New York PTET Guide 2026: How the Pass-Through Entity Tax Works and Who Should Elect

By Vivian London, London's Tax Services | 10/10/2026

New York's pass-through entity tax has the least exciting name in the tax code and one of the best returns on a single form. It exists because of the SALT cap, and for the right business owner it turns state income tax you cannot deduct into a business expense you can. This New York PTET guide explains how the tax works, who should elect it in 2026 and 2027, what changed with the new $40,400 SALT cap, and the March 15 deadline that decides the whole thing.

The short version: New York's PTET lets partnerships and S corporations pay New York income tax at the business level. The business deducts that tax on its federal return, which works around the federal SALT cap, and the owners get a credit on their New York returns for their share. The election is made online each year by March 15 of the tax year, and estimated payments are due during the year. New York City has a matching city PTET for city residents. The 2026 SALT cap increase to $40,400 makes PTET less valuable for some owners, but it is still worth thousands a year for many, especially once income passes $505,000 and the personal cap phases back down.

What the New York PTET is

The pass-through entity tax (PTET) is an optional New York State tax that an eligible business can elect to pay on behalf of its owners. It was created in 2021 as a response to the federal SALT cap, which limits how much state and local tax individuals can deduct on their federal returns.

The trick is where the tax is paid:

• Without PTET: the business's profit flows through to you, you pay New York income tax personally, and that tax competes for space under your personal SALT cap.
• With PTET: the business pays New York tax on the profit, deducts it as a business expense on its federal return, and you receive a New York credit for your share. The federal SALT cap applies to individuals, not to businesses, so the deduction is not capped.

The IRS confirmed in Notice 2020-75 that state taxes paid by a partnership or S corporation under an elective entity-level tax are deductible by the entity. Congress looked at limiting these workarounds in 2025, but the One Big Beautiful Bill Act as enacted left them in place.

Who can elect it

• Eligible: partnerships (including LLCs taxed as partnerships) and New York S corporations, meaning corporations that also have New York's own S election (Form CT-6) in place.
• Not eligible: sole proprietorships, single-member LLCs taxed as sole proprietorships, trusts, nonprofits, and corporations that are not New York S corporations.
• Who clicks the button: the election is made by an authorized person for the business in its own New York Online Services account. Your tax preparer cannot make it on your behalf, which is worth knowing before a deadline that cannot be extended.

How the math works: a simple example

Say you own a New York S corporation with $700,000 of profit, you are married, you live in Westchester, and you pay $20,000 of property tax. Your income is above roughly $606,000, so your 2026 SALT cap is back down to $10,000.

Without PTET: you pay New York income tax on the business income personally, plus $20,000 of property tax. That is well over $60,000 of state and local tax, and only $10,000 of it is deductible on your federal return.

With PTET: the S corp pays New York tax at the entity level (about $48,000 at the 6.85% rate on the first $2 million) and deducts it on its federal return. That lowers the income flowing through to you by about $48,000, which at a 35% to 37% federal bracket is roughly $17,000 less federal tax. You then claim a New York credit for the PTET the business paid, so the state tax is not paid twice, and you still deduct property tax personally up to your cap.

One more 2026 advantage: because the deduction is taken by the business, it is not affected by the new rule that caps the value of itemized deductions at 35% for people in the 37% bracket.

Rough numbers only; the real figures depend on how the rest of your return looks, which is why we model it before March 15.

PTET rates for New York

New York's PTET is graduated, based on the business's PTET taxable income:

Owners then get a credit on their personal returns for their share, and any credit larger than their New York tax is refunded.

The 2026 SALT cap changes the answer for some owners

The One Big Beautiful Bill Act raised the SALT cap to $40,000 for 2025 and $40,400 for 2026, rising 1% a year through 2029 before dropping back to $10,000 in 2030. For households with modified adjusted gross income above $505,000 in 2026, the cap shrinks by 30% of the excess, down to a floor of $10,000.

That creates three broad groups:

The last row is the big change. Before 2025, almost every profitable New York owner benefited from PTET because the cap was $10,000. Now a Westchester owner with moderate profit may already deduct all of their state and property tax personally, and electing PTET adds paperwork without adding savings. This is why the election has to be modeled each year rather than renewed on autopilot.

