Virginia pass-through entity tax (PTET)

A qualifying pass-through entity elects each year to pay Virginia income tax on behalf of its owners at a rate of 5.75%. Each owner receives a credit on their Virginia return for their share of the tax the entity paid.

The main reason businesses elect is federal. Individuals can deduct only a capped amount of state and local taxes on their federal returns. Tax paid by the entity is generally deducted at the business level, so the election can lower the owners' federal taxable income. The federal SALT cap is $40,000 for 2025 and $40,400 for 2026, with a reduction for higher incomes, and the 2025 federal law did not restrict entity-level state tax payments.

S corporations, partnerships and LLCs taxed as either can make the election if they meet Virginia's definition of a qualifying pass-through entity. Eligibility and which owners receive the credit depend on who the owners are, such as individuals, estates, trusts or other entities, so confirm it before you make the first payment.

• Form 502PTET is due the 15th day of the 4th month after year end: April 15 for a calendar-year entity.
• The filing is automatically extended, but the extension does not extend the time to pay. Pay the tax by the original due date.
• Estimated payments are required when the entity expects its PTET for the year to exceed $1,000.
• All filings and payments must be made electronically.

The election helps most when owners pay Virginia tax and are already above the federal SALT cap. It can help less, or not at all, when owners don't itemize, live in states that don't credit Virginia's tax, or when the entity has losses. We model the election for each owner before year end, so payments can be made in the year they help most. See year-end tax planning for businesses.