If you own an S-corp, an LLC, or a partnership with New York-source income, the New York Pass-Through Entity Tax (PTET) is probably the single most valuable line on your tax plan this year, and the one most likely to be missed. Over the past few months, a number of business owners called our office assuming the rules were changing in 2026. They had heard about a proposal to extend the election deadline from March 15 to September 15, and many were quietly counting on the extra six months. That extension was real, but it didn’t survive the final budget. The deadline didn’t move.
This post walks through what the NY PTET actually does, what changed and what didn’t in 2026, how the new federal SALT cap affects the math, and the planning steps we walk clients through every winter.
What the NY PTET Does, in Plain English
The PTET is New York’s response to the federal $10,000 cap on state and local tax (SALT) deductions that came in with the Tax Cuts and Jobs Act in 2017. For owners of pass-through businesses in a high-tax state like ours, that cap was painful. New York’s workaround, enacted in 2021, lets an eligible pass-through entity (a partnership, an LLC taxed as a partnership, or an S-corporation) elect to pay New York income tax at the entity level rather than passing the full liability through to owners’ personal returns.
Here is why that matters. When the business pays the tax, it is a deductible business expense on the federal return. That deduction is not subject to the SALT cap, because the cap applies to individual itemized deductions, not business expenses, a position the IRS explicitly confirmed in Notice 2020-75. Owners then receive a dollar-for-dollar refundable credit on their personal New York returns for their share of what the entity paid. The state revenue does not change. The federal deduction shows up that otherwise would have been capped. Done well, this saves a typical owner several thousand dollars per year, and for higher-income owners it can mean tens of thousands of dollars.
One eligibility wrinkle worth flagging: a single-member LLC is not eligible for the PTET unless it has elected to be treated as an S-corp. If you operate as a disregarded entity, the workaround is not available to you, which is one reason we have several clients restructuring their entity setup heading into 2027.
The PTET is calculated on a graduated rate schedule that mirrors New York’s individual income tax brackets: 6.85% on income up to $2 million, 9.65% on income between $2 million and $5 million, 10.30% on income between $5 million and $25 million, and 10.90% on income over $25 million. A separate NYC PTET layered on top is available for entities with New York City resident owners, calculated at the city’s top marginal rate.
What Almost Changed in 2026 and What Didn’t
Earlier this year, Albany floated a proposal as part of the FY2026 budget that would have moved the PTET election deadline from March 15 to September 15. The rationale was sensible: asking a business to commit to an irrevocable, year-long entity-level tax election by mid-March, before the books are closed and often before the prior year’s K-1s are out, forces a decision on incomplete information. The extension would have aligned New York with states like Michigan, which has already pushed its deadline to the end of the ninth month after year-end.
That provision did not make the final budget. March 15 remains the hard deadline. For the 2026 tax year, the election had to be made by March 15, 2026. If you missed it, the door is closed for 2026, and you’ll have until March 15, 2027 to elect for the 2027 tax year.
The detail that trips owners up most often: the election must be made by March 15 of the tax year – not the following year’s filing deadline. The 2026 election was due during 2026, not at the 2027 filing window. We see this confusion especially with newer S-corp owners, because the PTET deadline doesn’t line up with any of the other dates on the tax calendar.
September 15 is still relevant, though. It’s the third of four quarterly estimated PTET payments, and the date by which most entities should have paid in at least 75% of the year’s projected liability. We use the run-up to September 15 as a forced checkpoint with clients: actual year-to-date income, refreshed projections, and a decision about whether to true up before year-end.
The OBBBA SALT Cap and How It Changes the Math
The One Big Beautiful Bill Act (OBBBA), passed in summer 2025, complicates the analysis in a way that’s worth understanding before you assume the PTET is still a slam-dunk. OBBBA raised the personal SALT deduction cap from $10,000 to $40,000, effective for tax years 2025 through 2029. The $40,000 cap phases out for taxpayers with modified adjusted gross income above $500,000, but never drops below $10,000. The cap then reverts to $10,000 in 2030 unless Congress extends it.
For some owners, the higher cap means the PTET workaround is less essential than it used to be, if your combined state and local tax bill fits comfortably under $40,000 and your MAGI is under the phase-out threshold, the personal SALT deduction may now cover you. But for most New York business owners we work with, the PTET is still the better answer for two reasons. First, anyone with meaningful business income in New York is almost certainly paying more than $40,000 in combined state and local tax. Second, the phase-out hits hard above $500,000 of MAGI, with the cap reduced by 30% of the excess. The good news is that OBBBA contains no provisions restricting the federal deductibility of state PTETs, so the workaround remains fully intact through 2029.
The net effect is that the PTET decision is now a genuine case-by-case analysis rather than a default yes. We model it for each business owner client every fall: actual entity income, owner-level income from all sources, projected MAGI, the phase-out, and the resulting marginal benefit. The answer is usually still “elect,” but not always.
Planning Steps We Recommend Before March 15, 2027
For the 2026 tax year, the election window has already closed. The work now is making sure your estimated payments are on track for the December 15 installment and the March 15, 2027 annual return. If you elected, do not miss those payments – the state can disqualify the entire election for underpayment.
For 2027 and beyond, we recommend three things. First, treat the PTET election decision as a fourth-quarter planning conversation, not a March emergency. By November, we have enough information about the year’s income, the owner’s other compensation, and projected MAGI to model the election cleanly. Second, if you are setting up a new entity, build the PTET workflow into your operating documents and bookkeeping from day one – election authority, payment authority, and quarterly cash reserves. We help clients with this as part of business formation and entity restructuring. Third, integrate the PTET into broader tax planning around owner compensation, retirement contributions, and succession timing. A clean PTET strategy interacts with all three.
For owners thinking about a sale, retirement, or transition in the next few years, the PTET also matters at the exit. The election affects the basis calculations and the timing of recognition for departing partners and shareholders. We address this in business succession planning for clients planning a wind-down, sale, or family transfer.
Talk to Us Before Next March
If you own a New York pass-through and you are not certain whether the PTET makes sense for you in 2027 (or whether your 2026 election is set up correctly) we’d be glad to walk through the numbers with you. As both a tax attorney and CPA, I have spent years helping small business owners navigate exactly these multi-layered state and federal interactions, and the PTET decision is one where the combined legal and tax perspective tends to surface options a single-discipline advisor might miss. Reach out through our contact page and we’ll set up a planning conversation well before the next deadline catches you flat-footed.
