Maine’s new elective pass-through entity tax, or PTET, creates a potential tax-planning opportunity for qualifying businesses beginning with the 2026 tax year. It also introduces decisions involving estimated tax payments, cash flow, ownership structures, and individual tax planning.
For business leaders, the central question is not simply whether the company qualifies. It is whether making the election will produce a meaningful benefit for the business and its owners in a particular year.
Because the PTET election is made annually, that answer may change as the business’s income, ownership, and tax circumstances change.
In this Maine PTET decision guide:
Maine PTET at a glance
- The election is available for tax years beginning on or after January 1, 2026.
- Qualifying partnerships, S corporations and certain LLCs may elect to pay Maine income tax at the entity level.
- Eligible owners generally receive a refundable Maine tax credit equal to 90% of their share of the entity-level tax.
- The election must be evaluated annually.
- Businesses making the election may need to change how estimated tax payments are made.
- The potential benefit depends on both the business’s circumstances and the individual tax positions of its owners.
How Maine’s PTET works
Owners of pass-through entities generally report their share of the business’s income on their individual income tax returns. They then pay the resulting state income tax personally.
Federal limits on deductions for state and local taxes can prevent some owners from receiving a full federal deduction for those payments.
Maine’s PTET election shifts the payment of eligible state income tax from the individual owners to the business. The business may be able to deduct the tax at the federal level, while eligible owners receive a credit against their Maine income tax liability.
The election is intended to prevent the same income from being taxed twice by Maine. However, the owner credit is generally limited to 90% of the owner’s share of the entity-level tax. That difference must be considered when determining whether the potential federal benefit outweighs the additional Maine cost.
Is PTET worth evaluating for your business?
PTET is not an automatic tax-saving strategy. The potential benefit should be modeled using the circumstances of both the business and its owners.
PTET may warrant closer analysis when:
The business is a qualifying partnership, S corporation or LLC.
The business expects a profitable year and generates substantial taxable income.
Owners are limited in their ability to deduct state taxes on their federal returns.
The potential federal deduction is expected to outweigh the reduction associated with Maine’s 90% owner credit.
Owners reside or conduct business in multiple states.
The business can accommodate entity-level estimated tax payments.
The ownership structure allows the election to be implemented without disproportionate complexity.
PTET may offer less benefit when:
Owners can already deduct their state income taxes without limitation.
The business has lower or unpredictable taxable income.
The potential federal tax savings would not offset the additional Maine cost.
The business has tiered or otherwise complex ownership.
Some owners or members do not qualify for the credit.
The administrative cost would outweigh the potential savings.
As an initial screening point, the election may be less likely to produce a meaningful benefit when taxable income is below approximately $500,000. That is not a universal threshold. Owner circumstances, filing status, other income and deductions can materially change the result.
The analysis should also consider possible effects on other federal tax provisions, including the qualified business income deduction.
Cash flow and estimated payments require immediate attention
The PTET election changes more than the name on the tax payment. It changes who makes the payment and where the cash must be held.
When a business elects PTET, the business generally makes the related estimated tax payments at the entity level. Owners may therefore need to reduce or discontinue the portion of their individual estimated payments associated with income covered by the election.
If owners continue making their customary individual payments while the business also begins making PTET payments, the tax may effectively be paid twice during the year. The owners may ultimately receive refunds when they file their returns, but that money could remain unavailable for months.
From a cash-flow perspective, the business and its owners would have advanced money to the state without receiving an immediate benefit.
Business leaders should coordinate the election with their tax advisors before changing estimated payments. Until the analysis is complete, owners may want to reserve the necessary funds rather than automatically making payments under the prior-year approach.
Multistate businesses and owners
PTET planning can become more complicated when a business operates in multiple states or has owners who live in different states.
Maine’s law allows qualifying owners to receive credit for certain pass-through entity taxes paid to another state. This helps address situations in which income could otherwise be affected by PTET regimes in more than one jurisdiction.
The availability and value of a credit will depend on the entity, the type of tax paid, the owner’s residency and the laws of the other state. Multistate businesses should evaluate these rules before making the Maine election.
This is particularly important for Maine owners of businesses operating in states that already impose or permit an entity-level pass-through tax.
Ownership and choice-of-entity considerations
Maine’s PTET may also prompt a broader conversation about how a business is structured.
A sole proprietor cannot simply make the election in the same manner as a qualifying pass-through entity. In some situations, a business owner may want to evaluate whether operating through a different type of entity would create access to PTET or other tax benefits.
Choice of entity should never be based on PTET alone. Changing a business’s legal or tax structure can affect payroll, self-employment taxes, liability protection, administrative requirements and future ownership plans.
For businesses with multiple or tiered owners, the analysis may be more complex. Only certain qualifying members can benefit, and the value of the election may differ significantly among owners. The operating agreement and allocation provisions may also need to be considered.
What business leaders should do now
Businesses considering the PTET election should begin the analysis before changing their payment practices. The planning process should include the following steps:
- Confirm that the entity and its owners qualify.
- Estimate the business’s 2026 taxable income.
- Compare the potential federal tax benefit with the effect of Maine’s 90% owner credit.
- Consider each owner’s individual tax position, including other income and available deductions.
- Evaluate owner residency, multistate operations and credits for PTET paid to other states.
- Review the effect on estimated tax payments at both the business and individual levels.
- Determine how much cash the business should reserve for entity-level payments.
- Consider whether ownership complexity or administrative requirements could reduce the benefit.
- Revisit the analysis annually before making the election.
A business having a particularly strong or weak year may reach a different conclusion than it did the year before. Changes in ownership, federal tax rules or individual circumstances may also affect the decision.
ARB’s role in moving Maine PTET forward
I began working on Maine’s PTET legislation five years ago because I believed Maine business owners should have access to this important tax-planning opportunity. I, with support from ARB and the Manufacturers Association of Maine, drafted the original language and spent years meeting with government officials, answering technical questions, and advocating for the legislation.
This was a sustained effort, and I could not have pursued it without ARB’s support. The firm gave me the time, flexibility, and encouragement to remain involved throughout the legislative process. More importantly, ARB recognized that this work extended beyond a single piece of legislation, it was an opportunity to support Maine’s business community and help business owners retain more of what they have worked to build.
Now that Maine’s PTET has become law, our focus turns from advocacy to implementation. ARB is ready to help business leaders understand the election, evaluate its potential benefits, and make informed decisions for 2026 and each year thereafter.
Start the analysis
The potential benefit of Maine’s PTET will vary by business and by year. Qualifying does not necessarily mean electing is the right decision.
The analysis should address the potential tax savings, Maine’s 90% credit, owner-level circumstances, estimated payments, cash flow, multistate considerations and administrative complexity.
ARB can perform a focused PTET analysis to estimate the potential benefit, identify necessary cash-flow and estimated-payment changes, and help business leaders determine whether to make the election for 2026.
If your CPA is not discussing Maine PTET with you, now is the time to begin the conversation.
John Hadwen is a Principal at ARB. He specializes in providing individuals and businesses with comprehensive tax compliance and consulting services related to closely-held business, manufacturing, construction & real estate, and professional services firm taxation.
