Schedule OR-PTE-PY Instructions                                                 2022
                                 Qualifying business income reduced tax rate for 
                                              Oregon part-year residents

                                                                    • Materially participate in the business;
General information                                                 • Have ordinary business income that doesn’t exceed 
                                                                    $5 million;
If you have qualifying income from a sole proprietorship,           • Employ one or more employees in Oregon who meet the 
partnership, or an S corporation, you may elect to use a            employee requirements described below; and
reduced tax rate for that income. The reduced tax rate can          • If ordinary business income is more than $250,000, comply 
be claimed for qualifying income up to $5 million. Use              with the employee-to-owner ratio requirement shown in 
Schedule OR-PTE-PY to claim this reduced tax rate if you’re         this table or meet the income distribution requirement 
a part-year resident.                                               described below.
Important: The qualifying business income reduced tax               Employee-to-owner ratio requirement. Unless the income 
rate is an irrevocable election that must be made each year         distribution requirement is met, partnerships and S corpora-
on an original return. You can’t amend to revoke or make            tions with more than $250,000 in ordinary business income 
the election after your original return is filed unless you         must have, at a minimum, the number of qualifying employ-
file an amended return on or before the original due date of        ees in Oregon per owner as shown in this table. The com-
April 18, 2023, or if filing on extension, October 17, 2023. See    bined total of hours worked by the qualifying employees, 
the “Amending” section for more information. The annual             up to 1,200 hours per employee, must be at least the number 
election is made by completing Schedule OR-PTE-PY and               shown in this table.
checking box 44c on the Oregon Form OR-40-P. 
                                                                    Partnership and S corporation employee requirements:
Qualifying income may only be modified for depreciation 
before applying the reduced tax rate. No other additions,           Ordinary     But not    Employees        Aggregate 
subtractions, or deductions are allowed in the calculation          business     more than      required     hours worked 
of the tax on qualifying income.                                    income is at                             by employees
                                                                    least
Schedule OR-PTE-PY is for Oregon part-year residents only. 
If you are an Oregon full-year resident, use Schedule OR-           $0           $250,000       One           1,200
PTE-FY. If you are an Oregon nonresident, use Schedule                                          One per 
                                                                    $250,001     $500,000                     1,200
OR-PTE-NR.                                                                                      owner
                                                                                                Two per 
                                                                    $500,001     $1,000,000                   2,400
                                                                                                owner
Qualifications
                                                                                                Four per 
                                                                    $1,000,001   $2,500,000                   4,800
                                                                                                owner
Generally
                                                                                                Ten per 
                                                                    $2,500,001   $5,000,000                   12,000
To be eligible for the reduced tax rate, you must materially                                    owner
participate in the business, have at least the minimum num-
                                                                    Income distribution requirement. A partnership or S 
ber of qualifying Oregon employees, and meet any specific 
                                                                    corporation with more than $250,000 in ordinary business 
requirements for a sole proprietorship or for a partnership 
                                                                    income may still qualify for the reduced tax rate even if 
or S corporation.
                                                                    the employee-to-owner ratio shown in this table isn’t met, 
Sole proprietorship                                                 so long as income distributions don’t exceed 25 percent of 
                                                                    ordinary business income. Calculate the percentage using 
To be eligible for the reduced tax rate, a sole proprietor must:    the total distributions and total ordinary business income 
• Have qualifying business income from the sole                     for the current tax year and up to two of the most recent tax 
proprietorship;                                                     years. Treat an annual amount of less than zero as zero for 
• Materially participate in the business; and                       that year.
• Employ one or more employees in Oregon who meet the               Qualifying business income. For your income to qualify 
employee requirements explained below.                              for the reduced tax rate, it must be nonpassive income from 
                                                                    a sole proprietorship, partnership, or S corporation. Income 
Partnership or S corporation
                                                                    from trusts or estates, doesn’t qualify for the reduced tax rate. 
To be eligible for the reduced tax rate, a partner or S corpora-
                                                                    “Nonpassive income” is income other than that from passive 
tion shareholder must:
                                                                    activities as defined in Section 469 of the Internal Revenue 
• Have qualifying business income from the partnership or           Code (IRC). This includes, but isn’t limited to, nonpassive 
S corporation;                                                      income reported on federal Schedules C (line 31), E [line 28, 
150-101-366-1 (Rev. 08-30-22)                                     1                       2022 Schedule OR-PTE-PY Instructions

