- Eight years after the passing of the Tax Cuts and Jobs Act (“TCJA”), pass-through entity taxes (“PTETs”) are becoming the norm in most states.
- Nonetheless, state differences and complications for PTET elections persist.
- Minnesota extended its PTET election to include tax year 2026 and 2027.
History of the SALT Cap and PTE Tax Regime
Prior to the passage of the TCJA in December 2017, individual taxpayers who itemized their deductions could deduct certain state and local taxes paid throughout the year from their federal taxable income using the state and local tax “SALT” deduction. There was no dollar limit on the amount that could be deducted. The TCJA included a provision that limited the SALT deduction for all individual taxpayers to ten thousand dollars (the “SALT Cap”). Under the TCJA, the SALT Cap was set to sunset in after 2025.
As a reaction to the SALT Cap, states passed workarounds to provide certain taxpayers relief, known as PTE tax (“PTET”) regimes. These regimes permit pass-through entities (“PTEs”) such as partnerships and S-corporations to pay state tax at the entity level. Paying tax at the entity level provides full entity-level federal deductibility of state taxes, and the entity-level payments generate a credit or deduction at the owner level.
On November 9, 2020, the Internal Revenue Service (“IRS”) issued Notice 2020-75 which solidified an electing PTE’s ability to take a federal deduction for state PTET paid.1 Many states, including Illinois, Utah, Minnesota, California, New York, and Massachusetts, had PTET elections set to sunset for income tax years ending on or after December 31, 2025.
Forvis Mazars Insight: Connecticut was the first state to implement a PTET, most states quickly enacted similar provisions, though each state’s approach came with unique twists. PTET elections proved beneficial for owners of PTEs. Nonetheless, as of the date of this writing, Delaware, Maine, North Dakota, Pennsylvania, Vermont, and Washington D.C. have not passed PTET election legislation although they do impose income taxes on owners of PTEs.
Current State of the SALT Cap and the PTE Regime in States with a Sunset
In July,2025, Congress passed Public Law 119-21, known as the One Big Beautiful Bill Act (OBBBA”). The OBBBA increased the SALT Cap from $10,000 to $40,000 with some conditions. These conditions include increasing the SALT Cap by 1% each year and reducing the SALT Cap back to $10,000 for taxpayers with modified adjusted gross income over $600,000. However, beginning in tax year 2030, the cap will return to $10,000. As a result of this SALT Cap extension, states with a sunset provision were forced to act.
The Illinois legislature recently passed SB 1911 which amends 35 ILCS 5/201 to remove the sunset date for the PTET election.2 This made the PTET election in Illinois permanent.3 The Utah legislature acted in a similar manner by passing HB 0077 to amend Utah Code § 59-10-1403.2(2)(a). This eliminates the sunset date for the PTET election.4 Oregon passed SB 1510 on March 5, 2026, extending its PTET until tax years beginning on or after January 1, 2028.5
Minnesota was the last state to extend its PTET election because of the OBBBA. On May 27, 2026, Governor Tim Walz signed HF 2438, extending the state’s PTET regime to tax years beginning before January 1, 2028.6 The provision is retroactive to January 1, 2026. Minnesota also extended its provision allowing a resident individual to claim a credit for PTET taxes paid to other states at the entity level.7 Additionally, Minnesota provided penalty relief for underpayment of first-quarter 2026 PTET estimated taxes, provided the full amount is paid with the second quarter estimate.8
Other PTET Nuances
California previously required taxpayers to make an estimated payment by June 15th of the tax year to qualify for the PTET election. With the enactment of SB 132, this requirement has changed.9 The legislation removed the June 15th payment requirement as a PTET qualification; however, taxpayers who do not make the estimate payment are penalized by a 12.5% reduction in PTET credit claimed by owners. Additionally, SB 132 extended the PTET sunset date to December 31, 2030.10
Forvis Mazars Insights: The SALT Cap continues to be a highly contentious issue in Congress. There will likely be another fight in 2030 when the SALT Cap is set to reduce back to $10,000. Professionals at Forvis Mazars are familiar with PTET election considerations and will be here to help guide you