PTET and the SALT Cap: A Freelancer’s Guide to Smarter Tax Strategy

If you’re a freelancer earning income through a business entity and living in a high-tax state like New York, understanding the Pass-Through Entity Tax (PTET) and its role in offsetting federal tax limitations could directly impact your bottom line. This is especially true with the recent passage of Trump’s One Big Beautiful Bill (OBBB) which provides sweeping tax reform and expanded tax advantages at both the state and federal levels. Now is the time for freelancers to explore the benefits of strategic entity structuring and SALT workarounds.

What Is PTET?

The PTET is a state-level workaround created in response to the State and Local Tax (SALT) deduction cap implemented in the 2017 Tax Cuts and Jobs Act. That cap—originally $10,000—limited the amount of state income and property taxes that individuals could deduct on their federal returns, disproportionately affecting freelancers and professionals in high-tax states.

PTET allows eligible pass-through entities, including partnerships and S corporations, to pay state income tax at the business level. Those entity-level taxes are fully deductible on the entity’s federal return. In turn, business owners receive a credit on their personal state income tax return—neutralizing the double-tax effect and helping reclaim deductions lost under the SALT cap.

Who Qualifies?

To benefit from PTET, freelancers must operate through a qualifying entity:

Eligible: Multi-member LLCs, partnerships, and S corporations
Ineligible: Sole proprietors and single-member LLCs (unless they elect S corp taxation)

For freelancers still filing Schedule C returns, shifting to an S corp or partnership could unlock access to these powerful tax-saving provisions.

PTET in New York State: What Freelancers Should Know

New York’s PTET regime is one of the most comprehensive and favorable for freelancers. Designed to help individual business owners in service professions,, in particular, it provides the flexibility and structure needed to maximize federal deductibility and preserve state-level tax credits.

Key Details for New York Freelancers

The following are some of the important points to keep in mind:

Election deadline: March 15 of the tax year. The election is made through the Business Online Services portal and is irrevocable once the first payment is made.
Estimated payments: Must be made quarterly—March 15, June 15, September 15, and December 15. Failure to pay on time may result in penalties.
PTET annual returns: The PTET annual return or extension deadline is March 15 of the following year that the PTET is elected.
Credit and refund rules: The PTET credit is reported on the individual owner’s New York tax return. Excess PTET cannot be distributed to owners and must be refunded to the entity.
New York City (NYC) PTET: If your freelance work involves NYC-based income and you operate through a qualifying entity, the separate New York City PTET may apply, offering additional benefitsThe NYC PTET is an optional tax that city partnerships or city resident New York S corporations may annually elect to pay on certain income for tax years beginning on or after January 1, 2022.
If an eligible city partnership or eligible city resident S corporation (electing entity) elects to pay the NYC PTET, its partners, members, or shareholders may be eligible for an NYC PTET credit on their New York State income tax returns.

Entities must determine whether they’re electing as a standard S corp or a “resident S corporation,” which affects how income is sourced and taxed.

2025 SALT Reform: Expanded Opportunity, but with Limits

With the passage of the OBBB in July 2025, the SALT deduction cap was increased to $40,000 for the 2025 tax year, with a 1% annual increase through 2029. The cap will revert to $10,000 in 2030 unless extended. This expansion provides significant relief—but it comes with important caveats for freelancers detailed below.

Key points to consider when electing the PTET for your freelance business:

You must elect the PTET every year for your freelance business.

If your freelance business involves New York City income and you operate through a qualifying entity, your NYC-based entity can apply for additional PTET benefits.

The PTET election, especially for entities potentially eligible that conduct business in New Yor City (NYC) has to be weighed in consideration of the New York City General Corporation Tax and Unincorporated Business Tax. This may be a complex decision and is best made with the help of an experienced freelance tax professional.

Unlike itemized deductions for state and local taxes under the One Big Beautiful Bill Act, there is no phaseout for the PTET deduction.

Why PTET Still Matters for Freelancers Post-Tax Reform

Despite the expanded SALT cap, PTET remains a critical strategy for freelancers with structured entities. This is because:

PTET payments are fully deductible on federal returns regardless of the SALT cap phaseout.
Freelancers with higher AGI who see diminished SALT benefits can still claim the full PTET deduction through their business entity.
The final 2025 tax bill preserved PTET eligibility for service-based businesses, including design, law, strategy, and accounting—overturning earlier drafts that would have limited it.

Freelancer-Specific Planning Tips

Evaluate your entity structure: Sole proprietorships are excluded from PTET. Consider forming an S corp or partnership to gain eligibility.
Model your tax impact: Compare PTET savings against standard itemized deductions, QBI benefits, and anticipated SALT deductions.
coordinate payments with your CPA: PTET affects quarterly estimates and year-end filing. Planning is key to avoiding penalties and optimizing cash flow.
Be state-specific: If you earn income across multiple states, understand how PTET interacts with allocation and apportionment rules.
Don’t miss the election deadline: PTET is elective and must be chosen annually—missing the window means forfeiting the benefit for that year.

PTET

For freelancers striving to keep more of what they earn, PTET is a tool that blends smart strategy with state-specific leverage. In New York, it’s particularly valuable for self-employed professionals who’ve taken the time to formalize their business and plan proactively. With the new SALT cap expansion in place and PTET fully preserved, the landscape has shifted—but the need for intentional tax strategy is greater than ever.

Whether you’re restructuring your business or refining your tax planning for 2025, PTET may be your key to reclaiming deductions, reducing liability, and elevating your freelance finances. For the most reliable guidance on OBBB tax strategies including the PTET and SALT caps, consult with a tax professional.