The NJ BAIT Election: How Pass-Through Businesses Can Bypass the SALT Cap

The $10,000 SALT deduction cap has been a significant burden for NJ taxpayers since 2018. The NJ BAIT provides a legal workaround for pass-through business owners.

What Is the BAIT?

The BAIT allows pass-through entities — S-Corps, LLCs taxed as partnerships, and partnerships — to elect to pay NJ income tax at the entity level. Because the tax is paid by the entity, it becomes a deductible business expense that reduces federal taxable income, bypassing the SALT cap.

How the Tax Credit Works

Each member receives a refundable tax credit on their NJ individual return. The credit offsets their NJ personal income tax on the same income — a dollar-for-dollar offset in most cases.

Who Benefits?

The BAIT is most beneficial for NJ pass-through business owners who itemize, are over the SALT cap, have significant pass-through income, and are in higher federal brackets. For a business owner in the 35% bracket with $200,000 in pass-through income, the BAIT could save roughly $5,000–$10,000 or more.

The Election Process

The BAIT election is made annually on the entity’s NJ tax return. The entity makes estimated BAIT payments using Form BAIT-100. All members must be included.

Should You Elect?

For most qualifying NJ pass-through businesses, the answer is yes. I work through this analysis with every qualifying NJ business client during year-end tax planning.