What the PTET Actually Does

The federal Tax Cuts and Jobs Act capped the state and local tax (SALT) deduction at $10,000 starting in 2018. For a New York business owner paying $50,000 or more in state income tax, that cap meant losing the deduction on $40,000+ of state taxes. Real money.

New York’s pass-through entity tax gets around the cap by shifting the tax payment from the individual to the entity. Instead of you paying state tax on your share of business income, the S corp or partnership pays it. That entity-level payment is a deductible business expense for federal purposes — not subject to the SALT cap — and you get a credit on your personal IT-201 for the amount the entity paid on your behalf. The IRS blessed this approach in Notice 2020-75.

Net effect: you end up in roughly the same place for state purposes, but you pick up a federal deduction you wouldn’t otherwise get. For a detailed breakdown of the election process and entity-level filing, see our NY PTET guide.

How the Credit Flows to Line 58

The entity files Form IT-653 (or the NYC version, if applicable) and reports the PTET paid. Each owner’s share of the tax paid is reported to them, typically on a K-1 or supplemental schedule. You then claim your share as a credit on Line 58 of the IT-201 using Form IT-653.

The credit amount equals your proportionate share of the PTET the entity paid on your behalf. If the S corp had $500,000 in New York taxable income, paid PTET on all of it, and you own 40%, your credit is 40% of whatever PTET the entity paid.

The PTET rate itself is progressive, ranging from 6.85% to 10.9% depending on the entity’s total income, as set out in NY Tax Law Article 24-A. Higher-income entities pay a higher rate, which means the credit passed through to you is also larger.

Worked Example

Let’s walk through a real scenario. Sarah owns 50% of an S corp that earned $400,000 in New York income for 2025. The S corp elected into NY PTET.

At the entity level: The S corp pays PTET on $400,000 of income. At the applicable rate (let’s say 6.85% on the first bracket, scaling up), the total PTET comes out to approximately $30,200. Sarah’s 50% share is $15,100.

On Sarah’s federal return: The $30,200 PTET payment is a deductible expense of the S corp, reducing the K-1 income she reports. Her federal taxable income drops by $15,100 (her 50% share), saving her roughly $3,624 in federal tax at the 24% bracket.

On Sarah’s IT-201: She reports $15,100 on Line 58 as her PTET credit. This offsets the New York state tax she’d otherwise owe on that same income. She ends up paying roughly the same state tax as before (entity pays it instead of her), but she’s picked up a $3,624 federal tax reduction she wouldn’t have gotten without the PTET election.

That $3,624 is found money. It didn’t exist before New York created this workaround. For owners with higher income or larger ownership stakes, the savings scale proportionally.

The NYC Complication

Here’s where it gets tricky. The PTET credit offsets New York State tax on the IT-201, but it doesn’t directly offset New York City tax. NYC has its own separate PTET (the NYC PTET), which the entity can also elect into. If the entity only elects into the state PTET but not the city version, the credit on Line 58 helps with state tax but does nothing for city tax.

For NYC residents, this means the entity should consider electing into both the state PTET and the NYC PTET. The NYC PTET credit is claimed on a separate line and offsets city tax liability. Missing the city election is one of the most common and expensive oversights for NYC-based pass-through owners.

Refundability: The Part Most People Miss

The PTET credit on Line 58 has a unique feature: excess credit is refundable. If your PTET credit exceeds your state tax liability, you get the difference back as a refund. This distinguishes it from most other credits on the IT-201, which simply reduce your tax to zero and stop there.

When does this matter? When the entity pays PTET at a rate higher than what you’d owe individually — which can happen when the entity’s income pushes into the higher PTET brackets but your personal circumstances (deductions, other credits) would produce a lower effective rate. The excess credit becomes a refund.

This refundability also matters when you have credits from Line 48 (resident credit) or Lines 59-63 that already reduced your tax. The PTET credit still pays out the excess.

Common Mistakes With Line 58

The most costly mistake: the entity doesn’t make the PTET election at all. The election has to be made by the entity, not by the individual owner, and it’s an annual election with a specific deadline (March 15 for calendar-year entities). If the entity misses the deadline, there’s no credit to claim and no SALT workaround for the year.

Second mistake: not reconciling estimated PTET payments with actual credit. The entity makes estimated PTET payments throughout the year, but the final credit on your K-1 is based on the actual PTET liability. If the entity underpaid its estimates, you might get a smaller credit than you expected, and you could owe additional state tax on your personal return.

Third: confusing the PTET credit with the business credits on Lines 59-63. Different line, different form, different rules. The PTET credit goes exclusively on Line 58 via Form IT-653.

And for multi-state owners: if you’re a partner in entities operating in multiple states, each state’s PTET is separate. New York’s credit only applies to New York PTET paid. Other states’ PTET credits go on those states’ returns.

Should Your Entity Elect Into PTET?

For most S corps and partnerships with New York income and owners who are already hitting the $10,000 SALT cap, the answer is yes. The election is generally beneficial and rarely harmful. The main scenario where it might not help: if your total state and local taxes are already under $10,000 (in which case you’re deducting them fully on your federal return and don’t need the workaround).

Talk to your preparer before the March 15 deadline. Once it passes, you’re locked out for the year.

Sources & References

• NY IT-201 Instructions — Line 58 PTET Credit
• NY Tax Law Article 24-A — Pass-Through Entity Tax
• Form IT-653 — Pass-Through Entity Tax Credit
• IRS Notice 2020-75 — Deductibility of State PTE Taxes
• IRC Section 164 — SALT Deduction Cap