Georgia SALT Tax Cap: PTE Workaround, Election, and Payoff

The Georgia SALT tax cap is the federal limit on how much state and local tax a Georgia filer can deduct on a federal return. For 2026, that cap is $40,400 for single filers, heads of household, and married couples filing jointly, and $20,200 for married filing separately. Georgia business owners who still owe more than they can deduct have a workaround: a pass-through entity (PTE) tax election that moves the state income tax off the personal return entirely.

What the Cap Is in 2026

The One Big Beautiful Bill Act replaced the old $10,000 limit with a $40,400 cap for most filers in 2026. Both the cap and the income threshold rise by one percent each year through 2029. After that, the cap drops back to $10,000.¹

Higher earners lose part of the increase. If your modified adjusted gross income exceeds $505,000 in 2026 ($252,500 if married filing separately), the $40,400 cap shrinks by 30 cents for every dollar over the threshold. The phase-down stops at $10,000, so even top earners keep that floor.¹

The Georgia PTE Workaround

Georgia’s pass-through entity tax election lets an S-corporation or partnership pay Georgia income tax itself instead of passing the liability through to its owners. The entity then deducts that payment as an ordinary business expense on its federal return. Business expenses are not subject to the SALT cap, so the deduction is uncapped.²

Georgia enacted the option through House Bill 149 and refined it in House Bill 1291, codified at O.C.G.A. § 48-7-21. The electing entity pays at the individual rate, which is 5.19 percent under Georgia’s flat tax structure for 2026.³⁴

The election is voluntary and made fresh each year. Once the filing deadline passes, it is irrevocable for that tax year.⁵

Who Can Elect

Two entity types qualify, with different ownership rules:

S-corporations can elect only if the entity is 100 percent directly owned and controlled by persons eligible to be S-corporation shareholders under Section 1361 of the Internal Revenue Code. That means individuals, certain estates, and qualifying trusts.
Partnerships and multi-member LLCs taxed as partnerships have qualified since January 1, 2023, regardless of who owns them. Before that date, the same 100-percent-eligible-owner rule applied.

Single-member LLCs that are not taxed as a partnership or S-corporation cannot elect. An S-corporation with a corporate shareholder or an ineligible trust as an owner is also locked out, while a partnership with the same ownership makeup can still elect today.⁵³

How to Make the Election

There is no separate election form. S-corporations check a box on Form 600S and complete the applicable schedules. Partnerships do the same on Form 700. The election must be made by the due date of the entity’s income tax return, including approved extensions. A late election is rejected, and the full state tax liability snaps back to the individual owners for that year.⁵³

Georgia law leaves it to the entity to decide how to obtain owner consent, but the election binds all owners once made. Documenting the decision in company minutes or a written resolution is a practical safeguard.

Quarterly Estimated Payments

An electing entity owes quarterly estimated tax in the same manner as a C-corporation. Payments go in on Form 602-ES or through the Georgia Tax Center. Missing or underpaying installments triggers a penalty calculated on Form 600 UET.⁵

Estimates that owners already paid personally cannot be shifted to the entity. If owners paid individual estimates all year and the entity elects at filing time, the entity is still measured against its own payment schedule when the underpayment penalty is calculated.⁵

How Owners Clear the Income From Their Georgia Return

Once the entity pays Georgia tax on the income, the owners remove that same income from their Form 500 so it is not taxed twice. Owners enter their share on Schedule 1, Line 12 using the description “PTEDED” to subtract it. For a loss year, owners add their share on Schedule 1, Line 5 using “PTEADD.”⁵

Owners do not receive a Georgia tax credit for the entity-level payment. The Georgia Department of Revenue has stated this directly: the mechanism is an income exclusion, not a credit.⁵

Does the Election Still Pay Off at the Higher Cap?

It depends on income. If your total state income, property, and sales taxes stay under $40,400 and your modified adjusted gross income stays below $505,000, you can likely deduct everything on your personal return and the election adds complexity for no benefit.

The math shifts above $505,000. The $40,400 cap starts shrinking at that point, and at high enough income the available deduction is back at $10,000. High-earning S-corporation shareholders and partners in profitable partnerships owe the most Georgia income tax and gain the most by moving it to the entity level, where no cap applies.¹

Run the numbers with a tax professional before electing. The value changes year to year as Georgia’s flat rate continues to adjust and as the federal thresholds step up by one percent annually through 2029.

1
Office of the Law Revision Counsel. 26 USC 164 – Taxes
2
Internal Revenue Service. Forthcoming Regulations Regarding the Deductibility of Payments by Partnerships and S Corporations for Certain State and Local Income Taxes
3
Justia Law. Georgia Code 48-7-21 – Taxation of Corporations
4
Georgia Department of Revenue. Important Tax Updates
5
Georgia Department of Revenue. HB 149 Pass-Through Entity Tax FAQ