No Extension in Sight: Oregon PTE-E to End After 2025

As of February 9, 2026, Oregon’s Pass‑Through Entity Elective Tax (PTE‑E) is still scheduled to sunset for tax years beginning before January 1, 2026. Despite ongoing interest from the business community, the Legislature’s current short session has not produced any movement toward an extension, and no official proposals are pending. While legislative activity can change quickly, business owners should plan based on the current law, which means the PTE‑E is set to expire after 12/31/2025.

Why This Matters for Oregon Businesses

The PTE‑E has been a valuable planning tool for owners of partnerships, S corporations, and LLCs, allowing state income tax to be paid at the entity level and deducted federally. This structure was designed to help business owners work around the federal cap on state and local tax (SALT) deductions. With the federal SALT deduction cap now increased to $40,000 for 2025 and $40,400 for 2026 (with a phase-down for high-income taxpayers), the benefit remains meaningful for many Oregon taxpayers, especially those with significant Oregon‑sourced income. However, the cap is scheduled to revert to $10,000 in 2030, making the PTE‑E’s current benefits time-sensitive.

What Happens if PTE‑E Ends

If the program expires as scheduled:

• Pass‑through owners will lose the ability to deduct Oregon taxes at the entity level beginning in 2026.
• More income will be exposed to federal tax due to the $40,000 SALT cap (or $10,000 after 2029), potentially increasing federal tax liability for many owners.
• Estimated tax planning and cash flow projections may shift materially for Oregon businesses, as owners will need to resume making individual estimated tax payments for state taxes.
• Oregon may experience changes in the timing of tax payments as activity returns to individual returns, and entities may again be required to withhold Oregon tax on behalf of nonresident owners.

Recommended Next Steps for Business Owners

To ensure a smooth transition and minimize surprises, consider the following best practices:

1. Confirm the Sunset Timeline
   • Monitor for any last-minute legislative changes, but plan for the PTE‑E to end after 2025.
2. Update Tax Projections and Scenario Planning
   • Prepare side-by-side tax projections for 2025 (with PTE‑E) and 2026 (without PTE‑E) to understand the impact on both federal and state tax liabilities.
   • Factor in the add-back of the PTE‑E deduction for Oregon tax purposes and the refundable credit for your share of the tax paid at the entity level.
3. Adjust Cash Flow and Estimated Tax Planning
   • Plan for the resumption of individual estimated tax payments for state taxes in 2026.
   • Review withholding requirements for nonresident owners and consider whether composite returns may be beneficial.
4. Communicate with Owners and Stakeholders
   • Proactively inform all owners about the end of the PTE‑E election, the impact on their personal tax filings, and any changes to cash flow or estimated tax requirements.
   • Update governing documents if they reference the PTE‑E election.
5. Evaluate Alternative Tax Strategies
   • Consider whether filing a composite return for nonresident owners is appropriate after the PTE‑E ends.
   • Reassess your entity structure to ensure it remains optimal in the absence of the PTE‑E benefit.
6. Continue to Stay Informed
   • Continue to monitor future federal and Oregon legislative developments, as further changes to the SALT cap or state tax regimes could affect your planning.

In Summary

The likely sunset of Oregon’s PTE‑E after 12/31/2025 means business owners should act now to update tax projections, adjust cash flow planning, and communicate with stakeholders. Proactive scenario modeling and timely communication will help ensure a smooth transition and maintain tax efficiency for both businesses and their owners. For those interested in supporting an extension or modification of the PTE‑E, reaching out to professional associations, industry groups, or state legislators can help ensure policymakers understand the impact on Oregon pass‑through businesses.