Ohio PTET Guide
How to Make an Ohio PTET Election: Form IT 4738, SB 246, and the 3% Rate
Ohio's pass-through entity tax runs at a flat 3%, and you elect it by filing one form, IT 4738. The catch is that a 3% state rate makes the whole thing worth far less than a PTET in a high-tax state. Here is how the election works, when it pays, and the 2026 math on a theoretical Ohio S-corp.
Picture a two-owner engineering firm in Columbus, organized as an LLC and taxed as an S-corp, with $600,000 of income apportioned to Ohio. Both owners already pay well over $40,000 in state and local taxes on their personal returns, so their personal deduction for those taxes is stuck behind the federal SALT cap. The Ohio PTET lets the firm pay Ohio tax at the entity level and deduct it on the business return, where the cap does not reach. That firm is theoretical, not an actual EntityIQ client, but the mechanics below are exactly the ones a real one would face.
What the Ohio PTET actually is
Ohio created its elective pass-through entity tax in 2022 through Senate Bill 246, codified at R.C. 5747.38. It is Ohio's version of the workaround that the IRS blessed in Notice 2020-75, which confirmed that a state income tax paid by a partnership or S-corporation is deductible in computing the entity's federal income and is not subject to the individual SALT cap in IRC §164(b)(6). For tax years beginning in 2023 and later, the Ohio electing pass-through entity tax rate is 3%, tied to the flat rate on taxable business income under R.C. 5747.02(A)(4)(a). The 2022 first-year rate was 5%. So in 2026 an electing entity pays 3% of its Ohio-apportioned qualifying income.
Who can elect, and how
A qualifying PTE is a partnership, LLC, or S-corporation that is not taxed as a C-corporation federally. Sole proprietorships and single-member LLCs reported on Schedule C do not qualify, because there is no separate entity to pay the tax. You make the election by timely filing Form IT 4738, the Electing Pass-Through Entity Income Tax Return. There is no separate one-page election form to mail ahead of time. Filing the IT 4738 is the election, and it is irrevocable for that tax year and binding on every owner. You have to make it again each year you want it.
One feature sets the IT 4738 apart from Ohio's other pass-through returns. The electing entity includes every owner's share of qualifying income, including owners the composite IT 4708 and withholding IT 1140 returns would leave out, such as C-corporation owners. Once the entity elects, the owners do not get to opt out individually.
The deadlines and estimated payments
For a calendar-year entity, Form IT 4738 is due April 15 of the following year, and a valid extension moves the filing deadline to September 15. Estimated payments apply during the year. For tax years beginning on or after January 1, 2026, the estimated payment dates shift to the 15th day of the 4th, 6th, and 9th months of the tax year and the 15th day of the first month after it ends. For a 2026 calendar-year filer that means April 15, June 15, and September 15 of 2026, then January 15, 2027. The change lines Ohio up with the federal quarterly schedule, so the old flat quarterly spacing is gone.
The 2026 math on a theoretical Ohio S-corp
Back to the Columbus firm with $600,000 of Ohio income. If it elects, it pays Ohio $18,000 at the 3% rate and deducts that $18,000 on its federal Form 1120-S. The owners are in the 35% federal bracket, so that deduction is worth about $6,300 in federal tax. Without the election, that same $18,000 of Ohio tax would have shown up on their personal returns, where it sits behind the SALT cap and produces close to nothing. The numbers below are 2026 figures and are rounded. The firm is theoretical.
Theoretical Ohio S-Corp · $600,000 Ohio income
Federal savings from the PTET election
The savings scale with income and with your federal bracket, because the state rate is fixed at 3%. Here is how the same election looks at three income levels for an electing Ohio entity whose owners have maxed their personal SALT cap.
| Ohio income | IT 4738 tax (3%) | Federal bracket | Federal tax saved |
|---|---|---|---|
| $200,000 | $6,000 | 24% | $1,440 |
| $500,000 | $15,000 | 35% | $5,250 |
| $1,000,000 | $30,000 | 37% | $11,100 |
How owners get the money back
At the state level the PTET is designed to be close to a wash. Each owner claims a refundable credit for their proportionate share of the tax on the Ohio Schedule of Credits, so the income is not taxed twice by Ohio. The owner must also add back their share of the tax on the Ohio Schedule of Adjustments, because the entity deducted it in figuring the income that flows through, and that add-back does not qualify for the Business Income Deduction. If the entity overpays, the refundable credit means the extra comes back on the owner's IT 1040 rather than being trapped at the entity level.
Why the Ohio election is worth less than a New York or California one
Ohio individuals already get a break most states do not offer. The Business Income Deduction lets an owner deduct the first $250,000 of business income, or $125,000 if married filing separately, and taxes the rest at that flat 3%. So the state rate the PTET works around is only 3% to begin with, and a chunk of your income may already sit inside the deduction at 0%. Compare that to a New York owner facing rates near 10.9% or a California owner at 9.3%, where the deduction being moved around is three times larger. The whole benefit is federal. Ohio's rate is only 3%, so the deduction you are moving around is small, and the payoff is deducting that 3% tax on the entity's federal return instead of losing it behind the personal SALT cap. That is worth the most to owners with high income and large Ohio profits, and worth little to owners whose personal SALT deductions already fit under the 2026 cap of $40,400.
When it makes sense, and when to skip it
Run the election if your Ohio profit is large, your federal bracket is high, and your personal state and local taxes already blow past the SALT cap so the deduction would otherwise be wasted. Think twice if your Ohio income is modest and mostly covered by the Business Income Deduction, if your total SALT already fits under the $40,400 cap for 2026, or if you have owners whose situations differ, since the election binds all of them and cannot be undone for that year. Because OBBBA lifted the SALT cap for 2026, some owners who benefited from the workaround in earlier years no longer clear the bar, so this is worth rechecking each year rather than setting once and forgetting.
If you want to see whether an Ohio PTET election clears the cost of the extra return for your own numbers, the EntityIQ calculator models the federal deduction against your bracket and your SALT position. For the federal side of the workaround, see our guides on the PTET deduction and the SALT cap workaround and whether the PTET still saves you money in 2026.
This article is educational and is not legal or tax advice. The figures above are 2026 figures, and the entity is theoretical. Ohio revises its forms and estimated payment rules regularly, so confirm the current instructions and consult a qualified CPA before you file Form IT 4738.