Oregon Pass-Through Entity Tax Rate Modifications

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Oregon has allowed a reduced tax rate for qualifying income for sole proprietorships, partnerships and S corporations that is taken on your individual return. The qualifying income must be from a business you materially participated in and the business must have employed at least one non-owner employee worked a minimum of 1,200 hours.

The new law modification effective January 1, 2021 reduces two marginal pass-through entity (PTE) income tax rates:

  • The rate for pass-through income exceeding $250,000 but not exceeding $500,000 is reduced from 7.2% to 7%.
  • The rate for pass-through income exceeding $500,000 but not exceeding $1 million is reduced from 7.6% to 7.5%.

However, the modifications now eliminate the reduced rates from the partnership or S corporation that has ordinary business income in excess of $5 million for the tax year. In addition, for a partnership or S corporation, the trade or business must comply with revised employee ratio requirements or a new income distribution limitation of 25% of income requirement that could eliminate the previous benefits. The bill also modified employment requirements for participating PTEs that are more restrictive based on tiered ordinary income levels. 

For more information on how this bill may affect your tax situation, contact us.