Six More States Turned On the PTE Election in 2022: A Multistate Map of the SALT-Cap Workaround

Key takeaways

• IRS Notice 2020-75 confirmed that state-level pass-through entity taxes are deductible at the entity level, effectively bypassing the § 164(b)(6) cap for owners of partnerships and S corporations.
• As of mid-2022, more than 30 states have enacted some form of PTET regime — each with distinct eligibility rules, election mechanics, and rate structures.
• Several states enacted or made their regimes effective in 2022, expanding the universe of available elections for multistate owners.
• The planning leverage depends heavily on the resident-credit mechanics of each owner's home state: a PTET payment in a business-activity state produces no federal benefit if the owner's home state does not allow a corresponding credit.
• Election deadlines in many states are annual and irrevocable — missing the window eliminates the election for that tax year.

What the PTET workaround actually does

The $10,000 federal limitation on state and local tax deductions under § 164(b)(6) applies at the individual level. It does not limit deductions at the entity level. Notice 2020-75 confirmed IRS acceptance of state PTET regimes in which the entity — not the individual partner or shareholder — pays a tax on the entity's income. The entity takes a federal deduction for that payment. The individual partners receive a credit against their home-state tax liability.

The economic effect is a restoration of some or all of the lost SALT deduction — depending on rates, credit availability, and the owner's residency situation.

The mechanics that determine whether an election is worth making

Not every eligible business benefits from electing in every available state. Three variables control the analysis:

Entity-level rate versus owner's marginal rate. If the PTET rate is lower than the owner's effective marginal rate on that income, electing produces a smaller federal deduction than the owner would have received from an uncapped state deduction. Most states have set rates at or near individual top rates, but the comparison should be made explicitly.

Resident-credit treatment in the owner's home state. This is the most common planning failure. A PTET payment in State A reduces the entity's federal taxable income, but it only produces net tax savings for the owner if State B (the owner's residence state) credits the State A tax against the owner's home-state liability. Many states credit other states' PTET payments — but not all, and the mechanics differ. An owner who lives in a state that does not credit the PTET will pay the entity-level tax, get the federal deduction, and still owe their home state in full.

Election timing and irrevocability. Most PTET elections are made annually, often by a date in the current tax year. Many are irrevocable once made. A calendar-year partnership that misses a September 15 election deadline in a given state has lost the election for that year. The planning timeline must work backward from these deadlines.

A multistate owner's analytical framework

For a business operating in multiple PTET-eligible states, the threshold determination is which states are worth electing in for the current year. The practical steps:

Map income by state. PTET elections are typically available only for income attributable to business activity in the electing state — not the owner's entire income. Estimate state-apportioned or allocated income for each potential election state.

Confirm the owner's home state's credit treatment. Contact the home state's instructions or a current-year guidance publication. If no credit is available, the election in the activity state saves federal tax (via the entity deduction) but creates a net state-tax increase (by paying the PTET without offsetting the home-state liability). Whether that net position is beneficial depends on the owner's specific rate structure.

Identify each state's election window and mechanics. Some states require an annual affirmative election; others are automatic once opted into the regime; a few have one-time elections. The deadline calendar must be assembled before any filing-season decisions are made.

Model the net benefit. For each potential election state: estimate the federal tax saved (entity deduction × owner's federal marginal rate) and net it against any state-tax cost not offset by the home-state credit. The decision is the sum of those net figures across all potential election states.

What has changed for multistate owners in 2022

The expansion of PTET regimes to more than 30 states means that a business operating in five or six states may now have PTET elections available in all of them. The opportunity cost of not modeling the elections is higher than it was in 2021, when fewer regimes were live. At the same time, the coordination complexity has grown: more elections mean more deadlines, more resident-credit analyses, and more opportunity for the election to produce unexpected results if the home-state credit mechanics are not verified.

Bottom line

The pass-through entity tax is one of the most durable planning opportunities in the current federal tax landscape. Its value is not automatic — it depends on careful state-by-state analysis and on election-deadline discipline. For multistate owners who have not yet mapped their 2022 election options across all available states, the time to do that work is now, not at year-end when some election windows will have closed.