Key Takeaways
- PTET (Pass-Through Entity Tax) lets NY pass-through businesses pay NY state tax at the entity level, fully deductible federally with no SALT cap.
- The owner gets a credit on their NY personal return for the PTET paid. Net effect: you deduct your NY state tax fully on your federal return.
- If you’re profiting $200K+ through an NY LLC or S-Corp, electing PTET can save five figures in federal tax per year.
- Election is annual. The deadline is March 15th of each year for the current year. Miss it and you lose the election for that year.
The Problem PTET Solves
The 2017 Tax Cuts and Jobs Act capped the federal deduction for state and local taxes (SALT) at $10,000. For high-earning NYC business owners, state and local tax easily runs $30K, $50K, $100K+ per year, and anything above $10K is no longer deductible federally.
Example: NYC LLC owner profits $500K. State + city income tax is roughly $50K. Under the SALT cap, only $10K is deductible federally. The other $40K is lost.
PTET recovers that deduction.
How PTET Works
Instead of the owner paying NY state tax personally (capped at $10K deduction), the pass-through entity pays NY state tax at the entity level. Entity-level state tax is fully deductible on the federal return, no cap.
The owner then gets a credit on their NY personal return equal to the PTET paid.
Net effect: the full NY state tax is paid, but it’s paid by the entity and deducted federally with no cap.
New York’s Pass-Through Entity Tax (PTET) uses a graduated rate structure based on taxable income:
6.85% on income up to $2 million
9.65% on income from $2 million to $5 million
10.30% on income from $5 million to $25 million
10.90% on income over $25 million
Who Benefits Most
PTET is worth electing if:
- Your NY state income tax liability is well over $10K, and
- You itemize (or would if the SALT cap didn’t exist), and
- You’re a pass-through entity (LLC, S-Corp, or partnership) with NY income.
For an NYC LLC owner profiting $200K+, electing PTET typically saves $5K to $15K+ per year in federal tax. For $500K+ profit, savings can exceed $20K/year.
Who Doesn’t Benefit
- Sole proprietors (Schedule C). PTET is an entity-level tax. Sole props don’t have an entity.
- Single-member LLCs are treated as disregarded entities and are NOT eligible to elect NY PTET.
- C-Corporations. C-Corps already pay entity-level tax; they don’t benefit from PTET.
- Pass-throughs with low NY state tax liability (under $10K). You’re already fully deducting under the SALT cap.
How to Elect
- Elect by the annual deadline.
- File a PTET return separately from the entity’s main NY return.
- Pay estimated PTET quarterly during the year.
- When you file your personal NY return, claim the PTET credit.
This is an annual election. You have to elect again every year.
NYC PTET
New York City has its own PTET (different from the state PTET) for NYC residents with pass-through income subject to NYC tax. The NYC PTET applies only to entities subject to the NYC Unincorporated Business Tax (generally partnerships). It is imposed at a flat 3.876% rate and must be elected annually by March 15 through a separate NYC election. This election is independent from the NY State PTET and requires separate planning.
What Could Go Wrong
- Missing the election deadline. No late elections.
- Not paying enough PTET during the year, triggering underpayment penalties.
- Electing when you don’t benefit (low state tax liability).
- Forgetting to claim the personal credit on your NY return.
A CPA who files a lot of NY PTET returns catches these.
The most common NY PTET errors include missed elections, incorrect owner inclusion, improper income sourcing, and failure to properly allocate credits. A key advisory mistake is misunderstanding the SALT benefit—PTET does not automatically produce tax savings and must be modeled based on each owner’s federal and multi-state tax position
Frequently Asked Questions
What is PTET?
Pass-Through Entity Tax. An optional state-level tax paid by a pass-through business (LLC, S-Corp, partnership) on behalf of its owners, which is fully deductible federally and credited back to the owner on their personal state return.
How do I elect PTET in NY?
Elect annually through the NY Department of Taxation’s online portal by March 15. File a separate PTET return, make estimated quarterly PTET payments, and claim the PTET credit on your personal NY return.
Does PTET save me federal tax?
Yes, if your NY state tax liability exceeds $10K and you’d otherwise hit the SALT cap. The entity-level tax is fully deductible federally with no cap, recovering the deduction the SALT cap blocked.
Case Story: Multi-State Music Business
The situation: Two partners headquartered in NYC and California, both states with high personal income tax rates, both hit hard by the SALT cap.
What Anil did: Beyond PTET, allocated their income across multiple states where they did business. Added a defined benefit pension plan.
Outcome: 5-7% tax savings from multi-state allocation plus massive deductions via DB plan contributions.
→ Watch the full Taxless Show episode
What Happens Next
If you’re an NYC pass-through owner profiting $200K+ and you haven’t elected PTET, you’re likely overpaying federal tax by thousands per year. Request a complimentary phone call. We’ll run the numbers for your specific situation.
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