Ohio Pass-Through Entity Tax: The Electable PTE Tax for LLCs and S Corps

Ohio lets some pass-through businesses pay income tax at the entity level instead of passing it through to each owner. This optional election is the Ohio pass-through entity tax, also called the Ohio PTE tax. It is Ohio's workaround for the federal cap on individual state and local tax deductions. If your LLC is taxed as a partnership or S corporation and your owners pay Ohio tax on business income, the election is worth modeling. It is not automatically cheaper, so run the numbers before you file anything.

Disclaimer: This guide is informational only. It is not legal or tax advice. Ohio tax rules, forms and deadlines change, and the figures here reflect the 2026 tax year. Before you elect, talk with a qualified CPA or attorney who handles Ohio pass-through entities.

What the Ohio PTE tax is

Ohio's personal income tax reaches business income that passes through a partnership, a multi-member LLC, or an S corporation to its owners. Ohio Revised Code (ORC) 5747.38 gives those entities an optional alternative. The entity pays the tax on its Ohio business income, and the election binds every owner. The option is available for tax years 2022 and later.

For tax years 2023 and later, the entity-level rate equals the business income rate. For 2026, that rate is 3%, the same flat rate that applies to taxable business income under Ohio's personal income tax.

Who can elect

The election is available to qualifying pass-through entities that are not disregarded entities. In practice, that means:

• Partnerships
• Multi-member LLCs
• S corporations

A single-member LLC that is disregarded for federal tax purposes is not eligible. An LLC that has elected S corporation treatment is generally handled as an S corporation, but confirm both points with the Ohio Department of Taxation before you rely on them.

How the election works

• One year at a time. You make the election for a single tax year. It is irrevocable for that year.
• It binds all owners. The election applies to every owner. One owner cannot opt out.
• Deadline. The election is made by the return deadline, April 15 after the close of the tax year, under ORC 5747.38(C) and 5747.42.
• Forms. Use Form IT 4738 or the EPTE-ELEC form, as listed in the Department of Taxation's 2025 forms. Confirm which form applies to your year, because the instructions change.
• Nonresident withholding. Electing entities are exempt from the nonresident withholding rules in ORC 5747.41.

How the tax is calculated

The entity-level tax is computed without the owners' deductions. The most important of these is the $250,000 business income deduction. Individual owners can claim it, but it is not used at the entity level. The entity pays 3% of its Ohio business income with no deduction for that amount. As a hypothetical, $400,000 of Ohio business income produces an entity-level tax of $12,000 (3%, with no $250,000 deduction). Your own figures will differ.

The federal benefit drives most elections. IRS Notice 2020-75 confirms that these payments are deductible for federal income tax purposes. That deduction is the core of the workaround.

Estimated payments for 2026

Electing entities make estimated payments during the year. For 2026, the second and third estimated payments move to June 15 and September 15, according to a Plante Moran summary published in December 2025. Because payment schedules can change, check the current IT 4738 instructions for the first payment date and the payment mechanics before you set up your payments.

Weighing the election against owner-level tax

The election trades one set of benefits for another. Weigh these points with your CPA:

• The $250,000 deduction matters. Without the election, individual owners can use the business income deduction to reduce or eliminate Ohio tax on business income. An owner whose share falls under that deduction may owe little or no Ohio tax without the election, so the entity-level 3% can cost more.
• The federal deduction matters. If your owners face the federal cap on state and local tax deductions, the entity-level payment may produce a federal benefit that outweighs the Ohio difference. Model both sides before you decide.
• Everyone is bound. Because the election binds all owners, you cannot apply it only to the owners who benefit.

Ohio obligations the PTE election does not replace

• Commercial Activity Tax (CAT). The CAT is a gross receipts tax at 0.26% (.0026) on Ohio taxable gross receipts. For tax year 2025 and later, only businesses with more than $6 million of Ohio taxable gross receipts owe the CAT or must register. CAT returns are filed quarterly. The CAT is separate from the PTE tax, which is an income tax.
• City and village net profit tax. Cities and villages tax business net profit under their own rates. Ask your municipal tax office whether the entity-level payment changes how your city or village treats your income.

Ohio formation basics for the entity

If you are still forming the entity, these items apply regardless of the PTE election:

• Articles of Organization (Form 610) cost $99 to file. Regular service takes 3 to 7 business days from receipt. Filing online through Ohio Business Central is the fastest standard route.
• Name reservation costs $39 and holds the name for 180 days.
• Trade names are registered with the Ohio Secretary of State, not the county, at $39 to register.
• Annual reports: Ohio LLCs file no annual or biennial report.
• State licensing: Ohio issues no single general state business license and no statewide general contractor license. Counties issue no business license. If you sell taxable goods or services, the county auditor issues the vendor's license, with a $50 application fee.
• Workers' compensation is purchased from the state fund administered by the Ohio Bureau of Workers' Compensation.

Step-by-step: deciding and electing

1. Confirm your entity's federal classification and whether it is eligible.
2. Gather 2026 Ohio business income by owner. Model the owner-level result against the entity-level 3% rate.
3. Read the current IT 4738 instructions and confirm which election form applies to your year.
4. Make the election for the tax year by the April 15 deadline after year end. Remember that it binds all owners.
5. Make estimated payments on the schedule in the instructions, including the June 15 and September 15 dates for 2026.
6. Keep records of the entity-level payment so your CPA can report the federal deduction correctly.

Where to confirm each item

Item	Confirm with
PTE forms, instructions and rates	Ohio Department of Taxation, tax.ohio.gov
Entity formation and fees	Ohio Secretary of State, ohiosos.gov, and Ohio Business Central, ohiobusinesscentral.gov
Name availability	Ohio Business Search, businesssearch.ohiosos.gov
Free or low-cost business advice	Ohio Small Business Development Centers, clients.ohiosbdc.ohio.gov
Workers' compensation	Ohio Bureau of Workers' Compensation
Municipal net profit tax	Your city or village tax office

For the PTE election itself, the comparison is specific to your owners, income and federal situation. A CPA who works with Ohio pass-through entities is the right person to run it before the April 15 deadline.