Many businesses in the United States are structured as pass-through entities, including limited liability companies (LLCs), partnerships, and S corporations. If your business falls into one of these categories, you may have access to a pass-through entity tax (PTET) election, depending on your state’s tax laws. In the 30-plus states that currently offer PTET, this election may help eligible business owners reduce the impact of the federal state and local tax (SALT) deduction limitation. However, the rules vary by state and continue to evolve.
Understanding how PTET elections and SALT deduction rules work together can help you make more informed tax planning decisions and potentially improve your overall tax position.
What Is a Pass-Through Entity Tax?
A pass-through entity does not generally pay federal income tax at the business level. Instead, the business’s income, deductions, and credits “pass through” to its owners, who report them on their individual federal income tax returns. This structure is common among LLCs, partnerships and S corporations.
The interaction between pass-through taxation and state income taxes has become more complicated because of the federal limitation on state and local tax deductions. Under current federal law, individual taxpayers are subject to a cap on the amount of state and local taxes they can deduct, which can significantly affect owners of pass-through businesses with substantial state tax liabilities.
How the One Big Beautiful Bill Act Affected SALT
The One Big Beautiful Bill Act (OBBBA), signed into law in July 2025, increased the federal SALT deduction cap from $10,000 to $40,000. The legislation also includes provisions that gradually reduce the cap by 1% annually, and taxpayers with modified adjusted gross income (AGI) exceeding $600,000 are subject to additional limitations on the available deduction.
In response to these federal changes, many states have continued to refine or expand their PTET programs. Where available, a PTET election may allow qualifying businesses to pay certain state income taxes at the entity level rather than having individual owners pay them directly. Depending on the applicable state rules and the owner’s tax situation, this approach may lessen the impact of the federal SALT deduction limitation and reduce overall tax liability.
Important PTET Considerations
Although PTET elections may provide meaningful tax benefits, eligibility requirements and compliance obligations differ significantly from state to state.
For example:
- Not every state has enacted PTET legislation.
- States that do offer PTET often establish specific election deadlines and estimated tax payment requirements.
- Businesses operating in multiple states or owners who reside in a different state than where the business operates may face additional tax considerations.
- Election procedures, available tax credits and filing requirements can vary considerably depending on state law.
Because of these differences, evaluating PTET opportunities requires more than simply confirming that your state offers the election.
Tax Planning Tips for Business Owners
If your business operates as an LLC, partnership or S corporation, it may be worthwhile to determine whether your state offers a PTET election and whether your business qualifies.
Before making an election, carefully evaluate both the potential benefits and the administrative responsibilities involved. While a PTET election may reduce your overall tax burden in some situations, factors such as compliance requirements, estimated tax payments and your broader tax profile should also be considered.
Reviewing your business structure, projected taxable income and state-specific PTET rules before making an election can help ensure the decision aligns with your long-term tax planning strategy.
Making the Right PTET Decision
Determining whether a pass-through entity tax election is advantageous is not always straightforward. Every business has unique ownership, income and state tax considerations that can influence the outcome.
Working with a qualified tax professional can help you evaluate your business structure, understand the PTET rules that apply in the states where you operate, and assess the potential tax implications before making an election. A personalized analysis can provide greater confidence that your tax strategy supports both your financial goals and your compliance obligations.
Every business is different. Connect with us to determine whether a PTET election aligns with your tax strategy.
Frequently Asked Questions
What is a Pass-Through Entity Tax (PTET) election?
A Pass-Through Entity Tax (PTET) election allows eligible pass-through businesses, such as LLCs, partnerships, and S corporations, to pay certain state income taxes at the entity level rather than having those taxes paid directly by individual owners. Depending on state rules and the owner’s tax situation, this may help reduce the impact of federal SALT deduction limitations.
Which businesses may qualify for a PTET election?
Eligibility varies by state, but PTET elections are commonly available to pass-through entities such as limited liability companies (LLCs), partnerships, and S corporations. Business owners should review the specific requirements in the states where they operate before making an election.
How does a PTET election interact with the federal SALT deduction cap?
A PTET election may allow certain state income taxes to be paid and deducted at the business level, potentially reducing the impact of the federal state and local tax (SALT) deduction limitation imposed on individual taxpayers. The potential benefit depends on state law and the taxpayer’s specific circumstances.
Do all states offer a PTET election?
No. While more than 30 states have enacted PTET legislation, not every state offers a PTET election. States that do provide PTET often have unique eligibility requirements, filing procedures, election deadlines, and tax credit provisions.
What factors should business owners consider before making a PTET election?
Business owners should evaluate potential tax savings, entity eligibility, estimated tax payment requirements, state-specific filing obligations, multi-state tax considerations, projected taxable income, and their overall tax strategy before making a PTET election.