Pass-Through Entity Tax (PTET) elections have shifted from a temporary workaround to a permanent planning strategy for many partnerships and S corporations. Originally designed to bypass the federal SALT deduction cap, PTET is now a mainstream solution in more than 30 states.

If you work with multi-state clients or high-income individuals who own businesses, PTET is no longer optional. It can deliver substantial savings—but it also comes with risks. A missed election, an incorrect estimate, or a misunderstanding of state-specific rules can cost your clients thousands of dollars and create major headaches for your firm.

In this guide, we’ll break down:

• Why PTET will remain important in 2026

• What to watch out for

• How to handle elections effectively while reducing stress and adding value for clients

Why PTET Still Matters in 2026

The concept behind PTET is straightforward:

An eligible entity pays state tax at the entity level, and owners claim credits or deductions on their individual returns.

This sidesteps the $10,000 cap on state and local tax deductions under IRC §164(b)(6).

However, simplicity ends here—because every state has its own version of PTET, and the differences are significant:

• Definitions of taxable income are not uniform

• Rates vary widely — from 4.5% to 10%+

• Election deadlines differ; some require early elections, others allow selecting PTET when filing returns

• Estimated payment rules are inconsistent — some require quarterly estimates, others don’t

• Ownership rules affect eligibility, especially with mid-year changes

Important: Miss a deadline, and there is no do-over. PTET elections cannot be filed retroactively.
This is why having a strong PTET process is critical for your firm.

Your PTET Compliance Calendar for 2026

Managing PTET elections manually with spreadsheets or sticky notes is no longer practical. There are too many variables and deadlines.
You need a centralized system that:

• Tracks state-specific rules

• Sends automated reminders for your team and clients

• Avoids costly mistakes

Here’s a quick look at 2026 deadlines for key states:

Pro tip: Do not assume an extension buys you more time for the election. In many states, it does not.

How PTET Works in Real Life

Let’s walk through three real-world scenarios where PTET decisions get complicated.

Scenario 1 — Multi-State Partnership with Ownership Changes

Facts:

• New York source income: $600,000

• California qualified net income: $400,000

• Ownership structure:

  • Jan–Jun: Partner A — 70%, Partner B — 30%

  • Jul–Dec: Partner A — 40%, Partner B — 60%

Step 1: Calculate PTET liability

• NY: $600,000 × 10.9% = $65,400

• CA: $400,000 × 9.3% = $37,200

Step 2: Split New York income by period

Step 3: Allocate PTET credits

New York:

• A → $65,400 × (330/600) = $35,970

• B → $65,400 × (270/600) = $29,430

California (year-end split):

• A → $37,200 × 40% = $14,880

• B → $37,200 × 60% = $22,320

Compliance Checklist

• File NY election → by March 15 (online portal)

• File CA election → with return (April 15)

• Update K-1s to reflect PTET payments for both partners

Scenario 2 — Michigan S Corporation with Illinois Nexus

Facts:

• Federal income: $800,000

• Apportionment: 75% Michigan / 25% Illinois

• Michigan PTET rate: 6%

PTET Calculation

• Michigan taxable income: $800,000 × 75% = $600,000

• PTET: $600,000 × 6% = $36,000

Traps to Avoid

• Election due March 15, even if the return is extended

• Quarterly estimates required — missing them triggers penalties

• Illinois shareholders do not receive PTET credit

Talking Point for Clients:

“Elect PTET by March 15 to lock in $36,000 of state tax paid at the entity level.
Illinois returns won’t receive any PTET credit, so we’ll plan accordingly.”

Scenario 3 — Minnesota Partnership Loses Eligibility

Facts:

• Minnesota income: $1,000,000

• Mid-year ownership change → no partner holds ≥50%

Issue:
Minnesota requires at least one owner with a 50%+ interest to qualify.
Because of the mid-year change, the partnership becomes ineligible.

Advisory Options:

• Consider ownership realignment before year-end

• If not possible → postpone PTET plans until 2027

Why Automation Is Your Best Friend

Managing PTET manually = high risk. Too many deadlines, too many variations.

The right automation tools help you:

• Track state-specific PTET rules in real time

• Calculate multi-state apportionment automatically

• Send automated alerts for deadlines

• Use dashboards to track PTET elections across clients

Firms that adopt automation save time, reduce errors, and focus more on advisory work instead of compliance firefighting.

How to Explain PTET to Clients Without Jargon

Clients don’t care about tax codes—they care about savings and deadlines. Use simple, visual communication:

• Create one-page PTET summaries showing elections, deadlines, and savings

• Use a timeline → Election → Estimated Payments → Return Filing

• Show a before vs. after savings comparison

• Send quarterly updates on law changes

• Assign one dedicated PTET contact for clients

When clients understand the stakes, they provide data on time.

Stay Ahead of Legislative Changes

PTET laws are constantly evolving. To avoid surprises, your firm should:

• Subscribe to state tax bulletins

• Assign a PTET lead to track weekly changes

• Update templates and playbooks quickly

• Host internal PTET roundtables monthly

Proactive firms build trust and avoid costly errors.

Make PTET a Strategic Advantage

Handling PTET well = more than compliance → it’s an opportunity to differentiate your firm.

Ways to leverage PTET strategically:

• Build state-specific workflows

• Offer multi-state PTET modeling as a premium service

• Package PTET into year-end planning bundles

• Create client-friendly checklists & infographics

Done right, PTET becomes a client retention and growth opportunity.

Final Thoughts

PTET is here to stay — and it’s only getting more complex.
Firms that succeed will have:

• Systems

• Technology

• Clear client communication strategies

Don’t wait until March. Build your calendar now, train your team, and start client conversations early.

When managed well, PTET becomes not just compliance—it becomes your competitive edge.