Schedule OR-PTE-FY Instructions                                        2024
                                      Qualified business income reduced tax rate for 
                                              Oregon full-year residents

                                                                   • Has ordinary business income that doesn’t exceed 
General information                                                $5 million;
                                                                   • Employs one or more employees in Oregon who meet the 
If you have qualifying income from a sole proprietorship, 
                                                                   employee requirements described below; and
partnership, or an S corporation, you may elect to use a           • If ordinary business income is more than $250,000, com-
reduced tax rate for that income. The reduced tax rate can         plies with the employee-to-owner ratio requirement or 
be claimed for qualifying income up to $5 million. Use             meets the income distribution requirement described 
Schedule OR-PTE-FY to claim this reduced tax rate if you’re        below.
a full-year resident.
                                                                   Employee-to-owner ratio requirement. Unless the income 
Important: The qualifying business income reduced tax              distribution requirement is met, partnerships and S corpora-
rate is an irrevocable election that must be made each year        tions with more than $250,000 in ordinary business income 
on an original return. You can’t amend to revoke or make           must have, at a minimum, the number of qualifying employ-
the election after your original return is filed unless you        ees in Oregon per owner as shown in this table. The com-
file an amended return on or before the original due date of       bined total of hours worked by the qualifying employees, 
April 15, 2025, or if filing on extension, October 15, 2025. See   up to 1,200 hours per employee, must be at least the number 
the “Amending” section for more information. The annual            shown in this table.
election is made by completing Schedule OR-PTE-FY and 
                                                                   Partnership and S corporation employee requirements:
checking box 20c on the Oregon Form OR-40.
Qualifying income may only be modified for depreciation            Ordinary     But not   Employees     Aggregate 
before applying the reduced tax rate. No other additions,          business     more than      required hours worked 
subtractions, or deductions are allowed in the calculation         income is at                         by employees
of the tax on qualifying income.                                   least
                                                                   $0           $250,000       One           1,200
Schedule OR-PTE-FY is for Oregon full-year residents only. 
                                                                                               One per  1,200 per 
If you are an Oregon part-year resident, use Schedule OR-          $250,001     $500,000
PTE-PY. If you are an Oregon nonresident, use Schedule                                         owner         owner
OR-PTE-NR.                                                                                     Two per  2,400 per 
                                                                   $500,001     $1,000,000
                                                                                               owner         owner
                                                                                               Four per 4,800 per 
Qualifications                                                     $1,000,001   $2,500,000
                                                                                               owner         owner
                                                                                               Ten per  12,000 per 
Generally                                                          $2,500,001   $5,000,000
                                                                                               owner         owner
To be eligible for the reduced tax rate, you must materially       Income distribution requirement. A partnership or S 
participate in the business, have at least the minimum num-        corporation with more than $250,000 in ordinary business 
ber of qualifying Oregon employees, and meet any specific          income may still qualify for the reduced tax rate even if 
requirements for a sole proprietorship or for a partnership        the employee-to-owner ratio shown in this table isn’t met, 
or S corporation.                                                  so long as income distributions don’t exceed 25 percent of 
                                                                   ordinary business income. Calculate the percentage using 
Sole proprietorship
                                                                   the total distributions and total ordinary business income 
To be eligible for the reduced tax rate, a sole proprietor must:   for the current tax year and up to two of the most recent tax 
                                                                   years. Treat an annual amount of less than zero as zero for 
• Have qualifying business income from the sole 
                                                                   that year.
proprietorship; 
• Materially participate in the business; and                      Qualifying business income. For your income to qualify 
• Employ one or more employees in Oregon who meet the              for the reduced tax rate, it must be nonpassive income from 
employee requirements explained below for at least 1,200           a sole proprietorship, partnership, or S corporation. Income 
aggregate hours during the tax year.                               from trusts or estates doesn’t qualify for the reduced tax rate. 
                                                                   “Nonpassive income” is income other than that from passive 
Partnership or S corporation
                                                                   activities as defined in Section 469 of the Internal Revenue 
To be eligible for the reduced tax rate, a partner or S corpo-     Code (IRC). This includes, but isn’t limited to, nonpassive 
ration shareholder must have qualifying income from and            income reported on federal Schedules C (line 31), E [line 28, 
materially participate in a partnership or S corporation that:     column (k)], and F (line 34); IRC Section 1231 gains treated as 

