What is the PTET election, and should my S-Corp make it?
Short answer
PTET, the pass-through entity tax, lets an S-Corp or partnership pay state income tax at the business level and deduct it on the federal return. That can work around the cap on deducting state and local taxes, and it usually helps high-earning creators in high-tax states.
Otavio Mayole, Co-founder, DeCypher FinancialsUpdated
Why it exists: individuals can only deduct a limited amount of state and local taxes on their federal return, and the limit drops further at higher incomes. When the business pays the state tax instead, the business deducts it, and you get a credit on your state return.
When it's worth looking at:
- You have an S-Corp or partnership
- You live in a state with an income tax that offers PTET
- Your income is high enough that the state and local tax cap limits you
What to know first:
- Each state has its own election deadlines and required payments.
- Not every state offers it, and some details vary by state.
- Owners who live in other states can complicate it.
We model it before recommending it. For the right creator, it can mean thousands in federal savings.
These are not guarantees. Every creator's situation is different.