The Tax Cuts and Jobs Act of 2018 added a cap on the federal State and Local Tax (SALT) deduction at the individual level of $10,000. Since then, many states with high individual income taxes have been seeking a workaround.
At the end of 2020, the IRS announced that it would allow a federal deduction for pass-through entities which could elect to pay state taxes of the owners at the entity level. In response, 27 states, including Oregon, have since enacted a Pass-Through Entity Elective Tax (PTE-E).
With a tight turnaround for registration and the deadline for the PTE-E estimated payment quickly approaching, qualifying businesses need to decide if it’s in their best interest to pay this elective tax.
How does PTE-E work in Oregon?
Oregon’s law will be in effect for 2022 and 2023. Initially, it did not account for estimated taxes to be paid during 2022 by each entity. However, Senate Bill (SB) 1524 signed into law at the end of March 2022 now requires pass-through entities to pay estimated taxes for the Oregon PTE-E beginning June 15, 2022.
An entity must first register with Oregon Revenue Online to make payments, which will open on June 6, 2022, and make its election annually by the return’s due date, including any extensions.
We expect this may provide a significant benefit for owners who receive a K-1 from a pass-through entity.
Eligible Pass-Through Entities + Tax Rates
A pass-through entity may elect to pay the PTE-E if all members/owners are individuals or are pass-through entities owned entirely by individuals subject to the personal income tax imposed under Oregon Revised Statutes Chapter 316. This includes out-of-state entities with Oregon taxable income. A grantor trust is treated as a qualified member because they are subject to personal income tax laws.
- Multi-Member Limited Liability Company (LLC)
Please note: sole proprietorships and single-member LLCs may not elect to pay the PTE-E.
|Tax Rate||Income Threshold|
|9.9%||More than $250,000|
Managing Your Tax Liability with Aldrich
If you have questions about PTE-E, how to calculate your estimated payment, or want to explore strategies to increase your tax efficiency, reach out to your Aldrich Advisor. Our tax experts can help you determine whether you qualify and what steps your business should take to maximize tax savings.
Chad Emmert, CPA, CCIFP®
Aldrich CPAs + Advisors LLP
Chad joined the firm in July 2006. He has over 15 years of public accounting experience and has been providing his clients expertise in strategic tax planning, multi-state and general tax compliance services, as well as business consulting. He spends his time focusing on construction and construction related clients. Construction Financial Management Association, Member American... Read more Chad Emmert, CPA, CCIFP®
- Business consulting
- Strategic tax planning
- Multi-state tax compliance
- Certified Public Accountant