We want to make you aware of an important new Maine tax law signed in April 2026 that may create a meaningful opportunity to reduce your federal income taxes. It’s called the Maine Pass-Through Entity Tax (PTET), and it applies to many of our business clients starting with the 2026 tax year.
What Is It?
If you own a business structured as a partnership, S corporation, or multi-member LLC, you’ve likely to run into the federal cap on personal state and local tax deductions — currently $40,000, and for some high income taxpayers $10,000.
For many business owners, Maine income taxes alone can eat through that cap, leaving significant state taxes with no federal deduction.
The Maine PTET solves this problem. Instead of you paying Maine income taxes on your personal return where the cap applies, your business entity pays those taxes — and deducts them as a business expense with no dollar limit. The income flowing to you on your K-1 is reduced, your federal taxable income goes down, and so does your federal tax bill. Maine then gives you a 90% refundable credit on your state return, so your overall Maine tax burden stays roughly the same.
A Simple Example
Consider a two-owner S corporation with $600,000 in Maine income. Under the PTET, the entity pays approximately $42,900 in Maine tax. Each owner gets a $21,450 federal deduction — with no cap. At a 37% federal rate, that’s nearly $7,900 in federal savings per owner, with a 90% Maine credit largely offsetting the state-level payment. The estimated net benefit: approximately $5,800 per owner, per year. Every situation is different, but this illustrates the potential.
Does This Apply to You?
The PTET election is available if you are an owner of:
· A partnership or multi-member LLC (Form 1065)
· An S corporation (Form 1120-S)
· Any entity where you receive a Schedule K-1
If you file a Schedule C as a sole proprietor, the PTET does not currently apply — but a conversation about your business structure and converting to a pass-through may be an option.
A Few Important Points
· This election applies only to tax years beginning January 1, 2026. There is no retroactive application to prior years.
· The election is made annually and must be evaluated each year.
· Because the law was signed in April, the first year requires careful attention to estimated tax payments — both at the entity level and your personal level. We are already on top of this.
· The benefit isn’t automatic. It requires analysis specific to your situation, including how it interacts with other deductions such as the Section 199A qualified business income deduction. That’s exactly what our team is here to do.
Royer Is Ready to Help.
Our team has been closely tracking this legislation and has thoroughly reviewed the law as enacted. For every client who owns a pass-through business or has the opportunity to convert to a pass through entity, we are proactively evaluating whether the PTET election makes sense for their situation — and we will be in touch directly if we believe it’s a fit for you.
That said, you don’t have to wait. If you’d like to get started on your analysis now or simply have questions about how this applies to your business, please reach out. We would be glad to walk through it with you.
You can reach us at (207) 781-3445 or email mroyer@royer-cpa.com, or schedule time directly at royer-cpa.com/contact.
As always, thank you for trusting Royer with your financial success. We look forward to helping you make the most of this opportunity.
Warm regards,
Michael Royer
Royer Advisors & Accountants 6 Fundy Road, Suite 100 | Falmouth, ME 04105 (207) 781-3445 | info@royer-cpa.com | royer-cpa.com
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This communication is for informational purposes only and does not constitute tax or legal advice. Individual circumstances vary. Please contact us to discuss your specific situation.
