Quick Answer
Currently 29 states plus DC offer PTE tax elections, including major markets like California (9.3% rate), New York (10.3%), and Texas (0.75% margin tax). Each state has different rules - some require minimum income thresholds, others have mandatory vs. optional elections, and rates range from 0.75% to 13.3%.
Best Answer
Priya Sharma, Small Business Tax Analyst
Professional service providers operating across multiple states who need to understand varying PTE rules
States with PTE elections as of 2026
As of 2026, 29 states plus Washington DC have implemented pass-through entity tax elections, though the specific rules, rates, and requirements vary significantly. Understanding these differences is crucial for multi-state consultants and businesses operating across state lines.
Major states and their PTE programs
California (9.3% rate): Optional election for entities with income over $1 million. Refundable credit for owners. Election due by March 15th of the tax year.
New York (10.3% rate): Optional election with no minimum income threshold. Refundable credit. Allows estimated payments throughout the year.
New Jersey (10.75% rate): Optional election with $10,000 minimum payment requirement. Refundable credit for residents, nonrefundable for nonresidents.
Texas (0.75% margin tax): Uses existing franchise tax structure rather than creating new PTE tax. Lower rate but different calculation method.
Illinois (4.95% rate): Optional election with no restrictions. One of the most straightforward implementations.
Complete list of PTE states by region
Key differences between state programs
Mandatory vs. Optional: Most states make the election optional, but a few have mandatory PTE taxes for certain entity types or income levels.
Minimum thresholds: Some states require minimum income ($1M in CA) or minimum payments ($10K in NJ) to participate.
Credit types: Credits may be refundable (can result in refunds) or non-refundable (limited to tax liability). This significantly affects cash flow.
Nonresident treatment: Rules vary widely for how nonresident owners are treated, affecting multi-state partnerships.
Example: Multi-state consulting firm analysis
Your 3-partner consulting firm has offices in California, New York, and Texas, with $1.2M total income allocated as:
PTE election strategy:
States without PTE elections (as of 2026)
Notably absent states include:
What you should do
For multi-state operations, analyze each state separately. The election must typically be made at the entity level and applies to all owners, so one partner in a non-PTE state doesn't prevent the election. Map your income by state, calculate potential savings, and consider compliance complexity. Use our quarterly estimator to model payments across all applicable states.
Key takeaway: 29 states plus DC offer PTE elections with varying rates (0.75%-13.3%) and rules, requiring state-by-state analysis for multi-state entities to maximize tax savings.
*Sources: [Multistate Tax Commission PTE Guide](https://www.mtc.gov/), [IRS Notice 2020-75](https://www.irs.gov/pub/irs-drop/n-20-75.pdf)*
Key Takeaway: 29 states plus DC offer PTE elections with varying rates (0.75%-13.3%) and rules, requiring state-by-state analysis for multi-state entities to maximize tax savings.
PTE election details by major states
| State | PTE Rate | Minimum Threshold | Credit Type | Election Deadline |
|---|---|---|---|---|
| California | 9.3% | $1M income | Refundable | March 15 |
| New York | 10.3% | None | Refundable | March 15 |
| New Jersey | 10.75% | $10K payment | Refundable (residents) | March 15 |
| Connecticut | 6.99% | None | Non-refundable | March 15 |
| Illinois | 4.95% | None | Refundable | March 15 |
| Texas | 0.75% | Margin tax rules | N/A | May 15 |
More Perspectives
Priya Sharma, Small Business Tax Analyst
Solo practitioners who need to understand which states might benefit their specific situation
High-benefit states for freelancers considering S-corp election
While most solo freelancers can't directly use PTE elections, understanding which states offer the best programs helps you evaluate whether converting to S-corp structure makes financial sense.
Top states for potential S-corp + PTE strategy
California: With the highest state income tax rates (up to 13.3%) and a 9.3% PTE rate, the savings potential is substantial. However, California requires $1M+ in income to elect.
New York: 10.3% PTE rate with no minimum income threshold makes it accessible for freelancers earning $150K+. New York City adds additional complexity but also potential savings.
New Jersey: 10.75% PTE rate but requires $10,000 minimum payment, making it viable only for freelancers earning $200K+ annually.
States to avoid for PTE strategy
No-tax states: Florida, Nevada, Tennessee, Texas (income tax), Washington, Wyoming have no need for PTE elections due to lack of state income tax.
Low-rate states: Colorado (4.4%), Illinois (4.95%), and Utah (4.85%) offer minimal federal tax savings that may not justify S-corp compliance costs.
Calculation for freelancer considering S-corp
If you're earning $300,000 as a solo consultant in New York:
This becomes more attractive as income increases above $400,000.
Key takeaway: Solo freelancers should focus on high-tax states with accessible PTE programs (NY, CT, MA) when considering S-corp conversion for PTE eligibility.
Key Takeaway: Solo freelancers should focus on high-tax states with accessible PTE programs (NY, CT, MA) when considering S-corp conversion for PTE eligibility.
Priya Sharma, Small Business Tax Analyst
W-2 employees with freelance partnerships who may work across state lines
PTE considerations for remote workers
As a remote worker with partnership income, your state tax situation can be complex, especially if your W-2 employer is in a different state than your partnership activities or where you physically work.
Common remote worker scenarios
Scenario 1: Live in Florida (no state tax), W-2 from New York company, partnership income from California clients.
Scenario 2: Live in Colorado, W-2 from Texas company, partnership with clients nationwide.
Multi-state compliance complexity
Withholding requirements: Some states require PTE tax withholding for nonresident partners, affecting your quarterly payment strategy.
Apportionment rules: Partnership income may be apportioned across multiple states based on where services are performed, creating complex PTE election decisions.
Credit limitations: Some states limit PTE credits for nonresidents, reducing the benefit of elections in states where you don't live.
Strategic state selection
If you have flexibility in where you establish your partnership (common for remote consulting), consider states with:
Avoid states with mandatory PTE elections or complex nonresident rules that could create unexpected tax obligations.
Key takeaway: Remote workers should prioritize states with clear PTE rules and favorable nonresident treatment, as multi-state compliance can quickly become complex and costly.
Key Takeaway: Remote workers should prioritize states with clear PTE rules and favorable nonresident treatment, as multi-state compliance can quickly become complex and costly.
Sources
- Multistate Tax Commission PTE Guide — Comprehensive guide to state PTE elections
- IRS Notice 2020-75 — Federal tax treatment of state PTE elections
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.