Uncategorized

New York Pass-Through Entity Tax (PTET): Election Deadline, the Addback, Worked Example

By chrisomo

The New York PTET is an optional entity-level tax that lets a partnership or S corporation pay state income tax on behalf of its owners, sidestepping the $10,000 federal cap on individual state and local tax deductions. New York enacted it under Tax Law Article 24-A, effective for tax years beginning in 2021. The catch most owners overlook is the March 15 election deadline, which is annual, irrevocable, and unforgiving.

What is the New York PTET?

The New York PTET is a state income tax that an eligible partnership or S corporation may elect to pay at the entity level, rather than leaving the full state tax burden on its individual owners. It is New York’s version of the SALT-cap workaround that the IRS blessed in Notice 2020-75, which confirmed that a state pass-through entity tax paid by a partnership or S corporation is deductible at the entity level and is not subject to the $10,000 federal SALT cap that IRC §164(b)(6) imposes on individual itemizers.

The mechanics matter because the federal deduction is the entire point. When the entity pays the tax, the tax reduces the federal income that flows through to owners on their Schedule K-1. That deduction is taken before the cap ever applies, because the cap only restricts individuals, not the entity. For general background on how these regimes work across all states, see our companion explainer on the pass-through entity tax election.

Not every business can elect. Eligible entities are partnerships, including LLCs taxed as partnerships, that have at least one New York resident partner or member or have New York-source income, plus New York S corporations. Sole proprietorships and single-member LLCs treated as disregarded entities cannot elect, because there is no separate entity to impose the tax on (NY Tax Law Article 24-A; NY DTF guidance).

How the New York PTET works (mechanics)

The election is annual and irrevocable. An entity that wants the New York PTET for a given tax year must make the election by March 15 of that year, which is the 15th day of the third month of the tax year. The election is filed online through the entity’s NY Business Online Services account. There is no paper alternative and no late-election relief. If March 15 passes without an election, the entity simply cannot elect the PTET for that year (NY Tax Law Article 24-A; NY DTF guidance).

That single date catches more taxpayers than any other feature of the regime. Because the deadline falls during the tax year itself, not at the following year’s filing, an owner who decides in April that the PTET would have helped has already lost the option for twelve months.

An electing entity must also make quarterly estimated PTET payments on March 15, June 15, September 15, and December 15 (NY Tax Law §864; NY DTF PTET guidance). Underpayment can trigger interest, and in practice the first estimated payment lands on the same day as the election itself.

The tax is graduated. The PTET applies to pass-through entity taxable income at 6.85% on income up to $2,000,000, 9.65% on income over $2,000,000 up to $5,000,000, 10.30% on income over $5,000,000 up to $25,000,000, and 10.90% on income over $25,000,000 (NY Tax Law §863). Those tiers mirror New York’s top personal income tax brackets, so the entity-level rate roughly tracks what the owners would have paid individually.

Pass-through entity taxable income is not always identical to the entity’s ordinary income. For a partnership, the base generally includes the income, gain, loss, and deduction allocable to resident and nonresident partners under New York sourcing rules, while for a New York S corporation the base reflects items allocable to shareholders. The definition matters because the same dollar of profit can produce a different PTET depending on the residency mix of the owners, so two otherwise similar businesses can owe meaningfully different amounts (NY Tax Law Article 24-A; NY DTF PTET guidance).

The owner side closes the loop with a credit. An eligible partner, member, or shareholder who is subject to NY personal income tax receives a PTET credit against their New York personal income tax equal to their direct share of the PTET the entity paid (NY Tax Law §606(kkk)). The credit is refundable, so an owner whose credit exceeds their NY liability receives the excess back. One practical consequence is that the owner should reduce their own quarterly personal estimated payments to account for the credit, since failing to do so simply overpays New York and waits for a refund.

Because the owner gets that credit, the PTET must be added back to the owner’s New York taxable income. Without an addback, the owner would benefit twice: once from the entity-level federal deduction that lowered the K-1 income, and again from the NY credit. The addback restores the New York income that the entity-level deduction had removed, so on the New York return the result is a wash. The addback is reported through the modification on Form IT-225 (NY Tax Law Article 24-A; NY DTF Form IT-225 instructions).

New York State PTET versus New York City PTET

New York City runs its own separate PTET under Tax Law Article 24-B, available beginning with the 2022 full tax year, for city resident individuals. It is a distinct election layered on top of the state PTET: an entity must already be a New York State PTET filer before it can elect the city PTET, and city residents who are owners receive a corresponding NYC PTET credit (NY Tax Law Article 24-B; NY DTF guidance). The table below sets the two regimes side by side.

Worked example

Consider a New York S corporation with $1,000,000 of New York taxable income, owned entirely by a single New York resident shareholder in the top bracket. The corporation elects the New York PTET.

The entity-level tax falls in the first tier, so the rate is 6.85%. The PTET paid by the entity is $1,000,000 multiplied by 6.85%, which equals $68,500 (NY Tax Law §863).

That $68,500 is a deduction at the entity level. It reduces the federal income the corporation passes through on the shareholder’s K-1 by $68,500. At a 37% top federal marginal rate, the federal tax the shareholder saves is $68,500 multiplied by 37%, which equals $25,345 (IRC §1; IRS Notice 2020-75).

