The PTET play: let your business pay the state tax

Who this is for

• Owners of partnerships, multi-member LLCs, and S corps in states that offer a PTET. The rules vary state by state.
• Single-member LLCs and sole proprietorships generally can’t use it. New Jersey, for example, leaves them out.
• Most useful when your state tax on business income is more than the personal SALT cap can absorb.

The 2026 numbers

• Federal SALT cap (2026), as currently enacted: $40,400 ($20,200 married filing separately). It’s reduced when modified AGI exceeds $505,000 ($252,500 MFS) but doesn’t drop below $10,000 ($5,000 MFS). The 2025 tax law raised the cap, and that increase is temporary.²
• New Jersey example (BAIT): the election is made electronically each year by the original return due date (March 15 for calendar-year filers). It doesn’t carry forward and can’t be made after the fact. Estimated payments apply if BAIT liability is over $400. Form PTE-100 for 2026 is due March 15, 2027.³

How to do it right

1. Check your state’s PTET rules: who’s eligible, the rate, the election deadline, and how the owner credit works (refundable or not, and what residents vs. nonresidents get).
2. Model it at both levels: the federal savings, plus any state-side differences, like credits in other states where you file.
3. Make the election on time. Many states want it early in the year, and some before any estimated payment.
4. Pay from the entity, so the payments count as entity-level tax.
5. Give owners their credit statements (in New Jersey, Schedule PTE-K-1) to claim on their state returns.
6. Revisit every year. Many elections are annual, and the federal cap may change.

Running an S corp? Make sure your owner salary is set first. PTET sits on top of a well-run S corp.

Run it by your CPA

PTET math differs by state and by owner. Your CPA can run both scenarios side by side.

Every business is a little different, so check with your CPA for your situation. Good CPAs are on your team, and they love an owner who shows up with the homework done.

More from Dad’s tax playbook

• When the S-corp election pays off: Payroll tax saved minus the cost of running an S corp. The two-column math and Form 2553 timing.
• Put your kids on payroll: By business type: when kids’ pay skips FICA, their standard deduction, and the Roth IRA angle.
• Put your spouse on payroll: Social Security credit in their name, their own 401(k) deferrals, and the QJV option.
• S-corp owner health insurance: W-2 Box 1 only, then Form 7206. One payroll setting, one form.
• The accountable plan: Get paid back for miles, phone and home office without it counting as wages.
• The Augusta rule: Rent your home to your company for real meetings, fewer than 15 days a year.
• The Solo 401(k): Two hats, two contributions: 2026 limits, deadlines and the S-corp angle.
• Work Opportunity Tax Credit: watch this space: Lapsed for 2026 hires so far. Where it stands, and the playbook if Congress revives it.
• Dial in your W-4: Step 2(c), Step 3 and Step 4(c) for owners, spouses and kids on payroll.
• S-corp reasonable salary by profession: pay ranges for 15 professions, the IRS factors and a one-page salary memo.

Payroll Dad is a cartoon run by a real small family business. This is general education, not tax advice for your situation.