Minnesota Pass-Through Entity (PTE) Tax Election

Is the Minnesota PTE election available right now?

The honest answer in mid-2026 is “not for new tax years, pending legislative action.” The PTE statute, Minn. Stat. § 289A.08, subd. 7a, contains a built-in expiration clause tying it to the federal SALT-cap statute: the subdivision expires “at the same time and on the same terms as section 164(b)(6)(B) of the Internal Revenue Code.” That reference does not float to the current federal statute. Minnesota uses static conformity under Minn. Stat. § 289A.02, subd. 7, which defines the Internal Revenue Code as the Code “as amended through May 1, 2023.” On that date, federal § 164(b)(6)(B) was set to sunset after the 2025 tax year. By operation of the expiration clause read against the conformity date, the Minnesota election expired for tax years beginning after December 31, 2025.

Congress later extended the federal SALT cap through 2029 in the One Big Beautiful Bill Act of 2025 (Pub. L. 119-21), with reversion scheduled for 2030. That extension has no effect on the Minnesota PTE statute as long as Minnesota’s conformity date stays at May 1, 2023. The Minnesota Department of Revenue has confirmed the PTE election expired for tax years beginning after December 31, 2025 and will not be available unless the legislature either updates the conformity date or re-enacts the PTE provision separately. Re-enactment legislation, HF3127 and its Senate companion SF3405, was introduced in the 2026 session. On March 11, 2026 the House Taxes Committee deadlocked along party lines on HF3127 (as amended) and the bill was laid over. As of this writing the bill remains stalled in committee and re-enactment for 2026 is uncertain.

For tax years beginning before January 1, 2026, the election remains usable, including on returns filed in 2026 for 2025 short-period and fiscal-year entities. Returns covering pre-sunset years follow the same mechanics described in the rest of this article.

What problem does the PTE election solve?

The election is a response to the federal cap on individual state-and-local-tax deductions. Owners of a pass-through entity who pay Minnesota tax at the individual level have that tax deduction capped on Schedule A of their federal return. Owners of a C-corporation do not have the same problem, because the corporation deducts the state tax at the entity level without an individual cap. The PTE election lets a partnership or S-corp move the state-tax payment to the entity’s books, where it is generally deductible without the individual cap, while preserving pass-through treatment for everything else.

The structural move is straightforward. The entity computes a pass-through entity tax on the owners’ allocable income, pays it to Minnesota with the entity’s return, and deducts it as a state-and-local tax on the entity’s federal return. That deduction reduces the federal taxable income that flows to the owners on their K-1s. At the state level, Minnesota offsets the duplicate taxation by giving each owner a credit equal to the share of entity-level tax attributable to that owner.

The IRS blessed this design in Notice 2020-75, holding that a state’s election to impose tax at the entity level on pass-through income is generally respected for federal purposes and the state tax is deductible by the entity. Minnesota’s statute is built to fit inside that federal blessing.

Which entities qualify for the PTE election?

The election is available to qualifying entities under § 289A.08, subd. 7a. In practical terms, that means a partnership, an S corporation, or an LLC taxed as a partnership or S corporation. A single-member LLC disregarded for federal tax purposes does not qualify, because the disregarded LLC has no entity-level federal income to tax and no separate K-1s to issue. An LLC that has elected C-corporation treatment likewise does not qualify, because it is a corporation paying its own corporate tax already.

The owner-side eligibility rules are equally important. The owners who can be qualifying owners are individuals (resident or nonresident), estates, certain trusts, and disregarded entities owned by an eligible individual. An LLC owned by another LLC, a partnership owned by a partnership, or an S-corp owned through a corporate parent will fail the qualifying-owner test as to those tier-one owners. The presence of a single ineligible owner does not necessarily disqualify the entity, but it does shrink the pool of owners on whose behalf the entity-level tax can be computed.

Two practical filters cover most cases. If your entity is taxed as a partnership or S-corp federally, and your owners are people (or their grantor trusts), you are likely eligible. If your entity has corporate, partnership, or LLC owners in the cap table, eligibility needs an attorney-and-CPA review before the election is made. For background on how Minnesota classifies different entity types and the tax treatment that follows from each, see Types of Minnesota business entities and tax implications.

How is the PTE election actually made?

