PTET is a perfectly legal workaround that fixes this. Instead of paying state tax personally, you have your business pay the state tax. The IRS lets businesses fully deduct state tax — there's no $10,000 cap on businesses. Your state tax bill stays the same. Your federal tax bill drops by thousands.
The catch: you need to own a business (S-Corp, partnership, or multi-member LLC), and you need to live in one of the 36+ states that have set up the mechanism. Pure W-2 employees can't use this. Pure sole proprietors (freelancers without an S-Corp election) can't use this either. Enter your numbers below to see if you qualify and how much you'd save.
✓ California has PTET available
From your S-Corp, partnership, or multi-member LLC.
$
How much of your $10k SALT cap is already used.
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Yes — you should elect PTET in California. You'd save about $7,872 per year in federal tax.
Your business owes about $26,600 in California state tax.
Right now, $24,600 of that is "wasted" federally — it pushes you over the $10,000 cap, so you can't deduct it.
If your business pays it directly (PTET), all of it becomes deductible federally. At your 32% federal bracket, that saves you $7,872 per year.
Same state tax. Less federal tax. Talk to your CPA about making the election.
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Walkthrough
A concrete example, step by step
Meet Sarah. She owns a marketing consulting LLC in California. Her business made $200,000 in profit last year. She's married, in the 32% federal tax bracket. Here's what happens with and without PTET.
Without PTET (the old way)
- Her business earns $200,000.
- She reports the $200,000 on her personal tax return.
- California charges 9.3% on it: $18,600 in state tax, paid from her personal account.
- On her federal return, she tries to deduct that state tax.
- But the federal cap is $10,000 — she can only deduct $10,000. The other $8,600 of state tax is wasted federally.
With PTET (the smart way)
- Her business earns $200,000.
- Her business pays California $18,600 directly (a business expense, before profit passes to her).
- On her federal return, the $18,600 reduces her business income — fully deductible, no $10,000 cap.
- California gives her a $18,600 credit on her personal state return — so she doesn't double-pay state tax.
- She saves $18,600 × 32% = $5,952 in federal tax, every year.
The key insight: Sarah pays the same total state tax ($18,600) either way. The only thing that changes is who writes the check — her, or her business. When her business writes it, the IRS treats it as a normal business expense with no cap. When she writes it personally, the IRS limits her deduction to $10,000.
Same money out of pocket. $5,952 less in federal tax. No catch.
Questions
Frequently asked questions
What is PTET?▾
Picture this: you live in California and you pay the state $20,000 in income tax this year. You also pay $10,000 in property tax. That's $30,000 of state and local taxes. Until 2017, you could deduct all of it on your federal taxes. Then Congress capped that deduction at $10,000 — so $20,000 of your state taxes became 'invisible' to the IRS. You paid them but got nothing for them on your federal return. PTET is a way to fix that. If you own a business (S-Corp, partnership, or multi-member LLC), you can have your BUSINESS pay the state tax on your business income, instead of you paying it from your personal account. When a business pays state tax, that's a regular business expense — fully deductible federally with no $10,000 cap. The state gives you a credit on your personal return so you don't double-pay. Net result: your total state tax bill is the same, but your federal tax bill drops by thousands.
Walk me through it with real numbers — what does this look like?▾
Say you own a consulting LLC in California and your business profit is $200,000. California taxes that at about 9.3%, so you owe California $18,600 in state income tax. WITHOUT PTET: you pay the $18,600 personally. On your federal return, you can only deduct $10,000 of state tax (the SALT cap). So $8,600 of that state tax is wasted federally. WITH PTET: your business pays California the $18,600 directly. That's a business expense — fully deductible on your federal return. California gives you a credit on your personal return for the $18,600 your business paid, so you're not paying state tax twice. The federal tax savings: $18,600 × your federal tax bracket. At a 32% federal bracket, that's $5,950 in federal tax saved. Same state tax bill. $5,950 less in federal tax. Every year.
Who actually qualifies?▾
You qualify if your business is one of these three types: (1) an S-Corporation; (2) a partnership; (3) a multi-member LLC (more than one owner). You do NOT qualify if you're: a solo freelancer filing a Schedule C; a single-owner LLC that hasn't elected S-Corp tax status; or a regular W-2 employee with no business. If you're a solo freelancer who wants PTET, you'd first need to elect S-Corp tax treatment on your LLC. That's a separate decision with its own pros and cons — see our S-Corp Savings Calculator for that math.
Wait, does this actually save me money or is it a trick?▾
It saves you real money — federal money, every year, with no downside. The IRS officially blessed this in 2020 (IRS Notice 2020-75), and 36+ states have set up the formal mechanism for you to do it. There's no audit risk. Your state tax bill stays exactly the same. The only thing that changes is the path the money takes (through your business instead of through your personal account), and that path costs the federal government — which is why the cap was put in place but Congress hasn't shut down the workaround.
Which states have PTET?▾
As of 2025, these states have it: Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Rhode Island, South Carolina, Utah, Virginia, West Virginia, and Wisconsin. States WITHOUT PTET are mostly states that don't have a state income tax in the first place (Texas, Florida, Washington, Nevada, Tennessee, South Dakota, Wyoming, Alaska) — so PTET isn't relevant for them anyway.
What does it cost me to set this up?▾
Almost nothing. PTET is an election, not a separate tax. You make the election once on your business tax return for the year. Most CPAs charge $100-$300 extra to handle the (minor) extra complexity on your business return. The savings dwarf the cost — a typical high earner with $200,000 of business income saves $5,000-$15,000 per year. The hardest part is timing: you have to make the election (and have the business pay the state) by your state's deadline, which varies. Most states require the payment by the original tax deadline (April 15) or by the time you file the business return.
How do I actually do it?▾
Three steps, usually handled by your CPA: (1) Make the PTET election on your state business tax return (a checkbox on most state forms). (2) Have your business pay state income tax directly to the state — most states have a separate PTET payment form. (3) On your personal state tax return, claim the credit your state gives you for the PTET payment your business made. That's it. If you have a CPA preparing your business return, they should know how to do this — but ASK SPECIFICALLY because some CPAs serving primarily W-2 clients haven't set up PTET before.
More on the SALT workaround
Read the full deep-dive on PTET and the alternatives if you don't have business income.
Read the SALT workaround article