The New York PTET

A way to make your New York business tax deductible again. It saves you nothing in New York — the whole point is federal — and the election has one date a year.

The problem it fixes

Say your business makes money in New York. New York taxes that money, and you pay it. Until 2018 you then deducted every dollar of that state tax on your federal return, so you were not taxed twice on the same income.

That changed. An individual’s deduction for state and local taxes is now capped. The IRS puts the cap at $40,000, and it shrinks as your income rises — though never below $10,000. For anyone with a real business in New York, that cap is used up by the property tax bill before the income tax is even counted. The rest of the state tax you pay is simply not deductible, so you are paying New York with money the federal government taxes too.

The move

Let the business pay the New York tax instead of you.

A tax the business pays is a business expense. It comes off on the entity’s own return, which means it never reaches your Schedule A and the cap never touches it. Your share of the profit is smaller by the amount of the tax, so your federal income is smaller, so your federal bill is smaller. New York then hands you a credit on your New York return for the tax the business paid on your behalf, so New York does not collect it twice.

The part nobody mentions. You have to add that credit back to your New York income on Form IT-225. The credit and the addback cancel each other out, which is the point — New York ends up collecting the same tax it always did. The entire benefit of this election is federal. If you hear it described as a state tax saving, whoever is describing it has it wrong.

And the city has its own

If you live in New York City, the city income tax has exactly the same problem, and since 2022 there has been a second election that fixes it the same way. It is a flat 3.876% — the top city rate — and it is elected at the same moment, in the same place, as the state one. You cannot have it on its own.

The base is narrower, though, and this is where people get the number wrong. The state tax is charged on the whole entity. The city tax is charged only on the slice flowing to partners who actually live in the city. One city partner out of four, and the city base is a quarter of the state base.

Who can elect it is narrower too. A partnership needs at least one partner who is a city resident. An S corporation needs every shareholder to be a city resident, and has to certify that when it elects.

What it is worth

The entity’s New York taxable income

Your top federal rate

Share owned by city residents for the NYC tax

Your own share optional

Put in the entity’s New York taxable income above.

What the state charges the entity
Entity’s New York income	PTET
Up to $2,000,000	6.85%
$2,000,000 to $5,000,000	$137,000 plus 9.65% of the excess
$5,000,000 to $25,000,000	$426,500 plus 10.3% of the excess
Over $25,000,000	$2,486,500 plus 10.9% of the excess
New York City, on the city residents’ share only	3.876%, flat

Splitting a payment

The state tax and the city tax are two separate liabilities with two separate buckets, and New York will not shift money from one to the other once it is in. So if you want to put a round number in before the year end — which is usually how this conversation goes — it has to be divided before you send it, not after.

Total you want to pay in

Fill in the entity’s income above first — the split follows the liability.

Where to do it, and when

All of it happens in one place: the entity’s Business Online Services account at tax.ny.gov. Not your personal account, not your accountant’s. If the business has not got one, the first job is creating it, and that is worth doing in January rather than on 14 March.

1
Log in to, or create, the entity’s Business Online Services account at tax.ny.gov/online.
The person signing in has to be an owner, partner, member or officer. They sign electronically and attest, under penalty of perjury, that they are authorised to bind the entity.
2
From the Account Summary page, open the ≡ Services menu in the top left corner.
3
Choose Corporation tax or Partnership tax, whichever the entity is, then PTET web file from the menu that opens.
4
On the Form Selection page, pick Pass-through entity tax (PTET) annual election.
The New York City election is made here too, in the same run — there is no separate city form and no separate city deadline. If you are entitled to it and you do not tick it now, you have not got it.
5
Come back to the same menu through the year to pay. The Form Selection page carries Pass-through entity tax (PTET) estimated payment, then annual return in March, and Request for six-month extension if you need it.
Payment is by ACH debit through that application only. The state will not take a cheque for this. If the business bank account has an ACH debit block on it, clear that first or the payment will bounce and the date will pass.

The dates, for a calendar-year business
1 January – 15 March	The window to elect for this year. Opens 1 January; nothing before it counts.
15 March	Last day to elect. Also the day last year’s return is due and this year’s first estimated payment.
15 June, 15 September, 15 December	The other three estimated payments.
31 December	The money must actually be paid in by now to deduct it this year. The state stops letting you schedule a payment in advance after 15 December.
15 September, the year after	The extended return deadline, if you asked for the extension by 15 March.

Any of those falling on a weekend or a public holiday moves to the next business day — our due dates tool works out which year does what.

The rules that actually catch people

15 March, and there is no second chance: The election is annual and has to be made between 1 January and 15 March. There is no late election, no relief and no reasonable-cause exception. Miss it and the year is gone — you make it next year instead.
You have to make it yourself: New York does not let a tax professional make this election for a client. It has to be an owner, officer or member, in the entity’s own account, under penalty of perjury. We will tell you when and walk you through it, but we cannot click the button for you.
The money has to be in by 31 December: The deduction follows the payment, not the election. Anything still unpaid at the year end deducts next year instead of this one, which wastes most of the point of electing.
The state and the city become irrevocable at different moments: You can back out of the state election up until the first estimated payment falls due. The city election hardens sooner: it is irrevocable after 15 March, full stop.
Not every partner gets the credit: A corporate partner gets nothing. A partner that is itself a partnership gets nothing and cannot pass it down to its own partners. The credit only reaches people taxed as individuals, so a structure with entities in the middle needs looking at before you elect, not after.
New Jersey has its own, under another name: New Jersey’s version is the BAIT — the Business Alternative Income Tax. Same idea, different rules, different dates. If you have entities in both states they do not move together and we handle them separately.

Who this is for: partnerships, LLCs taxed as partnerships, and New York S corporations. Not sole proprietors, not single-member LLCs that file on your Schedule C, and not C corporations — there is no pass-through income to move. The rates, the dates and the steps above are the Tax Department’s own, from its PTET and NYC PTET pages; the cap wording is the IRS’s. The federal cap steps up about 1% a year and is scheduled to drop back to $10,000 in 2030 unless Congress changes it again, which is the sort of thing that makes a page like this go out of date — ring us before you act on it.