The election is made on the entity’s pass-through entity tax return, on or before the due date or the extended due date of that return. The statute requires that the owners “who collectively hold more than 50 percent of the ownership interests in the qualifying entity held by qualifying owners” make the election, and once made, the election “is binding on all qualifying owners who have an ownership interest in the qualifying entity.” The election is annual, and once filed for a tax year, it “is irrevocable for the taxable year.”

Three operational details matter. First, the election is per-entity-per-year; each year is a fresh decision, and the entity is not locked into a multi-year commitment. Second, the more-than-50-percent threshold is on the qualifying-owner pool, not the total cap table; if 70 percent of equity is held by qualifying owners and the rest by an ineligible LLC, the threshold runs against the 70 percent. Third, the binding effect on all qualifying owners means a 51 percent majority can pull a 49 percent dissenter into the election, which makes operating-agreement and shareholder-agreement language about tax elections worth checking before filing.

In my practice, the most common filing slip is treating the election as a checkbox on the federal return rather than as a Minnesota return mechanic. The election is made on the Minnesota Schedule PTE filed with the entity’s Minnesota return. Federal partnership and S-corp returns do not contain a Minnesota PTE election checkbox, and federal-only filers regularly miss the state-level form.

What is the PTE tax rate and how is it computed?

The PTE tax is imposed at “the highest tax rate for individuals under section 290.06, subdivision 2c,” which is currently 9.85 percent. The entity applies that single rate to each qualifying owner’s PTE taxable income, then sums the owner-level amounts to produce the entity’s PTE tax. The base is the owner’s allocable share of Minnesota-source pass-through income, modified by Minnesota additions and subtractions that would otherwise apply at the owner level.

The choice of the top individual rate, rather than a graduated schedule, is deliberate. It assures the federal IRS that the entity-level tax is a true entity tax rather than a collected pre-payment of each owner’s individual tax, which is the design Notice 2020-75 requires. The trade-off is that the entity tax can be slightly higher than what the owners would have paid individually if some owners are in lower brackets. The federal SALT deduction usually offsets that excess, but not always; modeling matters.

If your entity has not yet finalized whether to be taxed as a partnership or as an S-corporation, that classification choice precedes the PTE analysis; see Can you convert an LLC to an S-corp? Pros and cons for the upstream decision. A separate base computation applies to net investment income that flows through to the owners, which is computed separately under the statute and the corresponding DOR schedule. For most operating LLCs, the operating-income base dominates. For investment partnerships and family LLCs holding portfolio assets, the separate computation is the bigger figure.

How does the PTE owner credit work?

Owners of an electing entity claim a refundable credit against their Minnesota individual income tax under Minn. Stat. § 290.06, subd. 40. The statute reads: “A qualifying owner of a qualifying entity that elects to pay the pass-through entity tax under section 289A.08, subdivision 7a, may claim a credit against the tax due under this chapter equal to the amount of the owner’s tax liability as calculated under section 289A.08, subdivision 7a, paragraph (d).” The credit is reported on Schedule M1REF for individual owners and Form M2 for estate and trust owners; the entity furnishes a Schedule PTE (and Schedule PTE-RP for resident partners on partnership-level returns for 2023 and forward) showing each owner’s allocable share.

The credit’s refundability matters. Because it is refundable, an owner whose total Minnesota tax liability is less than the share of entity-level tax attributable to that owner can recover the excess as a refund on the individual return. There is one important guardrail in the statute: once an owner claims the credit, the entity itself cannot also receive a refund for the same tax. The refund-claim path runs through the owner, not the entity.

For owners who pay tax to other states on the same income, an additional layer applies. Minnesota also provides a credit at the entity level for pass-through entity taxes paid to another state, which prevents double-state-taxation when an entity has activity in Minnesota plus PTE-electing activity in a sister state. The mechanics are administratively complex; for multi-state pass-throughs, the CPA models both directions before deciding whether to elect in each state.

How does the PTE election interact with estimated payments?

A qualifying entity that elects the PTE tax is required to make estimated payments on the entity-level tax in the same general manner as other Minnesota taxpayers required to pay estimated tax. Under Minn. Stat. § 289A.25, individuals, trusts, S-corporations, and partnerships pay estimated tax in installments through the year on a quarterly cadence, with safe harbors based on the lesser of a percentage of the current year’s tax or a percentage of the prior year’s tax. The same architecture applies to the entity-level PTE tax: the entity pays in throughout the year, not in a lump sum at filing.

