Pass-Through Entity Tax (PTET) allows pass-through entities such as partnerships and S corporations to elect to pay state taxes at the entity level. This election can be beneficial as it allows the entity to bypass the $10,000 state and local tax (SALT) deduction limit imposed on individual taxpayers by federal law. Here’s a breakdown of how PTET works and the key dates and requirements for Virginia, Maryland, and West Virginia.
What is PTET?
PTET is a way for pass-through entities to handle their state tax responsibilities more efficiently. When the entity pays the tax, the entity can deduct the state taxes paid at the entity level, where if paid at the individual level, the Federal government caps the deduction to $10,000. Different states have different rules for how to choose the PTET option, and not all owners may qualify for the PTET deduction. For more information, we suggest you reach out to your YHB team member or our SALT specialists.
Benefits of PTET
The Pass-Through Entity Tax (PTET) offers significant advantages, particularly in bypassing the federal $10,000 SALT deduction cap. By paying state taxes at the entity level, these taxes become fully deductible business expenses on the federal tax return, potentially lowering federal taxable income. Additionally, owners receive state tax credits on their personal returns for their share of PTET, which offset individual state tax liabilities.
PTET Breakdown by State:
Virginia:
- Election Deadline: Extended Due Date of the Return
- Quarterly Payments: March 15, June 15, September 15, December 15
Maryland:
- Election Deadline: First payment made to Maryland
- Quarterly Payments: April 15, June 15, September 15, January 15
West Virginia:
- Election Deadline: March 15, 2024, with an extension through September 15
- Quarterly Payments: April 15, June 15, September 15, December 15
Action Steps for Entities:
- Consult Your CPA: Determine if PTET election is beneficial for your entity.
- Make the Election: File by the required deadlines for your state.
- Schedule Payments: Note the quarterly estimated payment dates.
- File Returns: Ensure annual returns and extension requests are submitted timely.
Staying informed and proactive about these deadlines will help maximize the benefits and avoid penalties. For further assistance or to discuss your specific situation, please contact your YHB team.
