PTET for Orthopedic Surgeons: The SALT Workaround That Still Works in 2026

The OBBBA raised the SALT cap to $40,000 — but it phases out completely at $600,000 MAGI. For every orthopedic surgeon earning above that threshold, the effective individual SALT deduction is still $10,000. Pass-through entity tax (PTET) is the only way to deduct more.

Why the OBBBA SALT increase doesn't help orthopedic surgeons

The One Big Beautiful Bill Act (OBBBA, signed July 2025) increased the individual SALT deduction cap from $10,000 to $40,000 for tax years 2025–2029.¹ For taxpayers in the $200K–$600K income range in high-tax states, this is a meaningful improvement. For most attending orthopedic surgeons, it changes nothing.

The $40,000 cap carries a phaseout: it reduces by 30 cents for every dollar of MAGI above $500,000, with a floor of $10,000.¹ Applying the formula:

The math is unambiguous: once MAGI exceeds $600,000, the SALT cap is fully phased back to $10,000 — identical to the TCJA cap in force since 2018. For orthopedic surgeons earning $600K–$1.5M, the OBBBA SALT increase provides zero benefit. PTET remains essential.

What PTET is and why it works differently

The SALT cap applies to state taxes you deduct on your personal Schedule A. It is an individual limit.

Pass-through entity tax (PTET) shifts state tax payment from the individual to the entity. When a partnership or S corporation makes a PTET election, it pays state income taxes at the entity level. Those payments are deductible as a business expense under IRS Notice 2020-75 (November 2020), which confirmed that state and local income taxes paid by a partnership or S Corp are deductible by the entity when computing its income — without any cap.² The OBBBA did not restrict or alter this treatment; PTET continues to provide an uncapped federal deduction.

The state-level mechanics prevent double taxation: the state gives each owner a refundable or nonrefundable credit on their personal state return for the taxes the entity paid on their behalf. You don't pay the state tax twice; you just move the federal deduction from the capped individual level to the uncapped entity level.

The numbers: what PTET saves at orthopedic surgeon income levels

Consider a joint replacement surgeon with $850,000 in S Corp distributions in a state with a 9% effective rate:

• State income tax on pass-through income: $76,500
• Without PTET — individual SALT deduction: $10,000 (MAGI above $600K, fully phased out)
• With PTET — entity deduction: $76,500
• Additional deduction: $66,500
• Annual federal savings at 37%: $24,605

For a spine surgeon in California with $1.2M in S Corp distributions facing a higher effective state tax rate, the additional deduction scales further. The PTET benefit tracks linearly with state tax burden — higher state rates and higher income produce larger savings, and the individual SALT cap is capped at $10,000 regardless of either.

PTET savings estimator

Enter your pass-through income, state effective income tax rate, and total household MAGI to estimate annual federal tax savings from a PTET election versus the individual SALT deduction.

Which states have PTET in 2026

As of 2026, 36 states plus New York City have enacted PTET regimes following IRS Notice 2020-75.³ Most high-population states where orthopedic surgeons practice in significant numbers have active PTET laws:

How the PTET election works for S Corp practice owners

Most private practice orthopedic surgeons operate through a professional corporation (PC) or professional limited liability company (PLLC) that has elected S Corp tax treatment. For these entities, the PTET election process follows these steps:

1. Annual election: The S Corp makes a PTET election with the state, typically by March 15 of the tax year for which it applies. Most states require an affirmative annual election — it does not carry over automatically.
2. Estimated PTET payments: Many states require estimated PTET payments during the year (quarterly or a lump-sum by the election deadline) to preserve the deductibility of the full amount paid.
3. Entity-level deduction: The PTET payment reduces the S Corp's federal taxable income as a business deduction. This reduced income flows through to you on your K-1 — your K-1 income is lower by the PTET amount your entity paid.
4. Personal state credit: Your individual state return shows a credit (refundable or nonrefundable depending on the state) for the PTET paid on your behalf. You don't pay state income taxes twice — you just moved the deduction from the individual SALT-capped level to the uncapped entity level.
5. Net federal result: You deduct the full state income tax at the entity level, rather than the $10,000 SALT cap at the individual level. The difference, multiplied by your marginal federal rate, is your annual PTET savings.

