IRS Notice 2020-75, state-level PTET statutes

PTET (Pass-Through Entity Tax) Workaround

A state pass-through entity tax (PTET) election may allow an eligible partnership or S corporation to pay state income tax at the entity level. IRS Notice 2020-75 generally allows a federal deduction for qualifying entity-level payments, while the owners receive the state-specific credit or income adjustment.

The benefit is no longer a simple comparison with the former $10,000 individual SALT cap. For 2026, the individual SALT limit is $40,400 and phases down at higher modified adjusted gross income, while every state PTET program has its own entity, election, payment, and owner-credit rules.

Who this may apply to

Operate a pass-through entity (S-Corp, LLC, partnership)
Located in a state that offers PTET election
Pay state income tax exceeding the SALT cap

Strategy connections

Works well with

S-Corporation Election: S corporations are among the pass-through entities that may qualify under state law.

What could block this

Entity type is not eligible under the applicable state program
The state does not offer an applicable election
Election or payment deadline has passed

Important considerations

Not all states offer PTET — states with no income tax (TX, FL, NV, etc.) don’t need it
Some states require the election to be unanimous among all partners/shareholders
The credit mechanism varies by state — ensure your CPA understands how your state handles the owner-level credit to avoid double taxation

Professional support

Tax CPA

Will determine eligibility, make the election, and coordinate with your individual return to maximize the deduction.

Timing

PTET election and payment deadlines are state-specific and can occur before the entity return is filed. Confirm the current state rules early in the tax year; a return extension may not extend the election or payment deadline.

Official sources

Reviewed 2026-07-24