mechanics are the same: the entity pays state income tax, the entity deducts it as a business expense, and the state provides a credit to each owner. Some states limit PTET to S-corps only or to partnerships only; check your state's specific statute.
What if I don't itemize?
PTET is actually better for non-itemizers than the individual SALT deduction. Because the PTET deduction flows through as reduced entity income (not a Schedule A itemized deduction), it reduces your AGI and taxable income regardless of whether you itemize or take the standard deduction. This is one often-overlooked advantage.
Do I owe more state tax overall?
No. The entity pays the state tax, and your state provides you a personal credit for your share of the entity payment. Your total state tax liability is the same — the credit prevents double taxation. The net effect is federal tax savings with no net increase in state tax.
Can I elect PTET if my S-corp has multiple shareholders?
Yes, but all shareholders are affected. When the entity elects PTET, state income tax is paid at the entity level for all owners — not just the majority shareholder. Each owner receives a proportional state tax credit. This can create complications if shareholders have different state residencies or different marginal state tax rates. Get agreement among all owners before electing.
How does PTET interact with the deductibility of the state credit on next year's return?
When you claim a state PTET credit on your personal return, it's not additional income. It's a direct credit against your personal state income tax liability — dollar-for-dollar offset. The credit does not appear as income on your federal return. It simply reduces your state tax bill to zero (or near zero) after you've already gotten the federal deduction at the entity level. Clean result: federal savings, no net state cost.
What records should I keep?
Document your PTET election (state filing confirmation), all quarterly PTET payments (bank statements and state payment receipts), and the entity-level PTET deduction on your partnership or S-corp return. Your personal return should reflect the PTET credit from your K-1. Keep these records at least three years beyond the due date of the return.
- IRS Notice 2020-75 (November 9, 2020): Clarifies that state and local income taxes imposed on and paid by a partnership or S corporation are deductible by the entity in computing its non-separately stated income or loss — not subject to the § 164(b)(6) SALT cap. IRS Notice 2020-75 (PDF)
- OBBBA (One Big Beautiful Bill Act, Pub. L. 119-xx, July 2025): Temporarily raised the individual SALT deduction cap to $40,000 for 2025, $40,400 for 2026 (indexed +1%/year through 2029), with phaseout at 30 cents per dollar of MAGI above $500,000 ($505,000 for 2026 after 1% indexing), floor of $10,000. Cap reverts to $10,000 on January 1, 2030. See Anchin: SALT Deduction Cap Under OBBBA
- CrossLink Tax: 34 Latest States with a Pass-Through Entity Tax — updated list of states with enacted PTET regimes.
- Minnesota Department of Revenue: PTE tax valid for tax years beginning before January 1, 2026; not available for 2026 or later under current law. Minnesota PTE Tax — Revenue.state.mn.us
SALT cap figures and PTET availability verified as of May 2026 against IRS Notice 2020-75, OBBBA (July 2025), and state revenue department guidance.