The federal Tax Cuts and Jobs Act (TCJA) introduced a strict $10,000 cap on state and local tax (SALT) deductions for individual taxpayers. For high-earning business owners in New York State and New York City, this limitation substantially increased effective tax burdens.
Fortunately, New York enacted the Pass-Through Entity Tax (PTET) — an optional, entity-level tax that serves as an IRS-approved workaround to the SALT cap.
What is the NY PTET?
The PTET allows eligible partnerships, multi-member LLCs treated as partnerships, and New York S-Corporations to elect to pay state tax at the entity level. Because entity-level state taxes are fully deductible as ordinary business expenses on federal tax returns, the business bypasses the individual $10,000 SALT limitation.
The entity owners then receive a corresponding refundable credit against their personal New York State income tax return, effectively converting non-deductible personal state income tax into a fully deductible business expense.
Key Requirements & Deadlines
- Annual Election: The election must be made online through the NYS Department of Taxation and Finance Business Online Services portal by March 15th of the tax year.
- Quarterly Estimated Payments: Electing entities must make four required quarterly estimated PTET payments (March 15, June 15, September 15, and December 15).
- NYC PTET: New York City also offers an optional City PTET for eligible entities with resident partners/shareholders.
Is PTET Right for Your Business?
While the PTET offers significant federal tax savings, calculating the optimal election requires careful modeling of individual shareholder brackets, multi-state tax credits, and estimated payment cash flow requirements. At David Valvik, CPA, PLLC, we assist business owners in evaluating the election and preparing the required calculations.