The Mechanic — and Why a 25-Point Cut Hurts

The NYC PTET regime today gives city residents who pay through a New York State Pass-Through Entity Tax (PTET) election a credit equal to 100% of the city tax allocable to their share. That symmetry is what makes the election worth doing in NYC: the entity-level tax is fully deductible federally as a SALT workaround under the OBBBA-revised cap rules, and the resident gets the full city-level offset. Net: federal benefit, no in-state pain.

Cut the credit to 75% and the math flips. The city resident still pays their share of the city tax through the entity, but only gets credit for three-quarters of it. The remaining quarter sticks. For a partner pulling $1M of NYC-source pass-through income, that is roughly $9,000 of additional out-of-pocket city tax per year, ignoring rounding and complexities in the apportionment math.

What This Means for NYC Business Owners

If you are a Reedcorp business-owner client running a NYC-based S-corp or partnership, this is the single most important state-level item on the table for your 2026 planning. It does not change federal SALT math. It does not change your QBI deduction. It changes the back-end of the SALT workaround that everyone with NYC-source pass-through income has been using since the city PTET was synced in 2022.

Three groups feel it most:

• Solo professional services owners (lawyers, consultants, doctors operating through PCs/PLLCs, investment advisors). The pass-through is the income, the income is mostly NYC-source, and the credit cut is a direct hit. No structural workaround.
• Real estate operators with NYC properties. Even if the operating company is set up outside NYC for other reasons, partner residents of NYC are subject to the city tax on allocable income. A 75% credit shifts the post-PTET economics meaningfully.
• Mid-market closely held businesses with several NYC-resident partners. The PTET election is shared at the entity level but the credit is taken at the partner level. A change to the credit math changes the after-tax distribution to NYC-resident partners only — which can create unexpected friction at the partnership level if not modeled.

Non-Resident Partners — Mostly Unaffected

If you live in NJ, CT, FL, or anywhere outside NYC and your share of the NY entity tax is allocated to NYC-source income, you are largely outside the city tax regime. The state-level PTET still works. The federal SALT workaround still works. The 75% credit cut affects the credit for NYC residents specifically.

Where This Sits in the Albany Endgame

The state budget was due April 1. The Legislature passed a seventh extender on April 27 to keep operations running through April 30. The PTET credit cut is one of several revenue items on the table — alongside a high-earner income surcharge, the proposed pied-a-terre tax on $5M+ NYC residential property, and a few smaller items. Albany may take some, all, or none of these.

For NYC, Mamdani and Menin pushed the city’s own FY27 Executive Budget extender to May 12 to absorb whatever Albany decides. The city is signaling that the PTET cut is not a wish list — it is what they need to close their gap.

Realistic outcomes range from “credit goes to 75% as proposed” to “credit goes to 90%” to “no cut this year and revisit in the FY28 budget cycle.” The firm’s working assumption is that some haircut survives, even if the specific 75% number does not.

What We Are Doing for Reedcorp Clients

For NYC business-owner clients, the firm is updating quarterly projection models with two scenarios: PTET credit at 100% (status quo) and PTET credit at 75% (proposal as written). For real estate clients with NYC partnerships and outside investors, we are also flagging this for the LP communication in the next quarterly distribution letter — outside investors who don’t track Albany news will be surprised by a smaller distribution if the math changes mid-year.

The longer-term question is whether this is the start of NYC chipping away at the SALT workaround generally. If the answer is yes, owner-operators should be looking now at whether moving residence outside NYC — Westchester, Long Island, NJ — actually pencils out for them. The firm has had this conversation more times in the last six months than in the prior two years combined. Read our SALT cap workarounds piece for the broader federal architecture and our QBI deduction guide for the federal pieces that interact with PTET.

Our business-owner, real estate, and HNW teams coordinate on PTET planning alongside the firm’s New York tax strategy practice.

Common Questions

Does this affect my 2025 return?

No. Any PTET credit change Albany passes in this budget cycle would apply to 2026 forward, not retroactively to 2025 returns now being filed.

Should I undo my PTET election?

Almost certainly not. Even at a 75% credit, the federal SALT deduction makes the election positive for most NYC-resident pass-through owners. The math gets less attractive, not negative.

What if the cut goes deeper — say, to 50%?

That has not been formally proposed. If it were, the planning conversation changes meaningfully and includes residency, entity structure, and timing of distributions.

Does this hit C-corps?

No. The PTET regime applies only to partnerships and S-corps that elect into it. C-corps file the standard NYC General Corporation Tax (GCT) and are unaffected by this proposal.

How fast will Albany decide?

Each extender has been week-to-week. A real budget could land any day; or it could slip into mid-May. The firm will update clients when there is something definitive to update on.

Does the firm think the 75% number sticks?

Probably not at exactly 75%. A compromise around 85–90% is more likely if a cut happens at all. But the direction of travel is clearly down from 100%, and clients should plan for a partial cut as the base case.

Source

Joint statement from Mayor Mamdani and Council Speaker Menin on the PTET credit and FY27 budget extender: NYC Council Press Office (April 28, 2026). Background on the existing NYC PTET regime is at the NYC Department of Finance and the NYS Department of Taxation and Finance.