Live in a high-tax state and own a business? You're probably overpaying federal taxes by thousands.

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 SALT 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.

Say you own an S-Corp in California with $700,000 of business profit, and your income is high enough that your SALT cap has phased down to the $10,000 floor. California's progressive brackets on $700,000 come to about $58,423 in state income tax (an ~8.3% effective rate — the 13.3% top rate only applies above $1M). WITHOUT PTET: you pay the $58,423 personally, but you can only deduct $10,000 of state tax (your phased-down SALT cap). So $48,423 of that state tax is wasted federally. WITH PTET: your business pays California the $58,423 directly. That's a business expense — fully deductible on your federal return. California gives you a credit on your personal return for the $58,423 your business paid, so you're not paying state tax twice. The federal tax savings: ($58,423 − $10,000) × your federal tax bracket. At a 35% federal bracket, that's $16,948 in federal tax saved. Same state tax bill. $16,948 less in federal tax. Every year.

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.

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.

As of 2026, 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.

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 California high earner whose income has phased their SALT cap down to the $10,000 floor (say, $700,000 of business income) saves about $16,948 a 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.

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.