column (k)], and F (line 34); IRC Section 1231 gains treated as    counted. Hours worked by an employee that is a spouse or 
ordinary income; guaranteed payments; and royalties. Non-          other family member that isn’t an owner, member, or limited 
passive income doesn’t include wages, interest, dividends, or      partner can be used to meet the hour requirements. Indepen-
capital gains for the purpose of the reduced tax rate.             dent contractors can’t be used for the employee requirement.
Tiered entities. If you received nonpassive income that            Example 2: A sole proprietorship had one employee that 
passed-through an upper-tier entity to you from a qualifying       worked a total of 1,440 hours during the year in Oregon. 
lower-tier entity, that income qualifies for the reduced tax       The employee worked 32 hours per week for 30 weeks and 
rate if the lower-tier entity meets the employee requirement.      worked 24 hours per week for 20 weeks. The total qualifying 
                                                                   hours is 960 (32 hours x 30 weeks) since the proprietor can’t 
Coordination with pass-through entity elective tax (PTE-E 
                                                                   count hours worked less than 30 hours in a week. Because 
tax). Certain partnerships and S corporations may elect to 
                                                                   the total qualifying hours worked in Oregon is less than 
pay PTE-E tax. This means they have elected to pay Oregon 
                                                                   1,200, the nonpassive income from the sole proprietorship 
income tax at the entity level. Individuals who are direct 
                                                                   doesn’t qualify for the reduced tax rate.
or indirect members of an electing entity are allowed a tax 
credit for the PTE-E tax paid by the entity. Individuals must      Example 3: A partnership with three partners employed 
also report an addition for any PTE-E tax deducted on an           six employees during the year in Oregon. One employee 
entity-level federal return. The addition amount will be           worked 32 hours a week for 30 weeks and the other five 
added to qualified business income, but only to the extent         employees each worked 20 hours per week for 40 weeks in a 
that the ordinary business income reported on the entity-          job share position. Only the hours worked by the employee 
level federal return qualifies for the reduced tax rate. See       that worked 32 hours per week can be used toward the 
the instructions for column (b) for additional information.        1,200 hour requirement. Since the total hours (30 weeks x 32 
                                                                   hours per week = 960 total hours) worked by that employee 
Example 1: Bryant is the sole shareholder of an S corpora-
                                                                   don’t exceed the 1,200 hour requirement, and the other 
tion. Marcus is the sole shareholder of an S corporation.  The 
                                                                   five employees don’t qualify for purposes of the employee 
two S corporations each have a 50 percent ownership in a 
                                                                   ratio requirement, the income from the partnership doesn’t 
partnership. Bryant and Marcus both materially participate 
                                                                   qualify for the reduced tax rate.
in the partnership, which has ordinary business income of 
$2 million. The partnership employs ten full-time employees        Example 4: An S corporation with two shareholders and 
in Oregon. Bryant and Marcus receive a distributive share of       annual ordinary business income of $800,000 has three 
nonpassive income from the partnership that passes through         employees, all of whom work 35-hour weeks. The office man-
their respective S corporations. They also receive a salary        ager and the two shareholders each work 50 weeks a year, a 
as reasonable compensation for the work performed for the          sales clerk works for 30 weeks a year, and a delivery driver 
partnership. The distributive share of nonpassive income           works 20 weeks a year, for a total of 3,500 hours worked by 
they receive from the partnership qualifies for the reduced        non-owner employees. Annual income distributions to the 
tax rate since the partnership (as passed through to them          shareholders include $150,000 in ordinary business income. 
from their respective S corporations) meets the ordinary           With only three employees, this business doesn’t meet the 
business income and employee requirements. However, the            employee ratio requirement; however, because it distributes 
salary received from the partnership doesn’t qualify for the       less than 25 percent of its ordinary business income to the 
reduced tax rate.                                                  shareholders each year, its nonpassive income still qualifies 
                                                                   for the reduced tax rate.
Material participation. Material participation has the same 
meaning as defined for federal purposes under IRC Section          Temporary or “leased” employees. If a qualifying busi-
469. A taxpayer materially participates in an activity if he       ness contracts with a professional employer organization to 
or she works on a regular, continuous, and substantial basis       employ temporary or “leased” employees, those employees 
in operations, and must meet any one of the seven material         can be used to qualify a business for the reduced tax rate if 
participation tests in Treasury Regulation Section 1.469-5T(a).    the employees meet the hour requirements.
Grouping activities. You may group trade, business, or rental 
activities into a single activity if they form an appropriate      Amending
economic unit for the purpose of meeting the material partici-
pation test under Treasury Regulation Section 1.469-4(c). This     You can’t amend to revoke or make the election after your 
treatment is also allowed for the purposes of the qualifying       original return is filed unless the amended return is filed on 
business income reduced tax rate and the material participa-       or before the original due date of April 18, 2023, or if filing 
tion requirement.                                                  on extension, October 17, 2023.
Employee requirement. The business must have the                   Example 5: Liam filed his original return on March 3, 2022, 
required number of employees who performed work for the            and didn’t elect the reduced tax rate. He files an amended 
business in Oregon for the required number of hours dur-           return on April 13, 2023, and makes the election. His 
ing the tax year. Only the hours worked in a week in which         amended return will be accepted allowing the reduced tax 
an employee worked at least 30 hours in Oregon can be              rate because it was filed before the original due date.

