PTET glossary
Every term used on PTETmap, defined plainly, with primary-source pins where they exist. Bookmark this page; tax glossaries tend to drift over time and we maintain ours as part of the annual content review cycle.
Pass-Through Entity Tax (PTET)
State-level workaround to the federal SALT cap.
An election by which a pass-through entity (S-corp, partnership, or LLC taxed as either) pays state income tax at the entity level. The entity-level tax is deductible at the entity level for federal purposes under IRS Notice 2020-75, bypassing the IRC §164(b)(6) cap on individual SALT deductions. Owners receive a state-level credit to avoid double taxation.
SALT cap (IRC §164(b)(6))
Federal cap on individual State And Local Tax deductions.
Introduced by the Tax Cuts and Jobs Act of 2017, originally $10,000 joint/single ($5,000 MFS). Raised by OBBBA July 2025 to approximately $40,000 joint with a $500,000 MAGI phaseout to a $10,000 floor for tax years 2025–2029; cap reverts to $10,000 in 2030. PTET workaround was explicitly preserved by OBBBA.
Notice 2020-75
IRS guidance blessing entity-paid state tax as federally deductible.
Issued November 2020, the notice confirms that "Specified Income Tax Payments" paid by a partnership or S-corp at the entity level are deductible at the entity level — not subject to the owner-level SALT cap. This is the federal blessing that made every state PTET regime possible.
IRC §199A QBI deduction
20% federal deduction on Qualified Business Income.
A 20% deduction on qualified business income from pass-through entities, subject to taxable-income, specified-service-trade-or-business, and W-2-wage limitations. PTET reduces the §199A QBI base because state tax paid at the entity level lowers ordinary business income; the picker subtracts the QBI offset from the gross federal benefit.
Qualified Business Income (QBI)
The base on which the §199A 20% deduction is computed.
Net amount of qualified items of income, gain, deduction, and loss from any qualified trade or business. Generally excludes investment income, reasonable compensation, and guaranteed payments. PTET paid at the entity level reduces QBI proportionally.
K-1 (Schedule K-1)
Owner-level federal tax form reporting share of entity income.
Issued by partnerships, S-corps, and trusts to report each owner's share of income, deductions, credits, and basis adjustments. Multi-state pass-through entities issue K-1s with state-specific apportionment schedules; PTET elections appear on K-1 line items relevant to the state credit and the federal entity-level deduction.
Composite return
Single state return filed by an entity on behalf of non-resident owners.
Many states permit a pass-through entity to file one state return covering all non-resident owners, paying state tax at the owner level on their behalf. Composite tax is NOT entity-level for federal purposes — it remains owner-level SALT subject to the cap. PTET stacks on top of composite filing in most states; a few force-out the entity from composite when PTET is elected.
BAIT (NJ Business Alternative Income Tax)
New Jersey's name for its PTET regime.
N.J.S.A. 54A:12-1 et seq. Graduated rates from 5.675% to 10.9% on entity-level qualified income. Refundable credit at the owner level against NJ Gross Income Tax. One of the earliest enacted PTET regimes (2020).
Refundable credit
State tax credit that produces a cash refund if it exceeds tax owed.
A state credit that the owner can claim fully against personal income tax — if the credit exceeds the owner's state tax liability, the state refunds the difference. Most states with PTET grant refundable owner credits (NY, NJ, IL, MA). California's credit is partial-refundable with reduction-for-unpaid-share penalty.
Non-refundable credit
State tax credit limited to the owner's actual tax liability.
The owner can offset state tax owed but cannot receive a refund for unused credit. Hawaii is a notable PTET state with a non-refundable owner credit — a meaningful trap relative to peer states.
Carry-forward credit
Unused state credit that may be applied to future tax years.
Some states permit owners to carry forward unused PTET credit. Carry-forward has time-value-of-money discount relative to refundable; the picker uses a 0.6 capture multiplier for carry-forward-only states.
Qualified net income
State-defined PTET tax base.
Each state defines its PTET tax base independently. Generally: each owner's pro-rata share of ordinary business income, plus or minus state-specific adjustments and apportionment. California's qualified net income reflects each consenting owner's distributive share; New York uses its own net income definition.
Apportionment
Method of dividing pass-through income across states.
Multi-state pass-through entities apportion income across the states where they have nexus (typically by sales, payroll, and property factors). Each state's PTET applies only to its apportioned share. The picker uses owner-reported per-state allocation as a stand-in for entity-level apportionment.
Basis adjustment
Change in owner's stock or partnership basis.
When a pass-through entity pays a deductible expense (like PTET), the owner's stock basis (S-corp) or outside basis (partnership) reduces by the share of that expense under IRC §1366/1367/705. Basis tracking matters for distribution and loss-limitation analyses.
OBBBA (One Big Beautiful Bill, July 2025)
2025 reconciliation bill that raised the SALT cap and preserved PTET.
Signed in July 2025. Raised the SALT cap from $10,000 to approximately $40,000 joint with $500,000 MAGI phaseout to a $10,000 floor for tax years 2025–2029; cap reverts to $10,000 in 2030. PTET workaround explicitly preserved. For high-bracket pass-through owners above the phaseout, PTET economics still hold.
TCJA (Tax Cuts and Jobs Act, 2017)
Federal tax reform that introduced the SALT cap.
Public Law 115-97, signed December 2017. Among many provisions, added IRC §164(b)(6) limiting individual SALT deductions to $10,000 ($5,000 MFS). The SALT cap was the trigger for state PTET regimes.
SSTB (Specified Service Trade or Business)
Category of pass-through that loses §199A QBI deduction at high income.
Health, law, accounting, consulting, athletics, financial services, brokerage, and any trade where the principal asset is the reputation or skill of one or more employees/owners. Above the §199A income thresholds, SSTB owners phase out of the QBI deduction. PTET's QBI offset becomes proportionally less painful when QBI is already phased out.
NYC PTET
New York City's parallel city-level PTET regime.
NYC Administrative Code §11-1901 et seq. Separate, parallel election under NY State PTET. 3.76% flat rate on city-source income of consenting NYC-resident owners. Stacks on top of NY State PTET — picker treats NYC as a separate allocation row.
Stacking
Combining multiple PTET elections on the same income stream.
NYC PTET stacks on top of NY State PTET — high-bracket NYC-resident pass-through owners benefit from both. The picker's stacking-hint feature surfaces this opportunity when only NY State is selected.