Massachusetts PTE Excise in 2026: the 5% Chapter 63D Election, the New 4% Chapter 63E Surtax Election and How to Decide
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Massachusetts PTE excise in 2026: the 5% chapter 63D election, the new 4% chapter 63E surtax election, the 90% credit and how owners in Boston and Worcester decide.
Massachusetts has offered an elective pass-through entity (PTE) excise since 2021. For 2026, there are two of them. The original chapter 63D excise is still 5%. A new chapter 63E excise, created by Chapter 101 of the Acts of 2026, adds an optional 4% layer that lets an entity pay its high-earning owners' millionaire surtax at the entity level too.
If you own part of an S corporation, partnership or multi-member LLC in Boston, Cambridge, Worcester or Springfield, this is a real decision for the 2026 tax year, and parts of it are due before the return is filed. This guide explains how each excise works, runs the numbers for two typical businesses, and lists the steps and deadlines.
The details come from the Department of Revenue's elective pass-through entity excise page and its 4% surtax page, both checked in October 2026.
Why these excises exist
The federal deduction for state and local taxes (SALT) paid by individuals is capped. The 2025 federal law raised the cap to $40,000 for many filers, but it phases back down to $10,000 once modified adjusted gross income reaches roughly $600,000. When a pass-through entity pays state tax itself, that tax is a business deduction at the entity level, which reduces the income passed to the owners' federal returns. The cap doesn't apply there.
Massachusetts ties both excises to the federal cap. The DOR says both will expire if the federal SALT limitation expires or is repealed.
The two MA excises side by side
| Feature | Chapter 63D excise | Chapter 63E excise (new) |
|---|---|---|
| Available since | Tax year 2021 | Tax years beginning on or after January 1, 2026 |
| Rate | 5% | 4% |
| Base | Each qualified member's share of income subject to Massachusetts personal income tax | Each qualified member's share above the surtax threshold ($1,107,750 for 2026) |
| Member credit | 90% of the member's share, refundable | 90% of the member's share, refundable |
| Election | Annual, irrevocable, on the original return | Same; can elect either or both |
| Form | Form 63-ELT, filed electronically (63D-ELT was used for 2021-2025) | Form 63-ELT |
The surtax threshold is the inflation-adjusted level above which Massachusetts charges its extra 4% on personal income. It was $1,000,000 for 2023, $1,053,750 for 2024, $1,083,150 for 2025 and $1,107,750 for 2026.
Who can elect, and who counts
Eligible entities are S corporations, partnerships (including LLCs taxed as either), and trusts to the extent their income flows to beneficiaries taxed in Massachusetts. Publicly traded partnerships are excluded. A single-member LLC that's disregarded for federal tax, and a sole proprietorship, cannot elect, because they aren't pass-through entities. An out-of-state entity with Massachusetts income can elect even if it isn't otherwise required to file.
Qualified members are individuals, estates and trusts subject to the Massachusetts personal income tax, whether residents, nonresidents or part-year residents. A corporate or partnership member isn't a qualified member, and its share is left out of both excises.
For nonresidents, the base is the member's share apportioned to Massachusetts.
The 10% haircut
The member credit is 90% of the excise, not 100%. So for every dollar the entity pays, the owner gets 90 cents back against Massachusetts tax. The other 10 cents is the state cost of electing. The question is whether the federal deduction is worth more than that 10%.
If an owner's federal marginal rate is 37% and the SALT cap is already used up, a $1 excise payment saves about 37 cents of federal tax and costs about 10 cents in lost credit. That's roughly a 27-cent net gain per dollar of excise. If the owner's SALT cap isn't binding, there's no federal benefit and the 10% is simply lost.
The credits are refundable. If they exceed a member's Massachusetts tax, the excess is treated as an overpayment.
Worked example 1: a two-owner Newton consulting S corporation
Two Massachusetts residents each own 50% of an S corporation with $1,600,000 of Massachusetts income. Each owner's share is $800,000, which is under the surtax threshold, so only the 63D excise matters. Assume each owner's federal SALT cap is $10,000 and already used by property tax, and a 37% federal marginal rate.
| Item | Amount |
|---|---|
| 63D excise: $1,600,000 x 5% | $80,000 |
| Member credits at 90% | $72,000 |
| Extra Massachusetts cost (10%) | $8,000 |
| Federal tax saved on the $80,000 deduction at 37% | about $29,600 |
| Rough net benefit, both owners together | about $21,600 |
For these owners, electing 63D is clearly worth it. Electing 63E would do nothing, since neither owner is over the threshold.
