Minnesota’s Pass-Through Entity (PTE) Tax Set to Expire After 2025: What Businesses Need to Know
Minnesota’s Pass-Through Entity (PTE) Tax—an election that allows qualifying partnerships, LLCs, and S corporations to pay tax at the entity level on behalf of their partners, members, or shareholders—is currently scheduled to expire for tax years beginning after December 31, 2025.
This means that the PTE election will remain available for Tax Year 2025, but unless the Minnesota Legislature takes action during the upcoming 2026 session, the PTE will not be available for the 2026 tax year. Unlike some states, Minnesota does not automatically conform to federal law changes, so legislative approval is required to extend or reinstate the PTE beyond 2025.
The Minnesota legislative session is scheduled to begin Tuesday, February 17, 2026, and we will be closely monitoring all developments for early updates or proposed guidance.
What This Means for Your Business
The uncertainty surrounding the PTE’s continuation creates potential challenges for businesses planning their 2026 estimated tax payments, as well as for individual owners who rely on predictable tax planning.
Because the state has not yet provided direction on whether the PTE will be extended, businesses may face ambiguity about:
- How 2026 estimated tax payments should be calculated
- Whether payments should be made at the entity level or individual level
- The expected timing of refunds if estimates are made incorrectly
We strongly encourage business owners and taxpayers to contact their local Minnesota state representatives to emphasize the importance of timely guidance. Clear direction from the Legislature would help prevent confusion and support informed decision-making for the business community.
Possible Filing Considerations for 2026
If clear legislative guidance is not issued early in the session, we may recommend considering:
- Filing Extensions for Both Business and Individual Returns: An extension strategy could offer flexibility and help mitigate risk while awaiting clarification.
- Making Extension Payments With First-Quarter Estimates: If an extension payment is made at the entity level because the PTE appears likely to be extended—but ultimately is not extended—this approach may offer a financial advantage:
-
- The payment could generate a refund on the 2025 entity return, which is processed sooner,
- Rather than waiting for a 2026 tax year refund in 2027, which may significantly delay the return of funds.
This timing difference can be meaningful for businesses managing cash flow, especially in periods of legislative uncertainty.
We Will Keep You Updated
As the 2026 session approaches, we will monitor all legislative developments and provide updates as soon as new information becomes available. Our goal is to help you plan confidently despite the current uncertainty.
If you have questions about how the potential expiration of the PTE may affect your business, please reach out to our team—we are here to help.
