Pass-Through Entity Tax (PTET) Elections
For partnerships, S corporations, and LLCs, the Pass-Through Entity Tax (PTET) remains one of the most powerful tools available to mitigate federal tax exposure.
Although recent federal changes increased the individual SALT deduction cap to $40,000, many business owners — particularly those operating in high-tax states or across multiple jurisdictions — still exceed that threshold. PTET allows state income taxes to be paid at the entity level, where the deduction is treated as a business expense and is not limited by the personal SALT cap.
However, these benefits are only available if elections are made correctly and on time. Missing a deadline — even by one day — can eliminate the tax benefit for the entire year.
Below is a state-by-state breakdown of 2025 PTET election procedures and key considerations.
Why PTET Still Matters in 2025
Even with a higher SALT cap, PTET remains strategically important because:
- Entity-level state tax payments are federally deductible without the $40,000 cap
- Deductions shift from Schedule A to the business return
- High-income owners can fully deduct state liabilities
- Multi-state businesses can optimize allocation and credit planning
- Cash flow management often improves
For profitable S corporations and partnerships, PTET frequently remains the most efficient way to reduce federal taxable income.
2025 State-by-State PTET Election Overview
Note: Several states — including Illinois, Oregon, and Utah — currently have PTET regimes scheduled to sunset on December 31, 2025 unless extended by legislation.
Alabama
Election is made by checking the “Electing PTE” box on a timely filed Form 65 or Form 20S (including extensions). Form EPT must also be filed annually.
Arizona
Election is made on a timely filed partnership or S corporation return. Owners generally retain opt-out rights, so advance communication is critical.
Arkansas
Entities may file Form AR362-E or elect directly on the state return. Approval from owners holding more than 50% voting power is required.
California
Election must be made on an original, timely filed return.
A required prepayment of $1,000 or 50% of the prior year’s PTET (whichever is greater) must be made by June 15 to remain eligible.
Colorado
Election must be made by the original return due date. Elections on extended returns are generally not permitted.
Connecticut
Filed via Form CT-PET. While originally mandatory, the regime transitioned to an elective model for certain entities.
Georgia
Made by filing Form 700 or 600S by the filing deadline (including extensions). Election is generally irrevocable for that tax year.
Hawaii
Submit Form N-362E and Schedule PTE with a timely filed return. All filings and payments must be made through the state’s electronic portal.
Idaho
Election must be made on a timely filed return. Idaho is restrictive regarding elections on extended returns.
Illinois
Election is made by checking the box on Form IL-1065 or IL-1120-ST. Currently scheduled to expire December 31, 2025.
Indiana
Use Form IN-PTET or elect on a timely filed return. Retroactive elections to 2022 may apply in certain cases.
Iowa
Election allowed on timely filed returns (including extensions). Entities exceeding $250,000 in gross receipts must file electronically.
Kansas
Annual election required on a timely filed return. No automatic rollover.
Kentucky
Use Form 740-PTET-ELECT during the year or elect on a timely filed return. Retroactive elections back to 2022 may be available.
Louisiana
Flat 3% rate for 2025. Election must be filed by the original due date and requires approval from owners holding more than 50% voting control.
Maryland
Election is triggered by the entity’s first filing action (estimated payment, return, or extension). Once made, it is irrevocable.
Massachusetts
Filed electronically using Form 63D-ELT. Election is annual. Current rate is 5%.
Michigan
Triggered by making an online payment through Michigan Treasury Online (MTO) by the 15th day of the third month of the tax year. Election remains in effect for three years.
Minnesota
Must be made by the entity’s extended due date. The regime is tied to the federal SALT cap.
Mississippi
File Form 84-381. Once elected, it remains in force until formally revoked.
Missouri
Election is made by checking the box on a timely filed MO-PTE return by the 15th day of the fourth month after year-end.
Montana
Election made on a timely filed return. Confirm all owners are eligible for credits before proceeding.
Nebraska
Election made on a timely filed return. Retroactive elections were allowed back to 2018 for qualifying entities.
New Jersey
Separate online election required by the 15th day of the third month of the tax year. This early deadline is frequently missed.
New Mexico
Election made by checking the appropriate box on a timely filed return. Coordinate estimated payments accordingly.
New York (State & City)
Election must be made online between January 1 and March 15 of the tax year. No extensions are permitted.
North Carolina
Annual election made on a timely filed return. Proper allocation ensures owners receive correct credits.
Ohio
Use Form IT 4738 by the 15th day of the fourth month following the close of the tax year.
Oklahoma
Election must be made by the 15th day of the third month of the tax year or on a timely filed return.
Oregon
Election made on a timely filed return. Currently scheduled to expire December 31, 2025.
Rhode Island
Made on a timely filed return or by submitting PTET estimated payments.
South Carolina
Election made on a timely filed return. Maintain documentation of owner consent.
Utah
All elections and payments must be processed through the Tax Commission’s electronic portal. Scheduled to expire December 31, 2025.
Virginia
Election made on a timely filed return, extension, or estimated payment. Scheduled to expire at the end of 2026.
West Virginia
Made by checking the box on a timely filed return.
Wisconsin
Annual election on a timely filed return. Effective since 2018.
Final Thoughts on 2025 and 2026 Planning
While the increased SALT cap provides relief for some taxpayers, PTET remains the primary method for many profitable partnerships and S corporations to fully deduct state income taxes and optimize federal liability.
The most common mistake is not miscalculating the benefit — it is missing the election deadline entirely.
Early coordination between ownership groups, tax advisors, and accounting teams is essential, especially for multi-state entities.
Evaluate Your 2025 PTET Strategy Before Deadlines Pass
PTET elections require precision, timely filings, and careful modeling of owner-level tax impacts.
At Shahbaz & Associates CPAs, we assist partnerships, S corporations, and LLCs with multi-state election planning and compliance to ensure every available deduction is secured.
If you would like to review your 2025 eligibility or begin planning for 2026, strategic preparation now can prevent costly missed opportunities later.