Schedule OR-PTE-NR Instructions 2023 Qualified business income reduced tax rate for Oregon nonresidents • 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 earned in Oregon by a sole employee requirements described below; and proprietorship, partnership, or an S corporation, you may • If ordinary business income is more than $250,000, com- elect to use a reduced tax rate for that income. The reduced plies with the employee-to-owner ratio requirement or tax rate can be claimed for qualifying income up to $5 mil- meets the income distribution requirement described lion. Use Schedule OR-PTE-NR to claim this reduced tax rate below. if you’re a nonresident. 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-NR and Partnership and S corporation employee requirements: checking box 46C on the Oregon Form OR-40-N. 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-NR is for Oregon nonresidents only. If One per 1,200 per you are an Oregon full-year resident, use Schedule OR-PTE- $250,001 $500,000 FY. If you are an Oregon part-year resident, use Schedule owner owner OR-PTE-PY. 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 for • Employ one or more employees in Oregon who meet the the reduced tax rate, it must be nonpassive income earned in employee requirements explained below for at least 1,200 Oregon by a sole proprietorship, partnership, or S corpora- aggregate hours during the tax year. tion. Income from trusts and estates doesn’t qualify for the reduced tax rate. Partnership or S corporation “Nonpassive income” is income other than that from passive To be eligible for the reduced tax rate, a partner or S corpo- activities as defined in Section 469 of the Internal Revenue ration shareholder must have qualifying income from and Code (IRC). This includes, but isn’t limited to, nonpassive materially participate in a partnership or S corporation that: income reported on federal Schedules C (line 31), E [line 28, 150-101-367-1 (Rev. 10-03-23) 1 2023 Schedule OR-PTE-NR Instructions |
column (k)], and F (line 34); IRC Section 1231 gains treated as Hours worked by an employee that is a spouse or other fam- ordinary income; guaranteed payments; and royalties. Non- ily member that isn’t an owner, member, or limited partner passive income doesn’t include wages, interest, dividends, or can be used to meet the hour requirements. Independent capital gains for the purpose of the reduced tax rate. contractors can’t be used for the employee requirement. Tiered entities. If you received nonpassive income that Example 2: A sole proprietorship had one employee that passed-through an upper-tier entity to you from a qualifying worked a total of 1,440 hours during the year in Oregon. lower-tier entity, that income qualifies for the reduced tax The employee worked 32 hours per week for 30 weeks and rate if the lower-tier entity meets the employee requirement. worked 24 hours per week for 20 weeks. The total qualifying hours is 960 (32 hours x 30 weeks) since the proprietor can’t Coordination with pass-through entity elective tax (PTE-E count hours worked less than 30 hours in a week. Because tax). Certain partnerships and S corporations may elect to the total qualifying hours worked in Oregon is less than pay PTE-E tax. This means they have elected to pay Oregon 1,200, the nonpassive income from the sole proprietorship income tax at the entity level. Individuals who are direct doesn’t qualify for the reduced tax rate. or indirect members of an electing entity are allowed a tax credit for the PTE-E tax paid by the entity. Individuals must Example 3: A partnership with three partners employed also report an addition for any PTE-E tax deducted on an six employees during the year in Oregon. One employee entity-level federal return. The addition amount will be worked 32 hours a week for 30 weeks and the other five added to qualified business income, but only to the extent employees each worked 20 hours per week for 40 weeks in a that the ordinary business income reported on the entity- job share position. Only the hours worked by the employee level federal return qualifies for the reduced tax rate. See that worked 32 hours per week can be used toward the the instructions for column (b) for additional information. 1,200 hour requirement. Since the total hours (30 weeks x 32 hours per week = 960 total hours) worked by that employee Example 1: Bryant is the sole shareholder of an S corpora- don’t exceed the 1,200 hour requirement, and the other five tion. Marcus is the sole shareholder of an S corporation. The employees don’t qualify for purposes of the employee ratio two S corporations each have a 50 percent ownership in a requirement, the nonpassive income from the partnership partnership. Bryant and Marcus both materially participate doesn’t qualify for the reduced tax rate. in the partnership, which has ordinary business income of $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 Section Temporary or “leased” employees. If a qualifying busi- 469. A taxpayer materially participates in an activity if they ness contracts with a professional employer organization to work on a regular, continuous and substantial basis in opera- employ temporary or “leased” employees, those employees tions, and meet any one of the seven material participation can be used to qualify a business for the reduced tax rate if 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 the amended return is filed 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. He files an amended business in Oregon for the required number of hours during return on April 12, 2024, and makes the election. His the tax year. Only the hours worked in a week in which the amended return will be accepted allowing the reduced tax employee worked at least 30 hours in Oregon can be counted. rate because it was filed before the original due date. 150-101-367-1 (Rev. 10-03-23) 2 2023 Schedule OR-PTE-NR Instructions |