150-101-366-1 (Rev. 08-30-22)                                    2                          2022 Schedule OR-PTE-PY Instructions

Example 6: Maggie filed her original return on March 12,              an S corporation, or  Pfor a partnership. Don’t enter LLC or 
2023, and didn’t elect the reduced tax rate or file an exten-         anything other than the codes listed.
sion. She files an amended return on May 4, 2023, and elects 
                                                                      Column (a). Enter nonpassive losses attributable to the 
the reduced tax rate. The reduced tax rate will be denied 
                                                                      qualifying sole proprietorship, partnership, or S corporation. 
since the amended return was filed after the original due 
                                                                      Include qualifying nonpassive losses such as IRC Section 
date of April 18, 2023, and she did not file an extension.
                                                                      1231 losses treated as ordinary losses.
Example 7: Sam filed his original return on a timely filed 
                                                                      Column (b). For partnerships and S corporations only. 
extension on May 12, 2023, and elects the reduced tax rate. 
                                                                      Enter Section 179 expense deduction you reported in Part 
The reduced tax rate election will be allowed because it was 
                                                                      II, Section 28, column (i) of your federal Schedule E attribut-
made on his original return.
                                                                      able to the qualifying partnership or S corporation.   Don’t 
Example 8: Allen filed his original return on a timely filed          complete this column for sole proprietorships.
extension on May 3, 2023, and didn’t elect the reduced tax 
                                                                      Column (c). Enter nonpassive income attributable to the 
rate. He files an amended return on July 1, 2023 and makes 
                                                                      qualifying sole proprietorship, partnership, or S corporation. 
the election. His amended return will be accepted allowing 
                                                                      Also include qualifying nonpassive income such as royal-
the reduced tax rate and his amended return will be treated 
                                                                      ties and IRC Section 1231 gains treated as ordinary income. 
as the original return for the reduced tax rate election. 
                                                                      Don’t include passive income, capital gains, interest income, 
If you claimed the reduced tax rate on your original return,          wages, or dividends. 
you must amend Schedule OR-PTE-PY if:
                                                                      Column (d). If you are not a member of an entity that elected 
• An IRS audit (or other state audit) resulted in a change that       to pay PTE-E, enter 0. Otherwise, if all of the ordinary busi-
affects your Oregon return;                                           ness income passed through from the entity qualifies for this 
• You amended your federal (or other state) return and the            reduced tax rate, enter the amount from Schedule OR-K-1, 
changes you made affect your Oregon return;                           line 2. However, if not all of the ordinary business income 
• You have a net operating loss (NOL) carryback; or                   passed through from the entity qualifies for this reduced 
• You need to correct income or deductions you originally             tax rate, use the federal Schedule K-1 (or Oregon Schedule 
reported.                                                             OR-K-1) and Oregon Schedule OR-21-K-1 issued by the elect-
                                                                      ing entity and this formula to determine the amount to enter 
Note: If you amend after the due date for the return of April 
                                                                      on column (d):
18, 2023 (or October 17, 2023, if filing on extension), you must 
use the tax on line 16a of the Tax worksheet even if line 18a                 Qualifying business income from electing entity
is less.                                                                                           ÷
                                                                           Ordinary business income from Schedule K-1, box 1 
                                                                                                   ×  
Schedule instructions                                                            Addition from Schedule OR-21-K-1, line 2 
                                                                                                   = 
Use the following instructions to complete Schedule OR-PTE-                          Amount to claim on column (d)
PY. Complete the entire schedule and include it with your 
Oregon Form OR-40-P.                                                  See Form OR-21 Instructions and our website for information 
                                                                      about the PTE-E tax.
Section A instructions
                                                                      Line 6. Report the totals for columns (a), (b), and (c). If more 
Complete a line for each qualifying sole proprietorship, part-        than one page is used, report the total of all pages on the 
nership, or S corporation. Only list businesses that qualify.         first page.
Use additional schedules if necessary and put the total from 
all schedules on line 6 of the first page.                            Line 9. If line 9 is 0 or less, you can’t use the reduced tax rate. 
                                                                      Return to line 44 and complete the rest of Form OR-40-P. If 
Note: You must list all nonpassive income (or loss) from qual-        line 9 is more than 0, enter the amount on line 2b of Section B.
ifying sole proprietorships, partnerships, and S corporations 
for each individual making the election. You can’t selectively        Section B instructions
choose which qualifying income (or losses) to report.
                                                                      The tax worksheet in Section B will help you calculate which 
For each qualifying business, enter the business name, fed-           tax rate is more beneficial to you. Complete each line to 
eral employer identification number (FEIN), number of quali-          determine your tax. 
fying employees, business code number, and entity type.
                                                                      Lines 4 and 7. Report only the depreciation modification 
Business code number.         Enter the business code number          attributable to the qualifying sole proprietorships, partner-
(or North American Industry Classification System code) as            ships, or S corporations listed in Section A. 
reported on line c of federal Form 1065, line b of federal Form 
                                                                      Example 9: Liam reports an addition for depreciation attrib-
1120S, or line b of federal Schedules C or F. 
                                                                      utable to a qualifying sole proprietorship he owns on line 
Entity type. Enter the appropriate code for how the business          30F of his Form OR-40-P. He also reports a subtraction for 
files for tax purposes:       SP for a sole proprietorship, SC for    depreciation attributable to a qualifying partnership on line 
150-101-366-1 (Rev. 08-30-22)                                       3                              2022 Schedule OR-PTE-PY Instructions

