How to make the Arizona PTET election.

Arizona’s Pass-Through Entity Election lets your business pay state income tax for its owners and deduct it federally, outside the SALT cap. Here’s when and how to elect for 2026, and how to pay.

Can your business elect?

Any business treated as a partnership or S corporation for federal income tax purposes, including LLCs taxed as either. Only owners who are individuals, estates, or trusts can participate; corporate, partnership, and other entity owners are excluded automatically.

The entity must notify each individual, estate, and trust owner of its intent to elect and give at least 60 days to opt out. Owners who do not respond are included. Income of owners who opt out or are ineligible is left out of the tax base. A shareholder or partner interest held through a disregarded single-member LLC or a disregarded grantor trust can participate. A lower-tier entity cannot pass the credit to an upper-tier partnership or S corporation.

Rate: 2.5%. The statute sets the rate at the highest individual rate under A.R.S. Section 43-1011, and the 2026 Form 120/PTE-W instructions give 2.5%.

The share of Arizona taxable income attributable to participating resident owners, plus the Arizona-source share attributable to participating nonresident owners. For partnerships, the starting point is ordinary and rental income plus separately stated items, with Arizona additions and subtractions; for S corporations, total distributive income.

Available for 2026. The entity-level tax election in A.R.S. Section 43-1014 applies to taxable years beginning after December 31, 2021, and the statute has no end date. New to PTET? See how the election works.

Deadlines

Step	Due for 2026
1st estimated payment	April 15, 2026
2nd estimated payment	June 15, 2026
3rd estimated payment	September 15, 2026
4th estimated payment	January 15, 2027
Election, return, and tax due	March 15, 2027
Extended return	September 15, 2027

These dates are for a calendar-year business. Pay at least two business days early, since state payment sites slow down on deadline days.

Electing, step by step

Deadline: Made on the 2026 Arizona return, due March 15, 2027 (September 15, 2027 with an extension). Under S.B. 1274 (2025), a timely return is no longer required: the election can also be made on an amended return filed before the four-year statute of limitations expires.

Start with 2025 Arizona Form 165, from the Arizona Department of Revenue.

Send every partner or shareholder who is an individual, estate, or trust written notice of the intent to make the PTE election, allowing at least 60 days after receipt to opt out.
Leave out owners who opt out and owners that are not individuals, estates, or trusts when figuring the PTE tax.
On page 1 of Form 165 (partnerships) or Form 120S (S corporations), answer Line A, 'Did the partnership make the Pass-Through Entity (PTE) election to pay tax on its flow-through income at the entity level?' (Form 120S says 'S Corporation'), by checking Yes.
Figure the PTE tax on the return and report each participating owner's credit on Schedule K-1 or K-1(NR).
File the return by March 15, 2027 (September 15, 2027 with an extension). The election can also be made later on an amended return within the four-year statute of limitations.

2025 Arizona Form 165, page 1, showing the line used to make the Arizona PTET election: Did the partnership make the Pass-Through Entity (PTE) election. — The election: “Did the partnership make the Pass-Through Entity (PTE) election”

Paying the tax, step by step

Required if the entity's Arizona taxable income for the prior year exceeded $150,000. For 2026, installments are due April 15, June 15, and September 15, 2026, and January 15, 2027 (none falls on a weekend), using Form 120/165ES or EFT and computed on Form 120/PTE-W. The required annual payment is the smaller of 90% of current-year tax or 100% of prior-year tax; the underpayment penalty is figured on Form 220/PTE and does not apply if the tax due on the return is under $1,000.

What you need

Nothing to set up. AZTaxes.gov takes payments without an account.
The business's EIN and legal name.
The installment amount from Form 120/PTE-W.
The business checking or savings account routing and account numbers, or a credit card.

Start at AZTaxes.gov, Arizona's official site.

Go to AZTaxes.gov and click Make a Corporation/S Corporation/Partnership Payment.
Follow the prompts to enter the business and choose the 2026 tax period and payment.
Choose the e-check option to pay from a checking or savings account with no fee, or the credit card option (the card processor charges a fee).
Save the confirmation number as proof of payment.
Entities paying by EFT do not send Form 120/165ES. A business that has a waiver from the EFT requirement pays by check with Form 120/165ES.

Filing the return: Form 165 (partnerships) or Form 120S (S corporations), due March 15, 2027 for calendar year 2026, or September 15, 2027 with an extension. At least 90% of the tax must be paid by the original due date to avoid the extension underpayment penalty. An entity expecting PTE tax of $500 or more must pay by electronic funds transfer.

Keep the PTE separate from your personal estimates. The business pays the PTE from its own account under its own ID. Once it does, each owner's personal Arizona estimates can usually drop by the credit they expect, so the same tax is not paid twice.

Claiming the credit

Owners receive a nonrefundable credit for their share of the tax actually paid, reported on Form 165 or 120S Schedule K-1 or K-1(NR). Individuals claim it on Form 355 with Form 301 and add back the PTE tax paid on their behalf to Arizona gross income. Unused credit carries forward up to five years.

Good to know

Owners add back the PTE tax paid on their behalf when computing Arizona income, then claim the credit.
Participating owners cannot be included in a composite return (Form 140NR) and each must file an individual Arizona return to claim the credit. A composite return is allowed only for nonresident owners who opt out, with at least 10 included.
If the entity does not pay the tax, the department can collect it from the participating owners.
Arizona's individual credits in Chapter 10 of Title 43 do not offset the PTE tax. An entity that claims a credit against its PTE tax reduces the PTE credit passed through to owners.
An entity that made PTE estimated payments but does not elect gets them refunded by filing its return with No checked on Line A; the payments cannot be applied to owners' individual tax.
Paying your personal Arizona estimates? See how to pay Arizona estimated taxes.
Business in more than one state? Each state has a guide of its own.

Official sources

Checked October 2026 against the Arizona Department of Revenue's own publications and A.R.S. Section 43-1014 (election and tax); A.R.S. Section 43-1077 (owner credit).

This guide is for general education and reflects rules as of October 2026. Tax law and agency websites change, and your situation may have details that change the answer. Please talk with your tax professional before acting on it.