- Lawmakers within the Republican party have differing views on the federal SALT deduction cap and its potential extension beyond December 31, 2025.
- State PTET elections to skirt the cap would reduce revenues to the federal government by an estimated $200 billion, prompting some legislators to consider legislating against the state workarounds.
- To help navigate the uncertain future of state PTET elections, this article provides a few considerations you should think about as some states’ elections and payments are coming due.
The Tax Cuts and Jobs Act of 2017 (TCJA), passed during the first Trump administration, introduced a $10,000 cap on the itemized deduction for state and local taxes (SALT) to individual taxpayers. Subsequently, 36 states enacted laws that provided workarounds to the cap. While the details of such laws vary from state to state, in general, the laws allow pass-through businesses to pay and deduct state taxes without a predetermined limit. These deductions can reduce taxable income to the business’ owners and thereby reduce their federal tax liabilities, similar to the benefit the itemized deduction provided before the TCJA capped the deductible amount. These state workarounds have collectively been referred to as pass-through entity taxes (PTET). The benefit isn’t available to all taxpayers though, only to those who own pass-through businesses. Employees, for example, are still subject to the cap as they do not own a pass-through entity where they can deduct the state payments.
As most of the TCJA provisions are coming to an end this year, Republican lawmakers and the presidential administration are weighing their options on the act’s extension or potential permanency. The SALT cap is one of the provisions that must be extended or allowed to sunset. The SALT cap has taken a prominent seat in the TCJA extension debate for a couple of reasons.
First, the provision is widely unpopular among congressional representatives from high-income tax states, many of whom campaigned on eliminating the cap. During a January hearing of the tax-writing House Ways and Means Committee, SALT Caucus member Nick LaLota (R-NY) reminded the committee that in 2017, the TCJA passed with 12 Republican members voting no, and only two or three no votes would sink its extension.
Second, the cap generates a significant amount of revenue. Eliminating or increasing the cap would reduce revenue currently offsetting the ample tax breaks provided by the TCJA. According to the Committee for a Responsible Federal Budget (CRFB), failing to extend the cap would increase the cost of extending the TCJA by $1.2 trillion through 2035.1 Proponents of a SALT cap also argue that its termination would only benefit high-income earners and subsidize high tax states.
The SALT cap debate may end in a compromise where the cap is increased but not fully lifted. In what may be a road map, Rep. Mike Lawler (R-NY) introduced the SALT Fairness and Marriage Penalty Elimination Act in January 2025. The legislation would increase the cap to $100,000 for single filers and $200,000 for couples filing jointly. The congressman stated, “While a full repeal of the SALT cap remains my ultimate goal, seeing the SALT Fairness and Marriage Penalty Elimination Act signed into law would deliver immediate relief for the state of New York.”
Differing State PTET Regimes
While the states generally have similar PTET regimes that allow pass-through entities to elect and pay state taxes at the entity level, they vary in the timing of such elections and when payments are due. For example, for New York, the election must be made by March 15 of the taxable year, whereas for Connecticut, the election is made by the due date of the tax return, including extensions. In other words, for New York an election into PTET for 2024 is made by March 15, 2024 but for Connecticut, the taxpayer would have until March 15, 2025 (or September 15, 2025 if extending) to make the election. California requires the election to be made when the tax return is filed, and a payment must be made by June 15 of the year the election applies.2
Furthermore, the states vary in the duration of their PTET regimes. States like Arizona, Illinois, and Michigan have tied the workaround to the federal SALT cap. When the SALT cap terminates, so does the availability of the state’s PTET election. States like Alabama, New York, and Oklahoma are not tied to the federal cap and may continue beyond the federal cap sunset.
Insight from Forvis Mazars: Even if the federal SALT cap does expire, it may be to the benefit of the taxpayer to continue making state income tax payments at the pass-through entity level if allowed by the state. A careful analysis should be made when considering doing so.
When the SALT cap was originally enacted as a part of the TCJA, Congress did not envision—or at least did not proactively legislate against—the states’ workarounds. The PTET regimes are estimated to reduce revenues from an extension of the SALT cap by about $200 billion.3 This is a significantly high enough number that some members of Congress want to prevent the federal deduction of PTET payments.
Uncertainty in 2025
The debate surrounding the federal SALT cap and the future of state PTET elections generates uncertainty for taxpayers who have been taking advantage of the workaround over the past several years. Such taxpayers need to determine—and, in some cases, determine soon—whether to make elections and payments for the 2024 tax year for some states, or for the 2025 tax year for other states. Here are a few things to consider:
- The SALT cap does not expire until after December 31, 2025. While it is possible that Congress could retroactively terminate or raise the SALT cap applicable to tax year 2025 or before, the cost of doing so seems prohibitive. With Congress struggling to find revenue to cover the cost of extending or making permanent the TCJA prospectively, adding a retroactive cost only exacerbates the revenue issue.
- If PTET payments are made for a year that subsequently becomes ineligible, the amount of tax paid to a state would likely not be lost to a taxpayer. The tax held by the state would likely be refunded or credited to other state obligations. In general, it isn’t advisable to allow a government agency to hold on to your cash for longer than needed, so a cost-benefit analysis should be performed to help estimate the impact of a legislative change to 2024 or 2025.
- Keep in mind for the 2025 tax year, if the SALT cap does indeed sunset, cash basis taxpayers should consider if all payments should be made in the 2025 calendar year so that the deduction can be claimed on the pass-through entity’s tax return for 2025.
How Forvis Mazars Can Help
The Washington National Tax Office at Forvis Mazars is closely monitoring the debate and discussion surrounding the SALT cap. To remain apprised of what we are hearing, subscribe to our weekly publication From the Hill and contact our professionals to help you plan for the upcoming changes.
- 1“SALT Deduction Resources,” crfb.org, February 28, 2025.
- 2As of the writing of this article, California Gov. Gavin Newsom has proposed relaxing the rules, allowing taxpayers to make late payments if they do not pay or underpay their PTET liability due by June 15. Rather than lose the PTET election, a penalty would apply to the owners of the pass-through entity and reduce their state income tax credit by 12.5%.
- 3“SALT Cap Expiration Could Be Costly Mistake,” crfb.org, August 28, 2024.