Minnesota Pass-Through Entity (PTE) Tax allows a business to elect to pay tax at the entity level which generates a federal tax deduction for the state income taxes. Many S Corps and Partnerships that operate in MN are benefitting from this deduction.
Starting in 2026 the MN law which allows PTE has expired and is not currently in effect. It is possible that the MN Legislature will extend the PTE laws into 2026 and beyond, but currently PTE has expired for any tax year after 12/31/2025. It’s hard to say or predict when it might be coming up in the legislature or what the odds are that it would be extended.
What does this mean for MN businesses? It means you have a hard choice to make and there is no particularly good option. Let’s take a look at each option.
Option 1 : Make PTE payments for the 2026 year each quarter (if PTE law is extended this option will look smart in hindsight, if PTE law is never extended MN will have had your money all year and refund it with no interest)
Option 2: Do not make any PTE payments until the law is fully in effect (if PTE law is extended you will owe MN some interest for not paying all the estimates, if PTE law is never extended this option will look smart in hindsight)
Option 3: Do not make individual tax payments (if PTE law is extended this option will look smart in hindsight, if PTE law is never extended MN will charge you interest for not paying these estimates)
Option 4: Make individual tax payments for the 2026 year each quarter (if PTE law is extended MN will had had your money all year and refund it with no interest, if PTE law is never extended this option will look smart in hindsight)
Generally speaking if you choose Option 1 on the PTE payments you will also choose Option 3 for the individual tax payments to be consistent. Similarly if you choose Option 2 for the PTE payments you would probably choose Option 4 for the individual tax payments.
Common Questions:
What happens if I make MN PTE payments during 2026 and the law never passes?
You will get a refund when you file your 2026 business return. MN will not pay you interest on that refund.
What happens if I do not make MN PTE payments during 2026 and the PTE law does pass to allow PTE?
You will be charged interest by MN for not paying quarterly estimates.
What happens if I make MN individual estimate payments during 2026 and the PTE law does pass?
If the business files PTE then you will get a refund of those personal individual estimates when you file your individual MN return for the year. MN will not pay you interest on that refund.
What happens if I do not make MN individual estimate payments during 2026 and the PTE law never passes?
You will be charged interest by MN for not paying quarterly estimates.
Reach out to your professionals here at Boyum to get the latest news on potential PTE extensions and MN conformity legislation.