PTET & SALT Cap Workarounds for Business Owners (2026)
Business owners can sidestep the SALT cap by paying state tax at the entity level — here's how PTET works.
Estimate your personal SALT deduction
The pass-through entity tax (PTET) is a state-level workaround to the federal SALT cap. Instead of the owner paying state income tax personally (capped at $40,000 federally), the S-corp or partnership pays the state tax and deducts it as a business expense — with no SALT cap. The owner then gets a state credit or income exclusion. Most states now offer a PTET election; it mainly helps profitable pass-through business owners.
The $40,000 personal SALT cap frustrates business owners in high-tax states, so states created the pass-through entity tax (PTET). The idea: the business itself pays the state income tax on its profit and deducts it federally as an ordinary business expense — which is not subject to the SALT cap. The owner then receives a credit against (or exclusion from) their state tax so the income isn't taxed twice.
PTET is an election, usually made annually, and the details vary by state. It's most valuable for owners of profitable S-corps and partnerships who would otherwise lose a large state-tax deduction to the SALT cap.
How PTET sidesteps the SALT cap
Normally, a pass-through's profit flows to the owner, who pays state income tax personally — and that tax counts toward the $40,000 SALT cap on their Schedule A. With a PTET election, the entity pays the state tax on that profit and deducts it on the business return (Form 1065 or 1120-S), reducing the income that passes through. Because it's a business deduction, the SALT cap doesn't apply.
The owner then claims a state PTET credit or excludes the entity-paid income, avoiding double taxation. Net effect: the state tax becomes fully deductible federally instead of being capped.
Is PTET right for you?
- You own an S-corp, partnership, or multi-member LLC taxed as one — sole proprietors (Schedule C) generally can't use PTET.
- Your business is profitable and you live in (or the business operates in) a state with income tax and a PTET election.
- Your personal SALT would otherwise exceed the $40,000 cap.
- Rules, deadlines, and credit mechanics vary by state — coordinate with a CPA before electing.
Frequently asked questions
What is a PTET election?
A pass-through entity tax election lets an S-corp or partnership pay state income tax at the business level and deduct it federally as a business expense, bypassing the personal $40,000 SALT cap. The owner gets a state credit or income exclusion in return.
Who can use PTET?
Owners of pass-through entities — S-corps, partnerships, and multi-member LLCs — in states that offer the election. Sole proprietors filing Schedule C generally cannot.
Does PTET avoid the SALT cap entirely?
For the state tax on business profit, yes — it becomes a business deduction not subject to the cap. Your personal SALT (property tax, etc.) is still capped at $40,000.
Is PTET worth it?
Usually for profitable pass-through owners whose state tax would otherwise be capped. Because the mechanics and deadlines vary by state, confirm with a CPA before making the election.
IRS sources & verification
Last reviewed July 12, 2026.