Electing the pass-through entity tax (PTET)

The variation in PTET compliance from state to state is confusing. Our tax experts will bring you clarity.

Since the Tax Cuts and Jobs Act of 2017 capped the individual state and local tax (SALT) deduction, known as the SALT cap, on their federal return at $10,000 annually, taxpayers and states have searched for legitimate ways to work around the limitation. The first of these efforts to gain approval from the IRS is a state-imposed entity-level tax on pass-through entities (PTEs), such as partnerships or S corporations.

The pass-through entity tax (PTET) applies to taxpayers with pass-through business income who would normally pay state tax at the individual level. So, individual owners may elect to pay the tax at the entity level in certain states and therefore avoid the $10,000 federal limitation.

However, state statutes aren’t consistent when it comes to making the PTET election, and states may differ further when it comes to which owners are eligible to receive PTET deduction benefits. Our SALT experts have specific articles on the PTET for the following states:

Due to varying guidance at the state level and unclear eligibility requirements for PTET, it can be difficult to discern whether your business income qualifies. Use these insights from our PTET experts to stay alert on state-level changes, and work with your Plante Moran advisor on your specific tax elections.

Pass through entity tax insights

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