On the New York return, the shareholder adds the $68,500 back to New York taxable income, restoring the income the federal deduction had removed, and then claims a $68,500 refundable PTET credit against New York personal income tax (NY Tax Law §606(kkk); NY DTF Form IT-225 instructions). The addback and the credit offset each other, so New York is a wash. The net benefit is roughly $25,345 of federal tax saved, before the small Section 199A interaction discussed below.

Compare the alternative. Before the One Big Beautiful Bill Act, a high earner who did not elect the PTET would have been limited to a $10,000 SALT deduction on Schedule A under IRC §164(b)(6), regardless of how much state tax they actually paid. The PTET converts a deduction capped at $10,000 into a full $68,500 deduction taken at the entity level, which is the source of the $25,345 federal saving.

The Section 199A qualified business income deduction creates a small offset. Because the PTET reduces the entity’s qualified business income, it slightly reduces the owner’s 199A deduction, trimming part of the federal benefit. The tradeoff is modest at these income levels but real, and it is worth modeling for owners near a 199A threshold. See our explainer on the Section 199A qualified business income deduction for how that calculation works.

Recent changes (2025 to 2026)

The biggest recent shift came from federal law, not New York. The One Big Beautiful Bill Act raised the individual SALT deduction cap to $40,000 starting in 2025, with a phase-down for high earners and a scheduled sunset (Pub. L. 119-21). A $40,000 cap is four times the old $10,000 limit, so for owners whose total state and local taxes sit near or below the new ceiling, the marginal value of electing the PTET shrinks. For owners well above the ceiling, especially those whose income phases the cap back down, the PTET still carries most of its original value.

The practical takeaway is that the PTET decision is now a calculation rather than a default. An owner with modest state tax may find the new $40,000 cap absorbs most of their deduction without any election. An owner with several hundred thousand dollars of New York tax still gains substantially from moving the deduction to the entity level, because the entity deduction faces no cap at all.

For New York residents who own interests in pass-through entities that paid PTET to other states, the resident-credit rules continue to matter. New York allows a resident credit for substantially similar PTET paid to other states under NY Tax Law §620, as clarified in NY DTF technical guidance, subject to limitation rules that an owner with multistate K-1s should confirm before filing.

Common pitfalls and mistakes

• Missing the March 15 election deadline. The election is annual and irrevocable, with no late relief, so a missed date forfeits the PTET for the entire tax year (NY Tax Law Article 24-A; NY DTF guidance).
• Skipping or underpaying quarterly estimates. Electing entities owe estimated PTET on March 15, June 15, September 15, and December 15, and shortfalls can draw interest (NY Tax Law §864; NY DTF PTET guidance).
• Forgetting the addback on the personal return. Owners who take the credit but fail to add the PTET back to New York taxable income misstate their NY income and risk an adjustment (NY DTF Form IT-225 instructions).
• Assuming a disregarded entity can elect. Sole proprietorships and single-member LLCs cannot elect, because there is no separate entity-level taxpayer (NY Tax Law Article 24-A).
• Treating the city PTET as automatic. The NYC PTET under Article 24-B is a separate election that requires the entity to already be a state PTET filer (NY Tax Law Article 24-B).
• Overlooking the Section 199A reduction. PTET lowers qualified business income and therefore the 199A deduction, so the net federal benefit is slightly smaller than the headline figure (IRC §199A).
• Ignoring the post-OBBBA math. With the federal SALT cap now $40,000, owners with smaller state tax bills may gain little from electing, making a year-by-year calculation necessary (Pub. L. 119-21).

Frequently asked questions

Is the New York PTET mandatory?

No. The New York PTET is entirely optional and is made by an annual election (NY Tax Law Article 24-A).

When is the New York PTET election due?

The election is due by March 15 of the tax year, the 15th day of the third month, and is filed online through the entity’s NY Business Online Services account (NY DTF guidance).

Can I revoke the election once I make it?

No. The election is irrevocable for the year once filed (NY Tax Law Article 24-A).

What entities can elect the New York PTET?

Partnerships and LLCs taxed as partnerships with at least one NY resident or NY-source income, and New York S corporations. Disregarded single-member LLCs and sole proprietorships cannot elect (NY Tax Law Article 24-A).

What is the New York PTET rate?

It is graduated from 6.85% up to 10.90% on pass-through entity taxable income over $25,000,000, mirroring the top NY personal income tax bracket (NY Tax Law §863).

How does the owner get the benefit back?

The owner claims a refundable PTET credit equal to their direct share of PTET paid and adds that amount back to New York taxable income, which nets to a wash on the NY return (NY Tax Law §606(kkk); NY DTF Form IT-225 instructions).

How is the New York City PTET different?

The NYC PTET under Article 24-B is a separate election for city resident owners at a flat 3.876%, available since 2022, and requires the entity to already be a state PTET filer (NY Tax Law Article 24-B).

Does the New York PTET still help after the 2025 SALT cap increase?

Often, but less. The One Big Beautiful Bill Act raised the federal individual cap to $40,000, which reduces the marginal benefit for owners with smaller state tax bills while preserving most of it for high earners (Pub. L. 119-21).

Where can I learn more about related tax topics?

Our learn hub collects explainers on pass-through taxation, the SALT cap, and related federal provisions.