Deadlines you cannot miss

• Election: made online through the business's New York Online Services account by March 15 of the tax year it applies to. For 2027, that means by March 15, 2027. It cannot be made late, and it is irrevocable for that year.
• Estimated payments: due March 15, June 15, September 15 and December 15 of the tax year.
• Deduction timing: a cash-basis business deducts PTET federally in the year it is paid, so the December 15 payment lands on the current year's federal return.
• Return: the annual PTET return is due March 15 after the year ends, with an extension available.

Each estimated payment should be at least 25% of the required annual amount, and New York does not allow the annualized method for PTET, so a missed or short payment brings penalties and interest. If the business settles an underpayment with its return, that amount is deductible federally in the year it is actually paid.

New York City PTET

New York City has its own pass-through entity tax that works alongside the state version. It applies only to the share of income that belongs to New York City resident owners, and a business can only elect it if it also elects the state PTET.

• Rate: a flat 3.876% of the business's New York City PTET taxable income.
• Who can elect: city partnerships with at least one New York City resident partner, and S corporations whose shareholders are all New York City taxpayers. An S corp with even one shareholder outside the city cannot elect it.
• Deadline: the same online election by March 15, and only alongside the state PTET for the same year.
• Credit: city-resident owners claim a credit against their New York City income tax for their share.

For a New York City resident owner with high income, the city PTET adds another deduction on top of the state one, which makes the combined benefit larger than for a Westchester owner.

The downsides to weigh

PTET is not free money. Before electing, count:

• Cash flow: the business has to fund estimated payments during the year, before owners get the credit on their personal returns.
• Owners in different situations: in a partnership, the election applies to the entity, so it helps some owners more than others. Partners who live outside New York, or whose SALT cap is not binding, may benefit less. Agree on how the cost is shared.
• QBI: the PTET deduction reduces the business income that the 20% QBI deduction is calculated on, which trims a little of the benefit.
• Other states: nonresident owners need to check whether their home state gives credit for New York PTET.
• Complexity: another return, another set of estimates, and credits to track on every owner's return.

Is PTET worth it for you? A quick checklist

It is worth modeling carefully if:

• The business is a partnership, LLC taxed as a partnership, or New York S corporation
• Owner income is high enough that the personal SALT cap is phasing down, or state plus property tax clearly exceeds $40,400
• The owners live in New York City (the city PTET adds to the benefit)
• The business can comfortably fund quarterly estimated payments

It is probably not worth it if you are a sole proprietor or single-member LLC taxed as one, if your total state and property tax fits under the cap, or if the business cannot handle the estimates.

New York PTET FAQ

What is the deadline for the New York PTET election?

The election must be made online by March 15 of the tax year it will apply to. For tax year 2027, the deadline is March 15, 2027. It cannot be made late, and once made it is irrevocable for that year.

Who is eligible for New York PTET?

Partnerships (including LLCs taxed as partnerships) and New York S corporations can elect it. Sole proprietors and single-member LLCs taxed as sole proprietorships cannot, because there is no separate entity to pay the tax.

Is the New York PTET still worth it after the SALT cap increase?

For many owners, yes, especially those with income above $505,000 whose SALT cap phases back toward $10,000, and New York City residents who can add the city PTET. Owners with moderate income whose state and property taxes already fit under the $40,400 cap may see little benefit, so it should be modeled every year.

How do owners get credit for PTET paid?

Each owner claims a credit on their New York personal income tax return for their share of the PTET the business paid. The business provides each owner with the information needed to claim it.

Does PTET reduce federal taxes?

Yes, indirectly. The business deducts the PTET as a business expense on its federal return, which lowers the income that flows through to the owners. Because the SALT cap applies to individuals rather than businesses, the deduction is not limited by the cap.

Is there a New York City PTET?

Yes. New York City has a pass-through entity tax covering the income of New York City resident owners. A business can elect it only if it also elects the New York State PTET, and the same March 15 deadline applies.

Model it before March 15

PTET is a once-a-year decision with a hard deadline and real money on both sides of it. Our tax planning service, in White Plains and Westchester or for New York City owners, models the election on your actual numbers, including the 2026 SALT cap rules and each owner's situation, and handles the estimates if it makes sense. If you are still weighing whether your business should even be an S corp, read is an S corp worth it in New York? first. Book a free 15-minute consult or call (646) 917-7714. No pressure, no obligation.