Minnesota Renews Pass-Through Entity Tax Election
Minnesota pass-through business owners received welcome news in May 2026 when the Minnesota Legislature passed legislation renewing the state’s Pass-Through Entity Tax election.
For many owners of S corporations, partnerships, and LLCs taxed as partnerships or S corporations, this preserves a tax planning opportunity they have used in recent years. Minnesota’s PTE tax election allows qualifying pass-through entities to pay Minnesota income tax at the entity level on behalf of their owners. The owners then generally receive a Minnesota credit for their share of the tax paid.
The main benefit is federal. By paying the tax at the business level, the deduction may avoid the individual $10,000–$40,000 federal state and local tax deduction limitation, commonly referred to as the SALT cap.
Minnesota’s PTE tax was previously scheduled to expire after the 2025 tax year. The 2026 legislation renews the election, but the renewal is temporary and is currently scheduled to expire after the 2027 tax year. As a result, business owners should view this as a continued planning opportunity for a limited window, not a permanent change.
For 2026, Minnesota has also provided relief related to estimated tax payments. The first quarter estimated tax payment for the 2026 PTE tax election may be combined with the second quarter payment due June 15, 2026. No penalties will be charged for first quarter payments that are made with the second quarter payment.
What Business Owners Should Consider
Business owners who have used the PTE election in prior years should revisit it as part of their 2026 tax planning. While the concept is familiar, each year’s analysis should still consider:
- Ownership changes
- Resident and nonresident owner issues
- Estimated tax payment timing
- Cash flow and tax distributions
- Multistate tax considerations
- Whether the election still benefits all owners
The election is not automatic, and it may not be the best answer for every entity. Owners should work with their tax advisor to confirm eligibility, review the expected benefit, and coordinate estimated payments.
Bottom Line
The renewal of Minnesota’s PTE tax election is a positive development for many pass-through business owners, but it is not indefinite. For those who have benefited from the election in prior years, this legislation helps preserve an important federal tax planning opportunity for the 2026 and 2027 tax years and should be reviewed as part of tax planning. Business owners should also be aware of the special 2026 estimated payment relief, which allows the first quarter payment to be made with the second quarter payment due June 15, 2026, without penalty.