Partnerships and multi-physician group practices

Partnership-structured groups (LLPs, multi-member LLCs taxed as partnerships) follow similar mechanics. The election is made at the entity level, the partnership pays PTET on its partners' allocable income, and each partner receives a K-1 credit for their share. Multi-surgeon groups with partners in different income tiers need to coordinate the election carefully — the PTET credit benefits all partners, but the marginal tax savings differ by individual income level. An orthopedic group with a mix of senior partners (37% bracket) and junior associates (35% bracket) still benefits uniformly, but the per-dollar savings differ slightly.

PTET and § 199A QBI: the interaction most ortho surgeons can ignore

When a PTET election reduces entity-level income, it also reduces that entity's qualified business income (QBI) for § 199A purposes. In theory, this could lower any QBI deduction at the individual level.

In practice, this doesn't matter for most orthopedic surgeons: medical practices are classified as Specified Service Trades or Businesses (SSTBs), and the § 199A deduction phases out completely above $272,300 (single) / $544,600 (MFJ) under OBBBA 2026 rules.⁴ Orthopedic surgeons above these thresholds receive $0 QBI deduction on medical practice income regardless of PTET, so reducing QBI through PTET has zero additional cost.

Exception: very early-career residents, fellows, or first-year attendings with income below the phase-out threshold who have a side business (expert witness, device consulting) classified as non-SSTB might be affected. This is a narrow edge case worth a conversation with a CPA but not a reason to avoid PTET at attending income levels.

Common PTET mistakes orthopedic surgeons make

• Missing the March 15 election deadline. The single most common and costly error. No election = no entity-level deduction for the full year. Calendar this now for 2027.
• Skipping estimated PTET payments. Some states require quarterly estimated payments or a lump-sum prepayment by the election deadline to lock in the full deduction. Paying only at year-end can limit the deductible amount.
• Assuming PTET auto-renews. Most states require an annual affirmative election. Year-over-year automatic renewal is uncommon; confirm each year with your CPA.
• Not verifying your state's current PTET status. State PTET provisions can sunset or change mid-cycle. Illinois nearly lost its PTET for 2026 before the legislature permanently extended it. Verify at the start of each year.
• Ignoring PTET because of the OBBBA SALT increase. The $40,000 SALT cap is entirely phased out above $600K MAGI. At orthopedic surgeon income levels, PTET is still the primary state tax optimization lever — don't conflate the individual cap increase with a reduced need for entity-level planning.
• Working with a generalist CPA not current on PTET. Not all CPAs have stayed current on state PTET laws, election mechanics, credit reconciliation, or the interaction with S Corp reasonable compensation and estimated tax calculations. See the CPA selection guide for what to look for and how to evaluate ortho-specialist CPAs.

PTET and your broader tax picture

PTET doesn't operate in isolation. For private practice orthopedic surgeons, it stacks with other entity-level strategies:

• S Corp FICA savings: Your S Corp structure already saves $15,000–$40,000/year in Medicare and Social Security payroll taxes on distributions. PTET adds a second layer of federal savings on top. See the S Corp and FICA savings guide for the FICA math.
• Retirement plan deductions: A 401(k) with profit sharing and cash balance plan can reduce entity taxable income by $100,000–$300,000/year. This reduces both S Corp income and PTET base. The ordering (retirement contributions first, PTET second) generally produces the maximum overall deduction.
• § 199A: As discussed above, irrelevant for most attending orthopedic surgeons above the SSTB phaseout thresholds.
• QOZ and practice sale planning: If you're planning a practice sale or ASC buyout, the sale year is typically the highest-income year of your career. A pre-sale PTET election in the sale year can generate a very large entity-level deduction on a correspondingly large state tax bill.

Who benefits most from PTET

PTET is most valuable when three conditions apply simultaneously:

1. Your state has an active PTET regime (36+ states — not Texas, Florida, or other zero-income-tax states).
2. Your practice income flows through an S Corp or partnership — not as W-2 from a hospital employer.
3. Your MAGI exceeds $600,000, fully phasing out the individual OBBBA SALT benefit.

If all three apply — which describes most private practice orthopedic surgeons in high-tax states — PTET is among the highest-ROI tax strategies available. The typical annual federal savings ($15,000–$45,000 depending on income and state) compound to $75,000–$225,000 over five years of peak earning.

Hospital-employed orthopedic surgeons receiving primarily W-2 income don't have a PTET lever. See the hospital-employed surgeon financial planning guide for W-2-specific strategies including the 403(b)/457(b) double stack and PSLF eligibility.