California's PTE Elective Tax Is Extended Through 2030: What S Corp and Partnership Owners Should Do

What changed

California's pass-through entity (PTE) elective tax was originally set to end after 2025. SB 132, signed June 27, 2025, extended it to cover the 2026 through 2030 tax years, according to the Franchise Tax Board. The FTB also describes an important change: under the original rules, an entity that missed the June 15 payment could not make the election at all. For the extended years, the election is still allowed, but each owner's credit is reduced by 12.5 percent of the portion of the required June payment that was not paid.

The basic mechanics are unchanged. An eligible S corporation, partnership or LLC taxed as one of those can elect to pay 9.3 percent of its qualified net income to California. Owners who consent then claim a California credit for their share. The June 15 payment is the greater of $1,000 or 50 percent of the prior year's PTE tax, and the election is made on a timely filed original return.

Why it still matters with a higher SALT cap

The PTE exists because the federal deduction for state and local taxes paid by individuals is capped. The 2025 federal law raised that cap. The IRS correction to the 2026 Form 1040-ES puts the 2026 limit at $40,400, or $20,200 for married filing separately, reduced for modified adjusted gross income above $505,000 but never below $10,000. For an owner with large K-1 income who also pays property tax, the cap is often used up quickly, and higher-income owners phase back toward $10,000. State tax paid by the entity is generally deductible by the entity under IRS Notice 2020-75, outside the individual cap, which is the core benefit.

Who in San Diego County should look at it

It is not right for everyone. Owners with lower income who can use the full individual SALT deduction, entities with nonresident or corporate owners, and businesses with tight cash may get little or no benefit.

• Profitable S corporations and partnerships whose owners pay California personal income tax
• Owners with income above the $505,000 SALT phase-down level, where the individual cap shrinks
• Professional firms, contractors, medical and dental practices and real estate partnerships with large K-1 income
• Multi-owner entities, where each owner's consent and situation need to be coordinated

California details to get right

Only owners who are individuals, trusts and estates can generally participate, and each must consent. The credit is applied against the owner's California tax, and unused credit can carry forward for up to five years under FTB rules. Because the election can only be made on a timely filed original return, not on an amended one, the decision belongs in the year-end plan rather than at filing time. Coordinate with California estimated payments too: when the entity pays PTE tax, the owners may be able to reduce their personal estimates.

What to do before year end

1. Project 2026 qualified net income and each owner's federal SALT position, including the $505,000 phase-down.
2. Compare the federal saving with the cash cost and the California credit for each owner.
3. If you plan to elect for 2026, decide whether to pay part of the tax by December 31 so the entity can deduct it in 2026.
4. If the June 15, 2026 payment was missed or short, calculate the 12.5 percent credit reduction before deciding.
5. Collect owner consents and calendar the March 15, 2027 return due date for calendar-year S corporations and partnerships.
6. Plan the June 15, 2027 payment for the 2027 election now.

How Scalesight helps

The PTE decision sits between the business and personal returns, which is why we model it during tax planning and carry it through S corp and partnership tax preparation and each owner's personal return. We run the numbers for each owner before the election is made, so the decision rests on your actual figures rather than a rule of thumb.

Sources

• Pass-through entity elective tax, California Franchise Tax Board, 2026
• Pass-through entity elective tax help, California Franchise Tax Board, 2026
• Correction to state and local income tax deduction amount in the 2026 Form 1040-ES, Internal Revenue Service, 2026
• 2026 Form 540-ES Instructions, California Franchise Tax Board, 2026

This is general information, not tax or legal advice. Tax rules change and the right answer depends on your facts, so talk with a CPA before acting on it.