33F of his Form OR-40-P. In Section B, Liam will report the      Line 19a. Enter the lesser of line 16a or 18a. If line 16a is less 
addition on line 4 and report the subtraction on line 7.         than 18a, enter the amount on line 19a on lines 44 and 45 of 
                                                                 Form OR-40-P, check box 44c, and complete the rest of the 
Line 10a. Use Tax rate chart A below for the taxable income 
                                                                 return. Don’t multiply the tax by the Oregon percentage as 
reported on 8a. Report the tax on line 10a. Note: If you have 
                                                                 instructed on line 45 of the Form OR-40-P. If line 18a is less 
other income that qualifies for an alternative tax rate, such 
                                                                 than 16a, it isn’t more beneficial for you to use the reduced 
as farm liquidation long-term capital gains or farm income 
                                                                 tax rate. Enter the amount from line 17a on line 44 of Form 
averaging, you’ll need to use the appropriate worksheet or 
                                                                 OR-40-P and complete the rest of the return.
schedule, 2022 Worksheet FCG or 2022 Schedule OR-FIA-
40-P, to calculate the tax on line 10a. Don’t include the non-
passive income listed on line 8a in the calculation.             Do you have questions or need help?
Line 13b. Use Tax rate chart B below for the taxable income 
reported on line 9b and report the tax on line 13b.                www.oregon.gov/dor
                                                                 503-378-4988 or 800-356-4222
Line 17a. Use Tax rate chart A below for the taxable income      questions.dor@dor.oregon.gov
reported on line 1a. Report the tax on line 17a. Note: If you 
have other income that qualifies for an alternative tax rate,    Contact us for ADA accommodations or assistance in other 
such as farm liquidation long-term capital gains or farm         languages.
income averaging, you’ll need to use the appropriate work-
sheet or schedule, 2022 Worksheet FCG or 2022 Schedule 
OR-FIA-40-P, to calculate the tax on line 1a.

2022 Tax rate chart A
2022 tax rate chart—Use this chart only for income reported on lines 1a and 8a of Section B. Report the tax on Section B, 
lines 10a and 17a. 
Chart S: For persons filing single or married filing separately:
If your taxable income isn’t over $3,750 ...............................................................................your tax is 4.75% of taxable income
If your taxable income is over $3,750 but not over $9,450 ..........................your tax is $178 plus 6.75% of excess over $3,750
If your taxable income is over $9,450 but not over $125,000 ......................your tax is $563 plus 8.75% of excess over $9,450
If your taxable income is over $125,000 ....................................................your tax is $10,674 plus 9.9% of excess over $125,000
Chart J: For persons filing jointly, head of household, or qualifying widow(er) with dependent child:
If your taxable income isn’t over $7,500 ...............................................................................your tax is 4.75% of taxable income
If your taxable income is over $7,500 but not over $18,900 ........................your tax is $356 plus 6.75% of excess over $7,500
If your taxable income is over $18,900 but not over $250,000 ...............your tax is $1,126 plus 8.75% of excess over $18,900
If your taxable income is over $250,000 ...................................................your tax is $21,347 plus 9.9% of excess over $250,000

2022 Tax rate chart B
2022 pass-through entity reduced tax rate chart—Use this chart only for qualifying income reported on line 9b of 
Section B. Report the tax on Section B, line 13b.
If your taxable income isn’t over $500,000 ..........................................................................your tax is 7% of qualifying income
If your taxable income is over $500,000 but not over $1 million ........your tax is $35,000 plus 7.5% of excess over $500,000
If your taxable income is over $1 million but not over $2.5 million .......your tax is $72,500 plus 8% of excess over $1 million
If your taxable income is over $2.5 million but not over $5 million ........your tax is $192,500 plus 9% of excess over $2.5 million
If your taxable income is over $5 million ..........................................your tax is $417,500 plus 9.9% of excess over $5 million

150-101-366-1 (Rev. 08-30-22)                                  4                     2022 Schedule OR-PTE-PY Instructions