Updated November 2026 · VG CPA PC advisors
How PTET works
More than 30 states, including Virginia, Maryland, New York and California, let partnerships and S corporations elect to pay state income tax at the entity level. The entity deducts the tax as a business expense under IRS Notice 2020-75, reducing the owners' federal taxable income, and the owners receive a state credit or exclusion for the tax paid.
The result is a federal deduction for state income tax that would otherwise be limited by the cap on itemized state and local tax deductions.
Who benefits under the 2025 law
The 2025 tax law raised the SALT cap to $40,000, but the higher cap phases down for income above $500,000. Owners with high income, or whose property taxes already use up the cap, still gain the most from PTET.
The deduction also reduces adjusted gross income, which can help with other income-based limits. Owners with lower income who now fit under the higher cap may see less benefit.
Pitfalls
Elections and payment deadlines vary by state; New York's annual election, for example, is due by March 15. Estimated payments may be required during the year for the deduction to count in that year. Nonresident owners, owners in states that do not give credit for another state's PTET, and S corporation single-class-of-stock rules all need attention.
Run the numbers each year, because the benefit depends on each owner's state, income and itemized deductions.