Quick answer: The Virginia pass through entity tax (PTET) lets an S corporation or partnership pay Virginia income tax at 5.75% at the business level, where it is deductible on the federal return without the SALT cap. Owners then claim a refundable Virginia credit for their share. In 2026 Virginia made the election permanent, so it is now a lasting planning tool.
If you own an S corporation, partnership or multi member LLC in Virginia, the pass through entity tax, often called PTET, may lower your federal income tax. Here is how it works and how to tell if it is worth electing.
What the PTET is
Normally, owners of a pass through business pay Virginia income tax on their share of profit on their personal returns. With the PTET election, the business pays that Virginia tax instead, at a rate of 5.75% on the eligible owners’ share of income.
Each owner then claims a refundable Virginia credit for their share of the tax the business paid, so the same income is not taxed twice.
Why it can save federal tax
Individuals who itemize can only deduct a limited amount of state and local taxes on their federal return. For 2026 that cap is $40,400, and it shrinks for higher incomes. When the business pays the Virginia tax, it is deducted as a business expense instead, so it is not limited by the cap.
Read more about the cap in our guide to the new SALT cap.
2026 update: the election is now permanent
The PTET election was originally scheduled to expire after 2026. In 2026, the Virginia General Assembly made the election and the related owner credits permanent. That makes it a dependable planning tool rather than a temporary one.
Who can elect
- Partnerships, LLCs taxed as partnerships and S corporations can elect
- The tax applies only to eligible owners, meaning individuals and certain estates and trusts
- The business must get consent from its eligible owners, and the election then applies to all of them
How and when to elect
- The election is made each year by making an estimated payment, an extension payment or filing Form 502PTET by its extended due date
- Form 502PTET is due on the 15th day of the 4th month after year end, which is April 15 for calendar year businesses
- If the tax is expected to be more than $1,000, estimated payments are due April 15, June 15, September 15 and December 15
- All filings and payments must be made electronically
- The filing deadline can be extended, but the payment deadline cannot
When it is worth it
The PTET tends to help most when:
- Owners itemize and their state and local taxes already exceed the cap
- Owners have higher incomes that reduce the cap
- The business has steady profit and cash to make estimated payments
It may help little or not at all if owners take the standard deduction. It can also affect other calculations, such as the qualified business income deduction, so the decision should be modeled before the fourth quarter.
→Related guideThe 2025 and 2026 SALT Cap: What It Means for Loudoun County HomeownersIt explains the federal SALT cap the PTET works around, including the 2026 limit and the income phase down.Virginia PTET FAQs
Can a single member LLC elect the Virginia PTET?
Generally no. A single member LLC that is disregarded for federal tax purposes is not a pass through entity that can elect, but an LLC that has elected S corporation status can.
Is the Virginia PTET credit refundable?
Yes. If an owner’s share of the credit is more than their Virginia income tax, the excess is treated as an overpayment and can be refunded.
Do I need to elect the PTET every year?
Yes. The election is made annually, so the business decides each year whether it still makes sense based on income, deductions and cash flow.
Can nonresident owners benefit from the Virginia PTET?
Yes. Nonresident owners are covered on their Virginia source share of income, and they can claim the credit on their Virginia return. Their home state may or may not give credit for the tax, so check how it is treated there.
Does the IRS allow the federal deduction for state PTET payments?
Yes. IRS Notice 2020-75 confirmed that state income taxes paid by a partnership or S corporation under an entity level election are deductible by the business and are not subject to the individual SALT cap.
Run the numbers before year end
Our tax planning service models the PTET for each owner so you know whether to elect before the December estimated payment is due. We handle the filing as part of our business tax preparation.
This article is general information and not tax advice for your situation. Tax rules change, so talk with a qualified professional before making decisions.
