March 16 Is More Than a Tax Deadline — Rethink Your PTET Election in 2026
By Michael D. Bosma, CPA
Managing Principal, Keystone CPA’s
March 16, 2026 is an important date for business owners. It is the filing deadline for calendar-year partnerships and S-corporations, but it is also the deadline in many states to make the first payment for the Pass-Through Entity Tax (PTET) election.
Why PTET may no Longer be the Default Choice
For the past several years, the PTET election has been an easy decision for many business owners. The strategy allowed state income taxes to be deducted at the entity level — effectively bypassing the $10,000 SALT deduction cap imposed by the 2017 Tax Cuts and Jobs Act.
However, the recently enacted One Big Beautiful Bill Act (OBBBA) increased the SALT deduction cap to $40,000, dramatically changing the analysis for many small business owners.
As a result, many taxpayers should reconsider automatically making the PTET election.
Why the PTET Election Worked Before
The PTET workaround allowed partnerships and S-corporations to deduct state income taxes directly on Form 1065 or Form 1120S.
Because the deduction occurred at the entity level, it reduced taxable income before it flowed through to the owner. That deduction was not limited by the SALT cap.
For high-income taxpayers in high-tax states, this strategy often produced significant federal tax savings.
What Changed
With the SALT deduction cap increasing from $10,000 to $40,000, many taxpayers can now deduct substantially more state tax directly on Schedule A.
That means the benefit of PTET is no longer automatic, and now PTET payments that are deducted on the partnership or S-corporation return versus Schedule A actually increases your tax!
Since the Section 199A deduction is calculated as up to 20% of QBI, reducing QBI can directly reduce the QBI deduction.
In some cases, the lost QBI deduction can outweigh the benefit of the PTET deduction.
A Simple Decision Matrix
When deciding whether to elect PTET in 2026, consider the following framework:
Scenario 1: You Already Itemize and Your SALT Is Under $40,000
If your total state and local taxes are below the new $40,000 SALT cap, then paying state tax individually may already give you the full deduction. In this case, making the PTET election may actually hurt you, because:
- The deduction would reduce QBI
- That reduction may shrink your 20% QBI deduction
For many taxpayers in this situation, skipping the PTET election may be the better strategy.
Scenario 2: Your SALT Exceeds $40,000
If your state and local taxes exceed $40,000, the analysis becomes more complicated.
Now the question becomes: is the additional federal deduction from PTET worth the potential reduction in the QBI deduction?
This requires modeling the interaction between:
- PTET deductions
- QBI deduction limits
- taxable income thresholds
- state tax rates
- federal marginal tax brackets
In some cases PTET still wins. In others, it does not.
For the last few years, PTET elections have been an obvious choice for many business owners. With the SALT cap now raised to $40,000, that assumption should be revisited.
Before making a PTET payment for 2026, business owners should run a side-by-side analysis comparing:
- Paying state taxes individually and claiming them on Schedule A
- Making the PTET election at the entity level
The optimal choice depends on the interaction between SALT deductions and the Qualified Business Income deduction.
In other words, what used to be a simple workaround has now become a strategic tax decision.