Enlarge image | Schedule OR-PTE-FY Instructions 2023 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, 2024, or if filing on extension, October 15, 2024. 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. 10-03-23) 1 2023 Schedule OR-PTE-FY Instructions |
Enlarge image | 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, 2024, or if filing material participation requirement. on extension, October 15, 2024. Employee requirement. The business must have the Example 5: Liam filed his original return on March 3, 2024, 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 12, 2024, 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. 10-03-23) 2 2023 Schedule OR-PTE-FY Instructions |
Enlarge image | reduced tax rate and his amended return will be treated as reported on line C of the federal Form 1065, line B of federal the original return. Form 1120-S, or line B of federal Schedules C or F. Example 6: Maggie filed her original return on March 12, Entity type. Enter the appropriate code for how the business 2024, and didn’t elect the reduced tax rate or file an exten- files for tax purposes: SP for a sole proprietorship, SC for sion. She files an amended return on May 3, 2024, and elects an S corporation, or Pfor a partnership. Don’t enter LLC or the reduced tax rate. The reduced tax rate will be denied anything other than the codes listed. since the amended return was filed after the original due Column (a). Enter nonpassive losses attributable to the date of April 15, 2024, and she did not file an extension. qualifying sole proprietorship, partnership, or S corporation. Example 7: Sam filed his original return on a timely filed Include qualifying nonpassive losses such as IRC Section extension on May 13, 2024, and elects the reduced tax rate. 1231 losses treated as ordinary losses. The reduced tax rate election will be allowed because it was Column (b). For partnerships and S corporations only. made on his original return. Enter Section 179 expense deduction you reported in Part Example 8: Allen filed his original return on a timely filed II, Section 28, column (i) of your federal Schedule E attribut- extension on May 3, 2024, and didn’t elect the reduced tax able to the qualifying partnership or S corporation. Don’t rate. He files an amended return on July 1, 2024 and makes complete this column for sole proprietorships. the election. His amended return will be accepted allowing Column (c). Enter nonpassive income attributable to the the reduced tax rate and his amended return will be treated qualifying sole proprietorship, partnership, or S corporation. as the original return for the reduced tax rate election. Also include qualifying nonpassive income such as royalties, If you claimed the reduced tax rate on your original return, guaranteed payments, and IRC Section 1231 gains treated you must amend Schedule OR-PTE-FY if: as ordinary income. Don’t include passive income, capital gains, interest income, wages, or dividends. • An IRS audit (or other state audit) resulted in a change that affects your Oregon return; Column (d). If you are not a member of an entity that elected • You amended your federal (or other state) return and the to pay PTE-E tax, enter 0. Otherwise, if all of the ordinary changes you made affect your Oregon return; business income passed through from the entity qualifies • You have a net operating loss (NOL); or for this reduced tax rate, enter the amount from Schedule • You need to correct income or deductions you originally OR-21-K-1, line 2. However, if not all of the ordinary busi- reported. ness income passed through from the entity qualifies for this reduced tax rate, use the federal Schedule K-1 (or Oregon Note: If you amend after the due date for the return of April Schedule OR-K-1) and Oregon Schedule OR-21-K-1 issued by 15, 2024 (or October 15, 2024, if filing on extension), you must the electing entity and this formula to determine the amount use the tax on line 12a of the Tax worksheet even if line 13a to enter on column (d): is less. Qualifying business income from Schedule instructions electing entity Addition from Amount to x Schedule = claim on Use the following instructions to complete Schedule OR- Ordinary business OR-21-K-1, line 2 column (d) PTE-FY. Complete the entire schedule and include it with income from your Oregon Form OR-40. Schedule K-1, box 1 See Form OR-21 Instructions and our website for information Section A instructions about the PTE-E tax. Complete a line for each qualifying sole proprietorship, part- Line 4. Report the totals for columns (a), (b), (c), and (d). If nership, or S corporation. Only list businesses that qualify. more than one page is used, report the total of all pages. Use additional schedules if necessary and put the total from all schedules on line 4 of the first page. Line 7. If line 7 is 0 or less, you can’t use the reduced tax rate. Return to line 20 and complete the rest of Form OR-40. If line Note: You must list all nonpassive income (or loss) from 7 is more than 0, enter the amount on line 2b of Section B. qualifying sole proprietorships, partnerships, and S corpo- rations for each individual making the election. You can’t Section B instructions selectively choose which qualifying income (or losses) to include in Section A. The tax worksheet in Section B will help you calculate which tax rate is more beneficial to you. Complete each line to For each qualifying business, enter the business name, fed- determine your tax. eral employer identification number (FEIN), number of quali- fying employees, business code number, and entity type. Lines 4 and 7. Report only the depreciation modification attributable to the qualifying sole proprietorships, partner- Business code number. Enter the business code number ships, or S corporations listed in Section A. (or North American Industry Classification System code) as 150-101-365-1 (Rev. 10-03-23) 3 2023 Schedule OR-PTE-FY Instructions |
Enlarge image | Example 9: Liam reports an addition for depreciation attrib- such as farm liquidation long-term capital gains or farm utable to a qualifying sole proprietorship he owns on line 8 income averaging, you’ll need to use the appropriate work- of his Form OR-40. He also reports a subtraction for depre- sheet or schedule, 2023 Worksheet FCG or 2023 Schedule ciation attributable to a qualifying partnership on line 13 of OR-FIA-40, to calculate the tax on line 1a. 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 Line 10a. Use Tax rate chart A below for the taxable income Form OR-40 and check box 20c. If line 13a is less than 12a, it reported on 8a. Report the tax on line 10a. Note: If you have isn’t more beneficial for you to use the pass-through entity other income that qualifies for an alternative tax rate, such reduced tax rate. Enter the amount from line 13a on line 20 as farm liquidation long-term capital gains or farm income of Form OR-40 and complete the rest of the return. averaging, you’ll need to use the appropriate worksheet or schedule, 2023 Worksheet FCG or 2023 Schedule OR-FIA-40, to calculate the tax on line 10a. Don’t include the nonpassive Do you have questions or need help? income listed on line 8a in the calculation. www.oregon.gov/dor Line 11b. Use Tax rate chart B below for the taxable income 503-378-4988 or 800-356-4222 reported on line 9b and report the tax on line 11b. questions.dor@dor.oregon.gov Line 13a. Use Tax rate chart A below for the taxable income Contact us for ADA accommodations or assistance in other reported on line 1a. Report the tax on line 13a. Note: If you languages. have other income that qualifies for an alternative tax rate, 2023 Tax rate chart A 2023 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 $4,050 ...............................................................................your tax is 4.75% of taxable income If your taxable income is over $4,050 but not over $10,200 ........................your tax is $192 plus 6.75% of excess over $4,050 If your taxable income is over $10,200 but not over $125,000 ..................your tax is $607 plus 8.75% of excess over $10,200 If your taxable income is over $125,000 ................................................... your tax is $10,652 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 $8,100 ...............................................................................your tax is 4.75% of taxable income If your taxable income is over $8,100 but not over $20,400 ........................your tax is $385 plus 6.75% of excess over $8,100 If your taxable income is over $20,400 but not over $250,000 ...............your tax is $1,215 plus 8.75% of excess over $20,400 If your taxable income is over $250,000 ...................................................your tax is $21,305 plus 9.9% of excess over $250,000 2023 Tax rate chart B 2023 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. 10-03-23) 4 2023 Schedule OR-PTE-FY Instructions |