150-101-365-1 (Rev. 07-24-24) Draft 2                            1                        2024 Schedule OR-PTE-FY Instructions

ordinary income; guaranteed payments; and royalties. Non-        employee worked at least 30 hours in Oregon can be counted. 
passive income doesn’t include wages, interest, dividends, or    Hours worked by an employee that is a spouse or other fam-
capital gains for the purpose of the reduced tax rate.           ily member that isn’t an owner, member, or limited partner 
                                                                 can be used to meet the hour requirements. Independent 
Tiered entities. If you received nonpassive income that 
                                                                 contractors can’t be used to meet the employee requirement.
passed-through an upper-tier entity to you from a qualify-
ing lower-tier entity, that income qualifies for the reduced     Example 2: A sole proprietorship had one employee that 
tax rate if the lower-tier entity also meets the employee        worked a total of 1,440 hours during the year in Oregon. 
requirement.                                                     The employee worked 32 hours per week for 30 weeks and 
                                                                 worked 24 hours per week for 20 weeks. The total qualifying 
Coordination with pass-through entity elective tax               hours is 960 (32 hours x 30 weeks) since the proprietor can’t 
(PTE-E tax). Certain partnerships and S corporations may         count hours worked less than 30 hours in a week. Because 
elect to pay PTE-E tax. This means they have elected to pay      the total qualifying hours worked in Oregon is less than 
Oregon income tax at the entity level. Individuals who are       1,200, the nonpassive income from the sole proprietorship 
direct or indirect members of an electing entity are allowed     doesn’t qualify for the reduced tax rate.
a tax credit for the PTE-E tax paid by the entity. Individuals 
must also report an addition for any PTE-E tax deducted on       Example 3: A partnership with three partners employed six 
an entity-level federal return. The addition amount will be      employees during the year in Oregon. One employee worked 
added to qualified business income, but only to the extent       32 hours a week for 30 weeks and the other five employees 
that the ordinary business income reported on the entity-        each worked 20 hours per week for 40 weeks in a job share 
level federal return qualifies for the reduced tax rate. See     position. Only the hours worked by the employee that worked 
the instructions for column (b) for additional information.      32 hours per week can be used toward the 1,200 hour require-
                                                                 ment. Since the total hours (30 weeks x 32 hours per week = 
Example 1: Bryant is the sole shareholder of an S corpora-       960 total hours) worked by that employee don’t exceed the 
tion. Marcus is the sole shareholder of an S corporation.  The   1,200 hour requirement and the other five employees don’t 
two S corporations each have a 50 percent ownership in a         qualify for purposes of the employee ratio requirement, the 
partnership. Bryant and Marcus both materially participate       nonpassive income from the partnership doesn’t qualify for 
in the partnership, which has ordinary business income of        the reduced tax rate.
$2 million. The partnership employs ten full-time employees 
                                                                 Example 4: An S corporation with two shareholders and 
in Oregon. Bryant and Marcus receive a distributive share of 
                                                                 annual ordinary business income of $800,000 has three 
nonpassive income from the partnership that passes through 
                                                                 employees, all of whom work 35-hour weeks. The office man-
their respective S corporations. They also receive a salary 
                                                                 ager and the two shareholders each work 50 weeks a year, a 
as reasonable compensation for the work performed for the 
                                                                 sales clerk works for 30 weeks a year, and a delivery driver 
partnership. The distributive share of nonpassive income 
                                                                 works 20 weeks a year, for a total of 3,500 hours worked by 
they receive from the partnership (as passed through to 
                                                                 non-owner employees. Annual income distributions to the 
them from their respective S corporations) qualifies for the 
                                                                 shareholders include $150,000 in ordinary business income. 
reduced tax rate since the partnership meets the ordinary 
                                                                 With only three employees, this business doesn’t meet the 
business income and employee requirements. However, the 
                                                                 employee ratio requirement; however, because it distributes 
salary received from the partnership doesn’t qualify for the 
                                                                 less than 25 percent of its ordinary business income to the 
reduced tax rate.                                                shareholders each year, its nonpassive income still qualifies 
Material participation. Material participation has the same      for the reduced tax rate.
meaning as defined for federal purposes under IRC Sec-           Temporary or “leased” employees. If a qualifying busi-
tion 469. A taxpayer materially participates in an activity if   ness contracts with a professional employer organization to 
they work on a regular, continuous, and substantial basis in     employ temporary or “leased” employees, those employees 
operations, and meet any one of the seven material participa-    can be used to qualify a business for the reduced tax rate if 
tion tests in Treasury Regulation Section 1.469-5T(a).           the employees meet the hour requirements.
Grouping activities. You may group trade, business, or 
rental activities into a single activity if they form an appro-
                                                                 Amending
priate economic unit for the purpose of meeting the mate-
rial participation test under Treasury Regulation Section        You can’t amend to revoke or make the election after your 
1.469-4(c). This treatment is also allowed for the purposes      original return is filed unless you file an amended return on 
of the qualifying business income reduced tax rate and the       or before the original due date of April 15, 2025, or if filing 
material participation requirement.                              on extension, October 15, 2025.
Employee requirement.    The business must have the              Example 5: Liam filed his original return on March 3, 2025, 
required number of employees who performed work for the          and didn’t elect the reduced tax rate or file an extension. He 
business in Oregon for the required number of hours during       files an amended return on April 11, 2025, and makes the 
the tax year. Only the hours worked in a week in which an        election. His amended return will be accepted allowing the 

