PTE Pass-Through Entity Tax 2027 SALT Cap Workaround Calculator
Estimate the 2027 federal tax savings from electing your state's Pass-Through Entity Tax (PTET) to work around the SALT $40,000 cap.
What Is the PTE Tax Election?
The SALT $40,000 cap (raised from $10K under OBBB for 2026-2029) limits how much state and local tax individual taxpayers can deduct on Schedule A. Pass-Through Entity Tax (PTET) lets the entity (S corp, LLC, partnership) pay STATE income tax at the entity level — fully deductible to the entity for FEDERAL tax purposes (no individual cap applies). Owners then receive a state tax credit for the entity's payment. As of 2026, 36+ states offer PTET. Source: IRS Notice 2020-75, OBBB §70302. Last updated: May 2026.
Math: $500K K-1 in California
Without PTET: state tax of 9.3% × $500K = $46,500, but federal SALT deduction capped at $40K. Effective federal savings: $40K × 37% = $14,800. With PTET: entity deducts the full $46,500 federally, saving 37% × $46,500 = $17,205. Owner gets $46,500 state credit (no double-tax). Net federal savings: ~$2,400 per year per $500K of pass-through income — that's $24K over 10 years on this single layer.
Which States Have PTET?
Major states: CA (9.3%), NY (6.85-10.9% sliding), NJ (5.675-10.75%), CT (mandatory 6.99%), MA (5%), MD (8%), GA (5.75%), IL (4.95%), MN (9.85%), AZ (2.5%), NC (4.5%), VA (5.75%), SC (3%), and many more. NO PTET: AK, DE, FL, NV, NH, ND, SD, TN, TX, WA, WY (those without state income tax or that haven't passed PTET legislation). Always check current year — laws change frequently.
When PTET Doesn't Help
(1) States without income tax — nothing to deduct. (2) Owners below the SALT cap already — capped deduction not binding. (3) AMT-affected taxpayers may not benefit equally. (4) Some states with high-bracket residents in low-bracket entities. (5) C corp owners — PTET only applies to pass-through entities. Always model both scenarios for your specific state and entity.
Frequently Asked Questions
What's the 2027 SALT cap with OBBB?
OBBB raised the SALT cap from $10,000 (TCJA) to $40,000 for 2026 through 2029, then it sunsets back to $10,000 in 2030 unless extended. The PTET workaround remains valuable because high-income pass-through owners often pay state taxes that exceed even $40,000.
How does the PTET workaround work?
Your S corp or partnership pays state income tax at the ENTITY level (not the owner level). The entity deducts that payment as a business expense \u2014 fully federal-deductible with no individual SALT cap. Owners receive a state-level tax credit for the entity's payment, avoiding double taxation.
Which states offer PTET for 2027?
36+ states as of 2026: CA, NY, NJ, CT, MA, MD, GA, IL, MN, AZ, NC, VA, SC, KY, IN, OK, OR, RI, WI, AL, AR, CO, IA, KS, LA, MS, MO, NE, NM, OH, UT, WV, MI, HI, ME, and others. States WITHOUT PTET: TX, FL, WA, NV, AK, WY, SD, TN, NH (mostly no-income-tax states).
Does the IRS recognize PTET as legitimate?
Yes \u2014 IRS Notice 2020-75 explicitly blessed PTET elections. The IRS confirmed the entity-level tax is fully deductible federally and doesn't violate the SALT cap (which only applies to individual Schedule A). Treasury has not pulled back from this position despite occasional legislative discussions.
Is PTET elected annually?
Yes \u2014 in most states, you must elect PTET each year by filing a specific form by a state-specific deadline (often March 15 or first quarterly estimated payment). Missing the deadline forfeits PTET for that year. Some states (like CT) make PTET mandatory rather than elective.
Does PTET help with the federal AMT?
Not directly \u2014 but the federal AMT exemption ($88,100 single / $137,000 MFJ for 2027) was made permanent by OBBB and is high enough that most PTET-electing taxpayers don't hit AMT. Always model the AMT scenario alongside PTET to confirm overall benefit at your specific income level.