Example 6: Maggie filed her original return on March 12, an S corporation, or Pfor a partnership. Don’t enter LLC or 2024, and didn’t elect the reduced tax rate or file an exten- anything other than the codes listed. sion. She files an amended return on May 3, 2024, and elects Column (a). Enter Oregon-source nonpassive losses attribut- the reduced tax rate. The reduced tax rate will be denied able to the qualifying sole proprietorship, partnership, or S since the amended return was filed after the original due corporation. Include qualifying nonpassive losses such as date of April 15, 2024, and she didn’t file an extension. IRC Section 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, 2024, and elects the reduced tax rate. Enter Oregon-source Section 179 expense deduction you The reduced tax rate election will be allowed because it was made on his original return. reported in Part II, Section 28, column (i) of your federal Schedule E attributable to the qualifying partnership Example 8: Allen filed his original return on a timely filed or S corporation. Don’t complete this column for sole extension on May 3, 2024, and didn’t elect the reduced tax proprietorships. rate. He files an amended return on July 1, 2024, and makes the election. His amended return will be accepted allowing Column (c). Enter Oregon-source nonpassive income attrib- the reduced tax rate and his amended return will be treated utable to the qualifying sole proprietorship, partnership, or as the original return for the reduced tax rate election. S corporation. Include qualifying nonpassive income such as royalties and IRC Section 1231 gains treated as ordinary If you claimed the reduced tax rate on your original return, income. Don’t include passive income, capital gains, interest you must amend Schedule OR-PTE-NR if: income, wages, or dividends. • An IRS audit (or other state audit) resulted in a change that Column (d). If you are not a member of an entity that elected affects your Oregon return; to pay PTE-E tax, enter 0. Otherwise, if all of the ordinary • You amended your federal (or other state) return and the business income passed through from the entity qualifies changes you made affect your Oregon return; for this reduced tax rate, enter the amount from Schedule • You have a net operating loss (NOL); or OR-21-K-1, line 2. However, if not all of the ordinary busi- • You need to correct income or deductions you originally ness income passed through from the entity qualifies for this reported. 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 Ordinary business OR-21-K-1, line 2 column (d) Use the following instructions to complete Schedule OR- income from PTE-NR. Complete the entire schedule and include it with Schedule K-1, box 1 your Oregon Form OR-40-N. 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 on Use additional schedules if necessary and put the total from the first page. 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 Note: You must list all nonpassive income (or loss) from qual- rate. Return to line 46 and complete the rest of Form OR- ifying sole proprietorships, partnerships, and S corporations 40-N. If line 7 is more than 0, enter the amount on line 2b for each individual making the election. You can’t selectively of Section B. choose which qualifying income (or losses) to report. Section B instructions For each qualifying business, enter the business name, fed- eral employer identification number (FEIN), number of quali- The tax worksheet in Section B will help you calculate which fying employees, business code number, and entity type. tax rate is more beneficial to you. Complete each line to determine your tax. Business code number. Enter the business code number (or North American Industry Classification System code) Lines 4 and 7. Report only the depreciation modification as reported on line C of federal Form 1065, line B of federal attributable to the qualifying sole proprietorships, partner- Form 1120-S, or line B of federal Schedules C or F. ships, or S corporation listed in Section A. Entity type. Enter the appropriate code for how the business Example 9: Liam reports an addition for depreciation attrib- files for tax purposes: SP for a sole proprietorship, SC for utable to a qualifying sole proprietorship he owns on line 150-101-367-1 (Rev. 10-03-23) 3 2023 Schedule OR-PTE-NR Instructions |
30S of his Form OR-40-N. He also reports a subtraction for income averaging, you’ll need to use the appropriate work- depreciation attributable to a qualifying partnership on line sheet or schedule, 2023 Worksheet FCG or 2023 Schedule 33S of his Form OR-40-N. In Section B, Liam will report the OR-FIA-40-N, to calculate the tax on line 1a. addition on line 4 and the subtraction on line 7. Line 14a. Enter the lesser of line 12a or 13a. If line 12a is less Line 10a. Use Tax rate chart A below for the taxable income than 13a, enter the amount on line 14a on line 46 of Form reported on 8a. Report the tax on line 10a. Note: If you have OR-40-N and check box 46c. If line 13a is less than 12a, it other income that qualifies for an alternative tax rate, such isn’t more beneficial for you to use the reduced tax rate. Enter as farm liquidation long-term capital gains or farm income the amount from line 13a on line 46 of Form OR-40-N and averaging, you’ll need to use the appropriate worksheet or complete the rest of the return. schedule, 2023 Worksheet FCG or 2023 Schedule OR-FIA- 40-N, to calculate the tax on line 10a. Don’t include the non- passive income listed on line 8a in the calculation. Do you have questions or need help? Line 11b. Use Tax rate chart B below for the taxable income www.oregon.gov/dor reported on line 9b and report the tax on line 11b. 503-378-4988 or 800-356-4222 questions.dor@dor.oregon.gov Line 13a. Use Tax rate chart A below for the taxable income reported on line 1a. Report the tax on line 13a. Note: If you Contact us for ADA accommodations or assistance in other have other income that qualifies for an alternative tax rate, languages. such as farm liquidation long-term capital gains or farm 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 pass-through entity 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 150-101-367-1 (Rev. 10-03-23) 4 2023 Schedule OR-PTE-NR Instructions |