150-101-365-1 (Rev. 07-24-24) Draft 2                          2                          2024 Schedule OR-PTE-FY Instructions

reduced tax rate and his amended return will be treated as        Entity type. Enter the appropriate code for how the business 
the original return.                                              files for tax purposes: SP for a sole proprietorship, SC for 
                                                                  an S corporation, or  Pfor a partnership. Don’t enter LLC or 
Example 6: Maggie filed her original return on March 12, 
                                                                  anything other than the codes listed.
2025, and didn’t elect the reduced tax rate or file an exten-
sion. She files an amended return on May 2, 2025, and elects      Column (a).  Enter nonpassive losses attributable to the 
the reduced tax rate. The reduced tax rate will be denied         qualifying sole proprietorship, partnership, or S corporation. 
since the amended return was filed after the original due         Include qualifying nonpassive losses such as IRC Section 
date of April 15, 2025, and she did not file an extension.        1231 losses treated as ordinary losses.
Example 7: Sam filed his original return on a timely filed        Column (b).  For partnerships and S corporations only. 
extension on May 13, 2025, and elects the reduced tax rate.       Enter Section 179 expense deduction you reported in Part 
The reduced tax rate election will be allowed because it was      II, Section 28, column (i) of your federal Schedule E attribut-
made on his original return.                                      able to the qualifying partnership or S corporation.  Don’t 
                                                                  complete this column for sole proprietorships. 
Example 8: Allen filed his original return on a timely filed 
extension on May 2, 2025, and didn’t elect the reduced tax        Column (c).  Enter nonpassive income attributable to the 
rate. He files an amended return on July 1, 2025 and makes        qualifying sole proprietorship, partnership, or S corporation. 
the election. His amended return will be accepted allowing        Also include qualifying nonpassive income such as royalties, 
the reduced tax rate and his amended return will be treated       guaranteed payments, and IRC Section 1231 gains treated 
as the original return for the reduced tax rate election.         as ordinary income. Don’t include passive income, capital 
                                                                  gains, interest income, wages, or dividends. 
If you claimed the reduced tax rate on your original return, 
you must amend Schedule OR-PTE-FY if:                             Column (d). If you are not a member of an entity that elected 
                                                                  to pay PTE-E tax, enter 0. Otherwise, if  all of the ordinary 
• An IRS audit (or other state audit) resulted in a change that 
                                                                  business income passed through from the entity qualifies 
affects your Oregon return;
                                                                  for this reduced tax rate, enter the amount from Schedule 
• You amended your federal (or other state) return and the 
                                                                  OR-21-K-1, line 2. However, if not all of the ordinary busi-
changes you made affect your Oregon return;
                                                                  ness income passed through from the entity qualifies for this 
• You have a net operating loss (NOL); or
                                                                  reduced tax rate, use the federal Schedule K-1 (or Oregon 
• You need to correct income or deductions you originally 
                                                                  Schedule OR-K-1) and Oregon Schedule OR-21-K-1 issued by 
reported.
                                                                  the electing entity and this formula to determine the amount 
Note: If you amend after the return due date of April 15, 2025    to enter on column (d):
(or October 15, 2025, if filing on extension), you must use the 
tax on line 12a of the tax worksheet even if line 13a is less.    Qualifying business 
                                                                       income from  
                                                                     electing entity           Addition from       Amount to 
                                                                                           x     Schedule        = claim on 
Schedule instructions                                             Ordinary business 
                                                                                               OR-21-K-1, line 2   column (d)
                                                                       income from  
Use the following instructions to complete Schedule OR-           Schedule K-1, box 1
PTE-FY. Complete the entire schedule and include it with 
your Oregon Form OR-40.                                           See Form OR-21 Instructions and our website for information 
                                                                  about the PTE-E tax.
Section A instructions                                            Line 4. Report the totals for columns (a), (b), (c), and (d). If 
Complete a line for each qualifying sole proprietorship, part-    more than one page is used, report the total of all pages.
nership, or S corporation. Only list businesses that qualify.     Line 7. If line 7 is 0 or less, you can’t use the reduced tax rate. 
Use additional schedules if necessary and put the total from      Return to line 20 and complete the rest of Form OR-40. If line 
all schedules on line 4 of the first page.                        7 is more than 0, enter the amount on line 2b of Section B.
Note: You must list   all nonpassive income (or loss) from 
qualifying sole proprietorships, partnerships, and S corpo-       Section B instructions
rations for each individual making the election.    You can’t 
                                                                  The tax worksheet in Section B will help you calculate which 
selectively choose which qualifying income (or losses) to 
                                                                  tax rate is more beneficial to you. Complete each line to 
include in Section A.
                                                                  determine your tax. 
For each qualifying business, enter the business name, fed-
                                                                  Lines 4 and 7. Report only the depreciation modification 
eral employer identification number (FEIN), number of quali-
                                                                  attributable to the qualifying sole proprietorships, partner-
fying employees, business code number, and entity type.  
                                                                  ships, or S corporations listed in Section A.
Business code number. Enter the business code number 
                                                                  Example 9: Liam reports an addition for depreciation attrib-
(or North American Industry Classification System code) as 
                                                                  utable to a qualifying sole proprietorship he owns on line 8 
reported on line C of the federal Form 1065, line B of federal 
                                                                  of his Form OR-40. He also reports a subtraction for depre-
Form 1120-S, or line B of federal Schedules C or F. 
                                                                  ciation attributable to a qualifying partnership on line 13 of 
150-101-365-1 (Rev. 07-24-24) Draft 2                           3                              2024 Schedule OR-PTE-FY Instructions

