Quick Answer
As of 2026, 33 states plus D.C. offer pass-through entity tax (PTET) elections that allow LLCs and S-corps to deduct unlimited state taxes at the entity level, bypassing the $10,000 SALT cap. This can save high-earning freelancers $2,000-$15,000+ annually in federal taxes.
Best Answer
Priya Sharma, Small Business Tax Analyst
Best for consultants earning $150,000+ who hit the SALT deduction cap
Which states offer PTET elections?
As of 2026, 33 states plus Washington D.C. have enacted pass-through entity tax (PTET) elections. These allow LLCs and S-corporations to elect to pay state income tax at the entity level, creating a federal business deduction that bypasses the $10,000 state and local tax (SALT) deduction cap.
States with PTET elections include:
How much can you save with a PTET election?
The savings depend on your income level and state tax rate. Here's how it works:
Example: $300,000 consulting income in New York
Key requirements and considerations
States NOT offering PTET elections
Notably absent from the list:
What you should do
If you're a freelancer or consultant earning over $150,000 in a PTET state:
1. Evaluate entity conversion: Consider forming an LLC or electing S-corp status if you're currently a sole proprietor
2. Calculate potential savings: Use our quarterly estimator to model PTET benefits for your specific situation
3. Plan for estimated payments: PTET elections often require quarterly estimated payments at the entity level
4. Coordinate with tax preparation: Ensure your tax preparer understands PTET elections and can file the necessary forms
Key takeaway: PTET elections are available in 33 states plus D.C. and can save high-earning freelancers $2,000-$15,000+ annually by allowing unlimited state tax deductions at the entity level, but require LLC or S-corp structure.
*Sources: [IRS Notice 2020-75](https://www.irs.gov/pub/irs-drop/n-20-75.pdf), [IRS Publication 535](https://www.irs.gov/pub/irs-pdf/p535.pdf)*
Key Takeaway: PTET elections in 33 states plus D.C. can save high-earning consultants thousands annually by bypassing the $10,000 SALT cap, but require LLC or S-corp structure.
States with PTET elections and their key features
| State | Tax Rate | Election Deadline | Minimum Threshold |
|---|---|---|---|
| California | Up to 13.3% | March 15 | No minimum |
| New York | Up to 10.9% | March 15 | No minimum |
| New Jersey | Up to 10.75% | Due date of return | No minimum |
| Connecticut | Up to 6.99% | March 15 | No minimum |
| Illinois | 4.95% flat | March 15 | No minimum |
More Perspectives
Priya Sharma, Small Business Tax Analyst
Best for freelancers considering entity structure changes
Should freelancers consider PTET elections?
For full-time freelancers currently operating as sole proprietors, PTET elections present both an opportunity and a complexity. The decision hinges on whether the tax savings justify the additional entity compliance costs.
Income threshold analysis:
Most freelancers benefit from PTET elections once they exceed $150,000-200,000 in annual income, depending on their state's tax rate. Below this threshold, the SALT cap typically doesn't affect them.
Entity formation considerations:
Geographic arbitrage freelancers:
If you're a freelancer who can work from anywhere, PTET availability might influence your state residency decision. States like Texas and Florida (no income tax) don't need PTET, while high-tax states like California and New York make PTET elections very valuable.
Key takeaway: Freelancers earning $150,000+ should evaluate LLC formation for PTET benefits, but factor in $1,000-3,000 annual compliance costs when calculating net savings.
Key Takeaway: Freelancers earning $150,000+ should evaluate LLC formation for PTET benefits, but factor in $1,000-3,000 annual compliance costs.
Priya Sharma, Small Business Tax Analyst
Best for remote W-2 employees with freelance side income
PTET elections for remote workers with side hustles
Remote workers who freelance on the side face unique PTET considerations, especially regarding state tax obligations and entity structure decisions.
Multi-state complications:
If you're a remote W-2 employee in one state with freelance clients in PTET states, you'll need to:
Income splitting strategy:
Remote workers often have mixed W-2 and 1099 income. With a $100,000 W-2 job and $75,000 freelance income, only the freelance portion could benefit from PTET elections through an LLC structure.
State residency optimization:
Some remote workers relocate to states with favorable tax treatment. However, PTET elections might make high-tax states more palatable:
Compliance complexity:
Remote workers must track:
Key takeaway: Remote workers should evaluate PTET benefits only for their freelance income portion, considering multi-state tax compliance complexity and their total tax picture.
Key Takeaway: Remote workers should evaluate PTET benefits only for their freelance income portion, considering multi-state compliance complexity.
Sources
- IRS Notice 2020-75 — Clarification of the deductibility of state and local income taxes paid by partnerships and S corporations
- IRS Publication 535 — Business Expenses
Related Questions
Reviewed by Priya Sharma, Small Business Tax Analyst on February 28, 2026
This content is for educational purposes only and is not a substitute for professional tax advice. Consult a qualified tax professional for advice specific to your situation.