Tax

Illinois PTET: SALT Workaround for Illinois Passthroughs

Illinois's Pass-Through Entity Tax election lets passthrough owners deduct state tax federally by paying at the entity level. Here's how Illinois's version works.

By Aparna Devalla, CPA3 min · 5 slidesUpdated June 15, 2026

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Illinois PTET Basics

Illinois personal income tax: 4.95% flat rate, lower than CA or NY but still meaningful at high incomes.
PTET elections let passthrough entities pay Illinois state tax at the entity level, federally deductible.
Federal SALT cap of $10K means without PTET, high-income owners lose deductibility on state tax above the cap.
Election made annually on Form IL-1065 or IL-1120-ST.

Coordination With Other States

Illinois-resident owners with non-IL passthrough income: PTET applies only to the IL-sourced portion. Non-IL income flows through normally.
Non-IL-resident owners of IL passthroughs: get an IL credit, but their home state may or may not give credit for IL PTET. Check home state rules.
Many states with PTET regimes coordinate via reciprocal credit, but not all. Confirm before electing.

Election Mechanics and Documentation

Election is made on the entity's annual return; there's no separate form like California's or New York's.
Election binds for the year; can be made or revoked anew each year.
Document owner consent: Illinois doesn't require formal written consent, but maintaining it is good practice.
PTET balance owed with entity return is in addition to required quarterly estimated payments.
Need help analyzing whether Illinois PTET makes sense for your business? Rubric Financial models PTET for IL-based clients as part of annual tax planning.

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Educational content, not tax, legal, or accounting advice. Confirm with a CPA before acting.

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