NJ BAIT: Should Your S Corp or Partnership Elect It for 2026?

If you own a New Jersey S corp or partnership, you've probably heard "BAIT" or "PTE" from your accountant. They're the same tax. New Jersey calls it the Pass-Through Business Alternative Income Tax (PTE/BAIT). It's optional, it's elected one year at a time, and for tax year 2026 the deadline to elect is March 15, 2027 for calendar-year businesses.

Here's what it is, who can use it, and what to sort out before that date.

What BAIT is

BAIT lets an eligible business pay New Jersey income tax at the entity level, on the owners' shares of the business's income. New Jersey calls those shares "distributive proceeds." The owners then claim a refundable credit on their own New Jersey returns for their share of the tax the business paid.

It has been available for tax years beginning on or after January 1, 2020. It's elective. No business has to use it.

Why it matters: the federal SALT cap

Federal law limits how much state and local tax an individual can deduct, and state income tax counts toward that limit. This is the "SALT cap."

• 2025: $40,000 ($20,000 married filing separately).
• 2026: $40,400 ($20,200 married filing separately), per IRS Publication 505.
• In both years the cap is reduced when modified AGI is over $500,000 for 2025 or $505,000 for 2026, but not below $10,000.

When the S corp or partnership pays the state tax instead of you, the IRS treats it differently. In Notice 2020-75, the IRS said state income taxes "imposed on and paid by a partnership or an S corporation on its income are allowed as a deduction by the partnership or S corporation." On the cap, the Notice says:

"Any Specified Income Tax Payment made by a partnership or an S corporation is not taken into account in applying the SALT deduction limitation to any individual who is a partner in the partnership or a shareholder of the S corporation."

The Notice covers a tax the business chooses to pay. It applies "without regard to whether the imposition of and liability for the income tax is the result of an election by the entity."

So the business deducts BAIT on its federal return, and the payment doesn't count against your personal SALT cap. On the New Jersey side, the business adds the federally deducted BAIT back to income on its CBT-100S or NJ-1065.

The 2025 federal tax law (P.L. 119-21) changed the cap amounts.

Who can elect

New Jersey lists these as eligible, each with at least one member who is an individual, estate or trust subject to New Jersey Gross Income Tax:

• partnerships;
• New Jersey S corporations (a federal S corp that is also treated as an S corp for New Jersey and files Form CBT-100S);
• LLCs taxed as a partnership or an S corp for federal purposes.

Not eligible: single-member LLCs and sole proprietorships.

How and when to elect

• Register, then elect. The business registers with the New Jersey Division of Revenue and Enterprise Services, then files an election through the PTE File and Pay System. All forms, returns and payments are electronic.
• Every year. Elections don't carry forward. You make a new one each year.
• Deadline. The election is due by the original due date of the PTE-100 return. For calendar-year tax year 2026, that's March 15, 2027.
• Before any payment. New Jersey won't accept payments, including estimated payments, until the election is made.
• No going back. The election can't be made retroactively. For tax year 2025, the PTE-100 was due March 16, 2026, so that window has closed.
• Revoking. A business can revoke electronically by the same original due date and get its BAIT estimated payments back by filing the Revocation and Claim for Refund form.

Rates for 2025 and 2026

The rate chart is the same in the 2025 and 2026 PTE-100 instructions. It applies to the total of all members' shares of distributive proceeds.

Two details from New Jersey's FAQ: every member's share is included, tax-exempt members too, and no credits reduce the BAIT itself.

Estimated payments

• When they're required. If the business expects BAIT of more than $400, it makes estimated payments on Form PTE-150.
• Due dates. April 15, June 15, September 15, and January 15 of the following year. A date that falls on a weekend moves to the next business day.
• Underpayment. The business is underpaid if its estimates are less than 80% of the current year's tax or less than 100% of the prior year's. Interest runs at 3% above the prime rate, figured on Form PTE-160.
• First year. New Jersey won't penalize a business for missed estimates in the first year it makes a BAIT election. In that first year, a calendar-year business can pay the whole amount on March 15 and its members get credit as if it had been paid in evenly during the year.
• Separate account. BAIT estimates are separate from your personal NJ-1040-ES payments and can't be moved to any other tax account.
• Extension. Form PTE-200-T gives six more months to file if at least 80% of the tax is paid by the original due date. There's no extension to pay.
• Overpayments. An overpayment carries forward only if the business elects again for the next year. Otherwise it's refunded.

Because the election has to come first, a business that wants to make a January 15, 2027 estimate for tax year 2026 needs to elect before paying it.

How owners get the credit

The business gives each member a Schedule PTE-K-1 showing their share of distributive proceeds and BAIT. The member includes it with their New Jersey return to claim the credit.

On the 2025 NJ-1040, the credit went on line 63, through Schedule NJ-BUS-1. The credit is refundable. It can be used on the NJ-1040, NJ-1040NR and NJ-1041, and on business returns (CBT, NJ-1065 and NJ-CBT-1065).

S corps: New Jersey-source income only

This is where S corps and partnerships differ.

• Partnerships pay BAIT on all income of resident individual, estate and trust members.
• S corps pay BAIT only on New Jersey-source income. Since 2023, an S corp sources that income the same way it does on its CBT-100S.

New Jersey itself warns that a resident S-corp owner "may also be underpaid," and that owners "may still need to make NJ-1040-ES estimated tax payments to cover the tax on other income," such as investment income or retirement distributions. Don't stop your personal estimates just because the business elected. If you're on your S corp's payroll, New Jersey also lets you cover the gap by asking your employer to withhold more on Form NJ-W4. Our post on S corp compliance covers the other payroll rules owners skip.

Is BAIT worth it for your business?

There's no single answer. It depends on your numbers, your other income and how the business is set up.

If you're still weighing whether an S corp makes sense at all, start with how much an S corp could save you in New Jersey.

What to decide before March 15, 2027

1. Is the business eligible? It must be a partnership, New Jersey S corp, or LLC taxed as either, with at least one individual, estate or trust member. Single-member LLCs and sole proprietorships can't elect.
2. Do you want to elect for tax year 2026? That's the conversation to have with your CPA, using your 2026 numbers.
3. When will you elect? The deadline is March 15, 2027. If you want to make a January 15, 2027 estimate, the election has to come first.
4. Is the cash ready? There's no extension to pay. To get the six-month filing extension, at least 80% of the tax has to be paid by the original due date.
5. Are the owners' personal estimates still right? S-corp owners in particular may still need NJ-1040-ES payments.
6. Is the business registered? Registration with the Division of Revenue and Enterprise Services comes before the election. See New Jersey's PTE/BAIT page for the official details.

This is general information, not advice for your specific situation. Tax rules change; this post reflects the rules as of November 2026.

If you'd like to talk through BAIT for your business before the March 15, 2027 deadline, contact Henry CPA.