SALT Cap vs. PTET Election: Which One Saves S-Corps More in 2026?

The One Big Beautiful Bill Act raised the SALT deduction cap from $10,000 to $40,000 for 2025, climbing to $40,400 for 2026. If you own an S-Corp in a high-tax state, that sounds like good news. It also raises a question we’re hearing from almost every client this year: now that the cap is higher, should we still bother with the Pass-Through Entity Tax (PTET) election?

The short answer is usually yes—but it depends on your income, your state, and how the two options interact.

A Quick Refresher

The SALT cap limits how much state and local tax you can deduct on Schedule A personally. For 2026, that’s $40,400 whether you file single or jointly (married filing separately gets half, $20,200) — but under Section 164(b)(6) it phases down once your modified adjusted gross income passes $505,000 (the 2026 threshold), dropping 30 cents for every dollar over the threshold until it bottoms out at $10,000.

The PTET election works differently. Instead of you paying state income tax personally, your S-Corp pays it at the entity level. Under IRS Notice 2020-75, that payment is a fully deductible business expense, with no SALT cap and no itemizing required. More than 30 states — from New York to California — offer this election, and the OBBBA left it fully intact. Earlier drafts in Congress would have denied the workaround’s benefit to specified service businesses like law and accounting firms, but no PTET restriction made it into the final law. For a state-by-state look at what changed for 2026, see our PTE election strategy guide.

Why the Higher Cap Doesn’t Make PTET Obsolete

A $40,400 cap covers a lot of owners. But three things keep PTET relevant anyway:

The phase-down hits high earners hard. Above a $505,000 MAGI (for 2026), your SALT cap shrinks fast, eventually returning to $10,000—exactly the problem PTET solves.

It interacts with the QBI deduction—in both directions. Because the entity-level tax is deducted before income passes through to you, it reduces your qualified business income, which can shrink your Section 199A deduction. On the other hand, for owners of specified service businesses near the QBI taxable-income phase-out, the lower taxable income can help preserve eligibility. Model both effects before you elect.

The cap is temporary; PTET isn’t. The cap rises about 1% a year through 2029, then reverts to a flat $10,000 in 2030. PTET gives you a planning tool that doesn’t depend on what Congress does next.

When to Run the Numbers

Take a serious look at PTET if you’re above the $505,000 MAGI threshold, live in a high-tax state, typically don’t itemize anyway, or have multiple owners with different income levels—since the benefit doesn’t always land evenly across shareholders. If your state tax bill comfortably fits under $40,400 and your income is well below the phase-out range, claiming SALT directly may be simpler and yield a similar result.

This Isn’t a Rule-of-Thumb Decision

PTET elections happen at the entity level, but the benefit varies by owner, by state, and by how much credit your state actually gives for tax paid. It takes real modeling, not a guess, to know which path wins for your specific numbers.

We work exclusively with S-Corp owners and run this analysis every year as rules change. Schedule a consultation, and we’ll tell you which approach puts more money back in your pocket.