For loss years and substantially-reduced-income years, the safe-harbor computation can produce a small or zero estimated-payment requirement. For high-income years, the entity needs cash on hand to fund the quarterly installments, which is a working-capital point that often gets missed when ownership groups also draw distributions to fund their personal estimates. The cleanest approach is to coordinate the entity’s PTE estimates with the owners’ personal Minnesota estimates so the entity is not double-funding state tax for the year. Model first, fund once.

The interaction with the owner-level credit is purely a return-preparation point. The owner does not get the credit until the entity’s return reports the tax paid; intra-year, the entity’s PTE estimated payments are not directly creditable on the owner’s quarterly individual estimates. Owners running tight estimated-payment cushions on their personal returns adjust them down for the year of an election to avoid stacking entity-level and individual-level estimates on the same income.

How does the PTE election affect nonresident owners?

Nonresident-owner mechanics are where the PTE election earns its operational complexity. Two specific points come up repeatedly. First, a nonresident qualifying owner whose only Minnesota source income is from the electing entity may have his or her Minnesota individual filing obligation satisfied by the entity’s PTE return, which functions as a composite filing for that limited fact pattern. The owner avoids a separate Minnesota return. The owner with other Minnesota income (rental property, separate K-1, separate consulting work) still files individually.

Second, the credit-mechanic value to a nonresident owner depends entirely on how the owner’s home state treats the Minnesota entity-level tax. Some states give a credit for the entity-level tax paid to Minnesota; some treat it as a state tax of the owner; some treat it as a state tax of the entity that does not generate an owner-level credit. The home-state treatment can flip the analysis from “make the election” to “skip the election” for entities with significant nonresident ownership in unfavorable states. In my experience, this is the single most-overlooked variable in PTE planning. Resident-only ownership groups model cleanly; mixed-state ownership groups model carefully.

Third, the entity itself may be eligible for a credit at the entity level for pass-through entity taxes paid to other states under Minn. Stat. § 290.06, subd. 23a, which addresses sister-state PTE taxes. Multi-state operating partnerships frequently end up making the election in more than one state and reconciling the credit interactions on each state’s entity return.

Should I make the PTE election?

Assuming the election is available for the year (see the first H2), the decision is a model-it question, not a default. The basic case for making it: an owner in the top federal bracket, with a meaningful share of pass-through income that would otherwise produce a SALT-capped state-tax deduction at the individual level, gets a real federal-tax benefit from moving the state tax to the entity. The basic case against: a low-bracket owner, an owner whose individual SALT deduction would not be capped anyway, or a nonresident owner whose home state will not honor the Minnesota entity-level tax with a credit.

Three variables move the model the most. First, the projected mix of owner residency states (all-Minnesota is simplest; multi-state requires home-state-by-home-state analysis). Second, the projected Minnesota-source pass-through income for the year (the bigger the number, the bigger the federal SALT-cap escape). Third, the entity’s cash position for funding entity-level estimates without disrupting distribution rhythms. About half of the PTE elections I review are clear go-decisions on the math; the remainder are close calls that depend on owner-specific facts the entity-level analysis cannot see.

For owners running a midsized business considering whether the PTE fits inside a broader tax-strategy stack, see Six categories of tax strategies for midsized businesses for the wider context. Two practical reminders close the analysis. The election is irrevocable for the year, so it is not a midyear hedge against changes. And the entity-level minimum fee under Minn. Stat. § 290.0922 is a separate Minnesota tax, scaled to property, payrolls, and sales, that applies to S-corps and partnerships regardless of the PTE election; the PTE election does not eliminate or reduce the minimum fee. Owners weighing the federal benefit against the entity-level paperwork sometimes forget the minimum-fee item is already in their Minnesota baseline.

The Minnesota PTE election is the kind of decision that pays for the planning time when the federal-state interaction is modeled cleanly and costs more than it saves when the election is treated as a default. The current sunset question makes 2026 unusually important to track, because re-enactment, if it comes, will determine whether a Minnesota partnership or S-corp has a SALT-cap workaround available for the year at all. For a second set of eyes on whether the election fits your entity, your ownership group’s residency mix, and your federal-tax posture, email aaron@aaronhall.com with a brief description of the entity, its owners, and a recent K-1. More on tax topics at our Minnesota tax law hub.