Worked example 2: a Boston medical practice with one high-earning owner
A single physician owns an S corporation with $1,500,000 of Massachusetts income, all allocable to them. Same assumptions: SALT cap used up, 37% federal rate.
| Item | 63D | 63E |
|---|---|---|
| Base | $1,500,000 | $1,500,000 - $1,107,750 = $392,250 |
| Excise | $75,000 (5%) | $15,690 (4%) |
| Credit at 90% | $67,500 | $14,121 |
| Extra Massachusetts cost | $7,500 | $1,569 |
| Federal tax saved at 37% | about $27,750 | about $5,805 |
| Rough net benefit | about $20,250 | about $4,236 |
The new 63E election adds roughly $4,200 of benefit on top of 63D for this owner. Before 2026, the surtax portion had to be paid on the owner's personal return, with no entity-level option.
These examples are simplified. They leave out apportionment, other members, federal phase-ins and the treatment of specific income classes. Use them for direction.
When electing doesn't help
- Owners under the $40,000 SALT cap range. If an owner's income is low enough that the higher federal cap still covers their state and property taxes, there's little or no federal benefit, and the 10% haircut makes electing a cost.
- Mixed ownership. The election is entity-wide and binding on all qualified members. One partner's gain can be another's cost.
- Loss years. Losses can't be carried forward under either excise, and net capital losses can't offset other income in the excise base.
- Nonresident members who need their home state to give credit for the Massachusetts tax. Check the home state's rules first.
MA deadlines and payments for the 2026 tax year
| Step | Rule |
|---|---|
| Register | Register for the 63 Entity Level Tax type in MassTaxConnect before making any 63-ELT payment, and don't pay 63-ELT on another tax type |
| Estimated payments | Required if the entity's required annual payment is $400 or more, and due during the year even though the election itself isn't made until the return |
| Underpayment | If 80% of the excise ultimately due isn't paid on time, a penalty applies, calculated on Form M-2210 |
| Election | On a timely filed original Form 355S (Schedule S), Form 3 or Form 2, confirmed with Form 63-ELT |
| Form 63-ELT due date | Same as the entity return: March 15, 2027 for calendar-year S corporations and partnerships; April 15, 2027 for calendar-year trusts; extensions apply |
| Payment method | Electronic only; one payment can cover both excises |
| Members | Must file their own returns electronically, with all schedules, to claim the credit |
The estimate requirement is where businesses get caught. You can't make the election until you file the 2026 return in 2027, but the payments that earn the credits have to be made during 2026. If you're thinking about electing for 2026 and haven't paid estimates, talk to your preparer now about catching up before year end.
Nonresident owners and composite returns
If the entity pays 63D, a nonresident member who is included on a nonresident composite return and isn't subject to the surtax may not need their own Massachusetts return. The 63E credit is different: it can't be claimed on a composite return, so any nonresident member over the surtax threshold must file Form 1-NR/PY to pay the surtax and claim the 63E credit.
Common questions about the Massachusetts (MA) PTE excise
Is the PTE excise mandatory? No. Both excises apply only if the entity elects them, one year at a time.
Can we elect 63E without 63D? Yes. The DOR says an entity can elect either one or both.
Can we elect on an amended return? No. The election must be made on the original, timely filed return, including extensions, and it can't be revoked once made.
Does electing mean we stop paying PTE withholding? Not necessarily. The DOR says there's no duplicate payment requirement: required PTE withholding and members' estimates are figured taking the excise credits into account.
Our LLC has one owner. Can it elect? Only if the LLC has elected to be taxed as an S corporation. A disregarded single-member LLC can't elect.
This guide is general information based on DOR guidance as of October 2026. The DOR has posted new guidance on business taxes affected by the June 2026 supplemental budget, so check the current page before you file.
Make the Massachusetts election with real numbers
RKube Services handles bookkeeping and tax prep for small businesses across the US and Canada, including S corporations, partnerships and LLCs in Boston, Cambridge, Newton and Worcester. We keep your books current so your PTE excise estimates are based on actual 2026 income, not a guess in March. Start with a free scoping call and a 30-day trial: call (984) 234-7030 or reach us through rkubeservices.com.