Pass-Through Entity Tax (PTET) elections have shifted from a blanket "workaround" to a nuanced planning strategy for partnerships and S corporations.

While the One Big Beautiful Bill Act (OBBBA), enacted in July 2025, raised the SALT deduction cap to $40,000 for many taxpayers, PTET remains a critical tool for high-income earners and those in high-tax jurisdictions.

If you work with multi-state clients or high-net-worth individuals (MAGI >$500k), PTET is often still the superior option. However, for mid-market clients, the calculation has changed. A missed election—or an unnecessary one that incurs fees without tax benefit—can cost your clients thousands and create major headaches for your firm.

In this guide, we’ll break down:

• The OBBBA Impact: Why PTET is still vital despite the $40k SALT cap.

• Strategic Compliance: What to watch out for in key states.

• The Process: How to handle elections effectively while reducing stress.

Why PTET Still Matters in 2026 (Post-OBBBA)

The concept behind PTET remains straightforward: An eligible entity pays state tax at the entity level, and owners claim credits or deductions on their individual returns.

Previously, this was done to sidestep the $10,000 cap. Under OBBBA, the landscape is now split:

1. Clients with MAGI <$500,000: The SALT cap is now $40,000. If their state tax liability is under $40,000, they may simply deduct it personally on Schedule A, avoiding the administrative costs of a PTET election.

2. Clients with MAGI >$500,000: The $40,000 cap phases out rapidly (reduced by 30% of excess income). For these clients, the personal SALT deduction effectively disappears, making PTET mandatory to preserve the deduction.

3. High-Tax Liabilities: Even with a $40,000 cap, clients in NY, CA, or NJ often face state tax bills well in excess of that limit. PTET remains the only way to deduct the excess.

Important: Simplicity ends here. 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%+.

• Payment timing matters — Cash-basis taxpayers must often pay by December 31 to get the deduction, even if the state deadline is later.

Your PTET Compliance Calendar for 2026

Managing PTET elections manually is negligence in this environment. You need a centralized system.

Here’s a quick look at 2026 deadlines for key states, with critical corrections regarding payment timing:

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 (The OBBBA Factor)

Let’s walk through three real-world scenarios where the new OBBBA rules change the decision.

Scenario 1 — Multi-State Partnership (High Income)

• Facts: NY Tax Liability: $65,400 | CA Tax Liability: $37,200

• Income: Partners have MAGI >$600k (SALT cap phased out to $10k).

• Verdict: PTET is Essential.

  • Since the partners are phased out of the OBBBA $40k cap, they need PTET to deduct the full $102,600 of state taxes. Without it, they are capped at $10,000.

Scenario 2 — Michigan S Corporation (Mid-Market)

• Facts: Michigan PTET Liability: $36,000

• Income: Shareholder MAGI is $350,000.

• Verdict: Re-evaluate PTET.

  • Under OBBBA, this shareholder has a $40,000 SALT cap. The $36,000 liability is fully deductible on their personal return (Schedule A).

  • Strategy: Unless the administrative cost of the PTET election is zero, it may be cleaner to skip the election and take the personal deduction.

Scenario 3 — Minnesota Partnership Loses Eligibility

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

• Issue: Minnesota requires at least one owner with a 50%+ interest to qualify.

• Advisory Options:

  • Consider ownership realignment before year-end.

  • If not possible, postpone PTET plans.

Why Automation Is Your Best Friend

Managing PTET manually = high risk. The right automation tools help you:

• Track Phaseouts: Identify which clients are over the $500k OBBBA threshold and must use PTET.

• Calculate Apportionment: Handle multi-state math automatically.

• Send Alerts: Never miss a June 15th California prepayment again.

Final Thoughts

PTET is no longer just a compliance box to check—it is a consulting opportunity.

• For the Ultra-Wealthy: It remains the primary tax shelter.

• For the Middle Market: It requires a cost-benefit analysis against the new $40k cap.

Don't wait until March. Build your calendar now, train your team on the OBBBA phaseouts, and start client conversations early.