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How Does the Pass-Through Entity Tax Work?

by Gloria McDonnell, CPA

September 21, 2021 - Pass-through entity tax allows an entity to pay taxes directly at the entity level on behalf of members, partners, and shareholders. Enacted in July of this year, it helps to circumvent the $10,000 Federal cap on state and local tax deductions phased in during tax reform. Here is a list of common questions around the election.

How do you opt-in and who qualifies?

Owners representing more than 50% control of a partnership, LLC, or an S corporation need to support opting inโ€”and once applied, it will apply to all owners. None of the members, partners, or shareholders can be a partnership, LLC (other than a single-member LLC), or corporation.

How is the tax calculated and paid?

The entity's Minnesota source income is multiplied by 9.85%, the highest individual income tax rate. The tax is paid by filing Schedule PTE by the due date or extended due date of the entity's tax return.

If you would like to see all of the details of this update, you can click here to visit the Minnesota Department of Revenue website.

For questions regarding electing the pass-through entity tax, you should reach out to your trusted tax planning advisor.

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Gloria McDonnell, CPA

Gloria McDonnell, CPA

Gloria McDonnell is a partner, the tax operations director, and serves on the leadership team at Redpath and Company. She specializes in corporate and individual tax planning and compliance, multi-state taxation, international tax, and tax research. Gloria works with closely-held businesses in a variety of industries, and has provided business tax accounting services since 1989, and has been at Redpath and Company since 1996.

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