Estimate the federal tax you'd save by electing the NJ Pass-Through Business Alternative Income Tax. Enter your share of distributive proceeds and your federal marginal bracket; results update instantly.
Planning estimate only — not tax advice. See Disclaimer.
The federal SALT cap, set by the Tax Cuts and Jobs Act and adjusted by the One Big Beautiful Bill Act, limits how much state and local tax a person can deduct on their federal return. For NJ pass-through owners, that cap eats most of the value of NJ income tax paid on K-1 income.
The NJ BAIT works around the cap. Instead of the owner paying NJ income tax on the K-1 personally, the entity pays NJ tax at the entity level. The entity deducts that tax as a business expense — which is not capped — and the K-1 income flowing to the owner is reduced by the same amount. The owner then claims a refundable NJ credit for the tax paid on their behalf, so their NJ tax bill is unchanged. The net effect is a federal deduction the owner could not have taken on their personal return.
The math is straightforward. Federal savings per year roughly equal the BAIT paid by the entity multiplied by the owner's federal marginal tax bracket, assuming the owner is at or above the SALT cap on their personal return.
Enter your share of K-1 distributive proceeds, or the entity's total if you are the sole owner. The BAIT brackets apply at the entity level — for multi-owner entities, true BAIT may differ from the per-owner proportional estimate below.
The marginal rate on your top dollar of taxable income. Per IRS 2026 brackets: 22% applies $50,400-$105,700 single / $100,800-$211,400 MFJ; 24% applies up to $201,775 single / $403,550 MFJ; 32% applies up to $256,225 single / $512,450 MFJ; 35% applies up to $640,600 single / $768,700 MFJ; 37% applies above.
Estimate only — not a tax position.
The figures below are computed from the values you entered, simplified assumptions, and the federal and NJ tax rates in effect as of 2026-05-07. They are not tax advice and do not create a CPA-client relationship. They do not capture facts specific to your return, multi-owner allocation, multi-state apportionment, or the OBBBA SALT cap phase-down formula. Do not act on these numbers, file based on them, or include them in a tax position without a licensed tax professional reviewing your full situation. ProAxis Tax & Accounting Services makes no warranty as to accuracy and accepts no liability for reliance on this output. See full Disclaimer and Terms of Service.
BAIT Owed by Entity
$0
Tiered rate × distributive proceeds
Effective BAIT Rate
0.0%
BAIT owed / distributive proceeds
Estimated Annual Federal Tax Savings
$0
Estimate as of 2026-05-07
Federal deduction value (BAIT × federal marginal bracket), assuming you are at the SALT cap on your personal return
A NJ pass-through owner has $500,000 in distributive proceeds for the year. The owner files at the 32% federal marginal bracket and lives in NJ. Here's how the BAIT election plays out:
BAIT owed at the entity level: The first $250,000 is taxed at 5.675%, generating $14,188. The next $250,000 (the portion from $250,001 to $500,000) is taxed at 6.52%, generating $16,300. Total BAIT owed: $30,488.
Federal deduction value: The entity deducts the $30,488 BAIT as a federal business expense. The owner's K-1 income drops by $30,488. At a 32% federal marginal bracket, the federal tax saved on that deduction is $30,488 × 0.32 = $9,756.
NJ tax bill is unchanged: The owner claims a refundable NJ credit of $30,488 for the BAIT paid on their behalf. NJ Gross Income Tax owed personally drops by the same $30,488 the entity paid. Net NJ tax liability stays the same as it would have without the election.
Bottom line: The owner gets a federal deduction worth roughly $9,756 per year that they could not have claimed on their personal return because of the SALT cap. Stack the BAIT election on top of an S-Corp election or QBI deduction and total annual tax savings often exceed $20,000 for owners in this income range.
The calculator output is a planning starting point, not a return-ready figure. Here is how to use the result:
Whatever the result, document the figures you used. When you talk to a CPA, you will want to confirm whether your federal marginal bracket estimate is right for the year (brackets shift with income), and whether your distributive share matches the entity's actual K-1 allocation. A CPA's job is partly to validate the math you have already started.
The Pass-Through Business Alternative Income Tax (BAIT) is a New Jersey election that lets a partnership, S corporation, or multi-member LLC pay state income tax at the entity level on each owner's distributive share. The entity deducts the BAIT as a federal business expense, which reduces each owner's K-1 income and bypasses the federal SALT cap on individual returns. Each NJ owner then claims a refundable NJ credit for the tax paid by the entity on their behalf.
Federal tax savings roughly equal the BAIT paid by the entity multiplied by the owner's federal marginal tax bracket. A NJ owner with $500,000 in pass-through income pays approximately $30,488 in BAIT under the 2026 tiered schedule (5.675% on the first $250,000 plus 6.52% on the next $250,000). At a 32% federal marginal bracket, the federal deduction value is about $9,756 per year. Savings scale with both income level and federal bracket.
For tax year 2026 NJ BAIT applies three tiered rates to the entity's total distributive proceeds: 5.675% on the first $250,000, 6.52% on $250,000 to $1,000,000, and 10.9% on amounts over $1,000,000. The brackets apply at the entity level, then each owner is allocated a share. The schedule has been in effect since P.L. 2021 c.419 amended the BAIT for tax years beginning January 1, 2022 — that amendment eliminated the original $1,000,000 to $5,000,000 at 9.12% middle tier.
NJ pass-through owners who hit the federal SALT cap on their personal return get the most benefit. For tax year 2026, the SALT cap is $40,400 with a phase-down for taxpayers whose modified adjusted gross income exceeds $505,000 — the cap is reduced by 30% of the MAGI excess, but never below a $10,000 floor. Per IRC section 164(b)(6) as amended by the One Big Beautiful Bill Act, both the cap and the MAGI threshold inflate 1% per year through tax year 2029. Owners above the cap capture the full federal deduction by routing NJ tax through the entity. Owners well below the cap see smaller benefit.
The calculator gives a directional federal tax savings estimate. It does not model the OBBBA SALT cap phase-down formula at MAGI above $505,000 for tax year 2026, the alternative minimum tax (AMT), multi-state apportionment for entities operating outside NJ, the timing mismatch between quarterly BAIT estimated payments and the refundable NJ credit, the safe-harbor rules for avoiding underpayment penalties, the Additional Medicare Tax of 0.9%, or interaction with the federal QBI deduction. The calculator also assumes a NJ resident owner. For a precise figure, ProAxis runs the full analysis as part of every NJ pass-through onboarding.
No. The BAIT election is made annually, on or before the original due date of the entity's NJ return. Entities can elect or skip in any given year. Federal SALT cap law could change again, but the BAIT itself is permanent NJ law. ProAxis reviews BAIT eligibility every year for pass-through clients during tax planning meetings.
Yes. NJ S corporations are eligible for the BAIT election. Many ProAxis clients pair the federal S-Corp election (which reduces self-employment tax on the owner's W-2/distribution split) with the NJ BAIT election (which captures the federal deduction for NJ tax paid). The two elections layer. For a $150,000 NJ S-Corp owner taxed at the 24% federal bracket, S-Corp net savings of about $7,700 plus BAIT federal savings of about $2,000 deliver roughly $9,700 combined per year, with QBI deduction stacking adding more on top depending on entity type and SSTB status.
Schedule a free consultation with ProAxis Tax & Accounting Services. ProAxis runs the full BAIT analysis including SALT cap interaction, multi-state apportionment, and S-Corp + QBI layering — far beyond what a generic calculator captures.