his Form OR-40. In Section B, Liam will report the addition     Line 14a. Enter the lesser of line 12a or 13a. If line 12a is 
on line 4 and report the subtraction on line 7.                 less than 13a, enter the amount on line 14a on line 20 of 
                                                                Form OR-40 and check box 20c. If line 13a is less than 12a, it 
Line 10a. Use Tax rate chart A below for the taxable income 
                                                                isn’t more beneficial for you to use the pass-through entity 
reported on 8a. Report the tax on line 10a. Note: If you have 
                                                                reduced tax rate. Enter the amount from line 13a on line 20 
other income that qualifies for an alternative tax rate, such 
                                                                of Form OR-40 and complete the rest of the return.
as farm liquidation long-term capital gains or farm income 
averaging, you’ll need to use the appropriate worksheet or 
schedule, Worksheet FCG or Schedule OR-FIA-40, to calcu-        Do you have questions or need help?
late the tax on line 10a. Don’t include the nonpassive income 
listed on line 8a in the calculation.                             www.oregon.gov/dor
                                                                503-378-4988 or 800-356-4222
Line 11b. Use Tax rate chart B below for the taxable income     questions.dor@dor.oregon.gov
reported on line 9b and report the tax on line 11b. 
                                                                Contact us for ADA accommodations or assistance in other 
Line 13a. Use Tax rate chart A below for the taxable income     languages.
reported on line 1a. Report the tax on line 13a. Note: If you 
have other income that qualifies for an alternative tax rate, 
such as farm liquidation long-term capital gains or farm 
income averaging, you’ll need to use the appropriate work-
sheet or schedule, Worksheet FCG or Schedule OR-FIA-40, 
to calculate the tax on line 1a. 

Tax rate chart A
2024 tax rate chart—Use this chart only for income reported on lines 1a and 8a of Section B. Report the tax on Section B, 
lines 10a and 13a. 
Chart S: For persons filing single or married filing separately:
If your taxable income isn’t over $4,300 ...............................................................................your tax is 4.75% of taxable income
If your taxable income is over $4,300 but not over $10,750 ........................your tax is $204 plus 6.75% of excess over $4,300
If your taxable income is over $10,750 but not over $125,000 ..................your tax is $639 plus 8.75% of excess over $10,750
If your taxable income is over $125,000 ................................................... your tax is $10,636 plus 9.9% of excess over $125,000
Chart J: For persons filing jointly, head of household, or qualifying widow(er) with dependent child:
If your taxable income isn’t over $8,600 ...............................................................................your tax is 4.75% of taxable income
If your taxable income is over $8,600 but not over $21,500 ........................your tax is $409 plus 6.75% of excess over $8,600
If your taxable income is over $21,500 but not over $250,000 ...............your tax is $1,280 plus 8.75% of excess over $21,500
If your taxable income is over $250,000 ................................................... your tax is $21,274 plus 9.9% of excess over $250,000

Tax rate chart B
Qualified business income reduced tax rate chart—Use this chart only for qualifying income reported on line 9b of 
Section B. Report the tax on Section B, line 11b. 
If your taxable income isn’t over $500,000 ..........................................................................your tax is 7% of qualifying income
If your taxable income is over $500,000 but not over $1 million ........your tax is $35,000 plus 7.5% of excess over $500,000
If your taxable income is over $1 million but not over $2.5 million .......your tax is $72,500 plus 8% of excess over $1 million
If your taxable income is over $2.5 million but not over $5 million ........your tax is $192,500 plus 9% of excess over $2.5 million
If your taxable income is over $5 million ..........................................your tax is $417,500 plus 9.9% of excess over $5 million

150-101-365-1 (Rev. 07-24-24) Draft 2                         4                     2024 Schedule OR-PTE-FY Instructions