The Virginia PTET election lets a qualifying pass-through business pay Virginia income tax at a flat 5.75% at the entity level, and each eligible owner then claims a refundable Virginia credit for their share of what the entity paid. The point is federal: the entity’s payment is a business expense with no dollar limit, so owners effectively deduct their Virginia tax without running into the federal SALT cap. The election is made on Form 502PTET, it is binding for the year, and Virginia has currently extended it only through tax year 2026.
Which Entities and Owners Qualify
Virginia defines a pass-through entity broadly for this purpose. S-corporations, general partnerships, limited partnerships, limited liability partnerships, LLCs, professional LLCs, and business trusts all qualify, as long as the entity is recognized as a separate entity for federal income tax purposes.1Virginia Code Commission. Virginia Code 58.1-390.1 – Definitions
The entity also needs at least one “eligible owner”: a natural person subject to Virginia individual income tax, or an estate or trust subject to Virginia fiduciary income tax.1Virginia Code Commission. Virginia Code 58.1-390.1 – Definitions
Two common setups fall outside the rules. A single-member LLC treated as a disregarded entity for federal tax purposes doesn’t qualify, because it isn’t recognized as a separate entity federally. And an entity owned entirely by C-corporations has no eligible owners, since the credit runs to individuals and fiduciaries, not corporate shareholders.
The 5.75% Rate and What It Applies To
The PTET rate is 5.75% of the entity’s Virginia taxable income, but only the portion attributable to eligible owners.2Virginia Code Commission. Virginia Code 58.1-390.3 – Elective Income Tax on Pass-Through Entities If the entity has a mix of eligible owners and ineligible owners such as corporations, the ineligible owners’ shares stay out of the tax base.
For nonresident eligible owners, the base narrows again to their share of Virginia-source income, adjusted under Virginia’s nonresident modification rules.2Virginia Code Commission. Virginia Code 58.1-390.3 – Elective Income Tax on Pass-Through Entities An entity with owners in several states pays PTET only on the Virginia piece attributable to those nonresidents.
One calculation trap: before computing PTET, the entity must add back any federal deduction it took for state and local income taxes.2Virginia Code Commission. Virginia Code 58.1-390.3 – Elective Income Tax on Pass-Through Entities Other Virginia credits and deductions still apply to the final tax amount.
How to Make the Election
The election is made by filing Form 502PTET, which serves as both the election document and the entity’s PTET return. An electing entity files 502PTET in place of the regular Form 502 partnership or S-corporation return. The election is binding for the entire taxable year, so it isn’t something to try tentatively and back out of later.3Virginia Department of Taxation. 2025 Form 502PTET Instruction Package
The return must be filed electronically. Virginia does not accept paper 502PTET filings. Calendar-year filers have an April 15 deadline; fiscal-year filers use the 15th day of the fourth month after their year-end. Virginia grants an automatic six-month filing extension with no application required, pushing calendar-year filers to October 15. The extension covers the return only. Any tax owed is still due by the original April 15 date, and late payment draws penalties and interest.4Virginia Tax. Pass-Through Entities
Estimated Payments During the Year
If the entity expects PTET liability for the year to exceed $1,000, it must make quarterly estimated payments equal to 25% of the expected annual tax.3Virginia Department of Taxation. 2025 Form 502PTET Instruction Package For calendar-year filers, the due dates are:
- First quarter: April 15
- Second quarter: June 15
- Third quarter: September 15
- Fourth quarter: December 15
Fiscal-year filers substitute the 15th day of their fourth, sixth, ninth, and twelfth months. Payments go in electronically using Form PTET-PMT through the Virginia Tax website.
Underpayment triggers an addition to tax at the established interest rate, but Virginia recognizes three safe harbors that can eliminate it: paying at least the prior year’s return amount, paying based on prior-year income at current rates, or paying at least 90% of tax figured on annualized income for the months before each installment date.3Virginia Department of Taxation. 2025 Form 502PTET Instruction Package The prior-year safe harbor is usually the easiest to hit because it requires no forecasting.
What Owners Do on Their Individual Returns
The election pays off when owners file their Virginia returns. The entity reports each eligible owner’s share of the tax it paid on Schedule VK-1, which flows through to the owner’s personal return.3Virginia Department of Taxation. 2025 Form 502PTET Instruction Package Without a VK-1 showing the PTET credit, an owner cannot claim it.
The credit is refundable. If it exceeds an owner’s Virginia liability, Virginia sends the difference back.3Virginia Department of Taxation. 2025 Form 502PTET Instruction Package No portion of the entity-level tax gets stranded. The mechanism works the same for residents and nonresidents, though nonresidents’ credits reflect only their Virginia-source income share.
Federally, the entity-level payment is a deductible business expense that reduces the entity’s federal taxable income before it flows through. Owners then report their distributive share of entity income as usual. The Virginia tax gets deducted at the entity level without eating into the owner’s individual SALT cap.
Is the Election Still Worth It Under the Higher SALT Cap
The PTET began as a workaround for the Tax Cuts and Jobs Act, which capped individual SALT deductions at $10,000 for tax years 2018 through 2025.5Tax Policy Center. How Did the TCJA and OBBBA Change the Standard Deduction and Itemized Deductions The One Big Beautiful Bill Act raised that cap to $40,400 for 2026, with a phase-down for taxpayers whose modified adjusted gross income exceeds $500,000.
The higher cap takes some of the pressure off, but the PTET still helps in two situations: when an owner’s total state and local taxes exceed $40,400, or when income triggers the phase-down that pulls the cap back toward $10,000. The entity-level deduction has no ceiling, so higher-earning owners generally still come out ahead running Virginia tax through the PTET rather than claiming it individually.
The 2026 Sunset
The 2025 Appropriation Act extended the PTET’s expiration from January 1, 2026, to January 1, 2027.6Virginia Department of Taxation. 2025 Legislative Summary Tax year 2026 is covered. Tax year 2027 is not, unless the General Assembly extends the provision again. With the federal SALT cap now higher, the political footing for another extension may shift, so owners relying on the election should watch the 2026 session and plan with a tax advisor for the chance that 2027 returns won’t have this option available.