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Maryland Pass-Through Entity Tax Election: Rates, Deadlines and Who Benefits

Maryland Pass-Through Entity Tax Election: Rates, Deadlines and Who Benefits

Maryland's pass-through entity (PTE) tax election lets a partnership, S corporation, or multi-member LLC pay Maryland income tax at the entity level instead of passing the full tax through to its owners. For tax years beginning after December 31, 2024, the PTE tax rate is 8.75% on individual and fiduciary members' shares and 8.25% on entity members' shares. Owners who pay significant Maryland income tax and cannot use all of their state tax deduction on their federal return are the people this election usually helps. This guide covers the rates, how the election works, the 2026 transition rules, and the dates to watch.

Informational only, not legal or tax advice. This guide explains the Maryland PTE tax as it stood when it was researched in October 2026. Whether the election makes sense for your entity depends on your ownership, your income, and your federal tax position. Talk with a qualified CPA and, for complex ownership or restructuring questions, a business attorney before you elect.

What the PTE tax is

Maryland taxes individuals on their share of an entity's income through their personal returns. Individual rates run from 2% to 6.5% at the state level, plus a county or Baltimore City local income tax of 2.25% to 3.30% for 2026. An LLC is a pass-through entity for Maryland income tax purposes, so its profit flows to members who report it on their own returns. Maryland does not impose a separate franchise tax on ordinary LLCs.

The PTE election changes where the tax is paid. The entity pays Maryland tax on its members' shares, and the members then account for that payment on their personal returns. Because the tax is paid by the entity, it is treated differently for federal purposes than a personal state income tax payment. That difference is the reason most owners consider the election.

2026 PTE tax rates

Use these rates for tax years beginning after December 31, 2024:

Member typePTE tax rate
Individual members' shares8.75%
Fiduciary members' shares8.75%
Entity members' shares8.25%

Watch for outdated rates. Older guides and articles still show a 5.75% PTE rate. That figure no longer applies to the tax years covered here. The Comptroller of Maryland's Tax Alert, revised December 22, 2025 (Tax-General 10-102), reflects the current rates. Confirm the rate on the Comptroller's website before you run any numbers.

The 8.25% entity rate matches Maryland's flat 8.25% corporate income tax. The 8.75% individual and fiduciary rate is higher than the top 6.5% state rate on personal income, but the PTE tax is paid at the entity level, and the federal treatment is what makes the election worth studying. Your CPA can model the federal side for your specific situation.

How the election works

The PTE election is made on the first filing for the tax year. That means the first return or payment you submit for the year is the one that counts. Under the general rule, the election is irrevocable once made on that first filing. An entity that wants to change course later in the year cannot simply reverse the decision.

Maryland taxes an electing PTE on the share of each member's income attributable to Maryland. For 2026, the base is the same as in 2025: only the member shares attributable to Maryland are taxed. Income earned in other states is not part of the Maryland PTE base for this year.

Ownership structure matters. A single-member LLC that is disregarded for federal tax purposes generally does not have a separate return to make this election, so confirm your entity's federal classification before you consider it. An entity that files as a partnership or S corporation for federal purposes is the typical candidate.

2026 is a transition year

Two 2026 rules make this year different from the years ahead, so read them carefully.

The timing rule. Comptroller Tax Alert 13, issued in April 2026, provides that for tax year 2026 only, an election or non-election made with the first-quarter estimated payment is not binding. The Comptroller honors the election made with the next filing or payment after April 15, 2026, which is usually the second-quarter estimated payment. If you were planning to decide at the first quarter, this rule gives you more room. Do not assume that the first-quarter payment locked in your choice for 2026.

The income calculation change was postponed. The 2026 budget reconciliation law postponed changes to how a PTE's taxable income is calculated until tax year 2027. For 2026, electing PTEs are taxed only on member shares attributable to Maryland, as they were in 2025. If you have read commentary about a broader change to the PTE base, that change applies to later years, not to 2026.

Because the rules are changing, plan your 2026 election with your CPA before the second-quarter payment, and plan for 2027 separately.

Who benefits from the election

The election is most useful when all of the following are true:

  • The owners pay meaningful Maryland income tax on their share of entity profit.
  • The owners are limited in how much state tax they can deduct on their federal returns, so an entity-level payment is more valuable to them.
  • Most of the entity's income is attributable to Maryland, or the owners are comfortable with the Maryland-attributable base.
  • The owners have the cash to pay the entity tax, and the operating agreement addresses who bears that cost.

The election is less useful when an owner has little Maryland income, when most income is earned in other states, or when the owners have no federal deduction limit to work around. It can also create friction among owners who are taxed at different rates, including individuals and entity members. Those differences should be written into the operating agreement before the election is made.

A simple example

Suppose a Maryland LLC taxed as a partnership has one individual member whose Maryland-attributable share of income is $200,000 for 2026. At the 8.75% individual rate, the PTE tax on that share would be $17,500 (0.0875 times $200,000). The entity pays that amount. The member then accounts for the payment on the personal return.

Whether that payment produces a net benefit depends on federal rules, the member's total deductions, and how the state credit is applied on the personal return. This example is illustrative only. Run your own figures with a CPA, because the federal result is the part most likely to change your answer.

What the election does not change

Several parts of your Maryland tax picture stay the same whether or not you elect PTE treatment:

  • The 2% net capital gain surtax applies at the individual level, not inside the PTE tax. Electing does not remove it from an owner's personal return.
  • The annual report is still required. Maryland's Annual Report and Business Personal Property Return (Form 1) carries a $300 fee and is due April 15 each year, whether or not the entity makes the PTE election.
  • County business personal property tax may still apply if the entity reports taxable personal property. The election does not change that obligation.
  • Your Articles of Organization or Articles of Incorporation with the State Department of Assessments and Taxation (SDAT) stay in force. The PTE election is a tax filing, not a change to your entity's legal status.

Deadlines and steps

Use this sequence when you are preparing an election:

  1. Confirm the federal classification of the entity, and confirm that it is eligible under Maryland rules.
  2. Model the 2026 numbers using the 8.75% and 8.25% rates and the Maryland-attributable base. Compare with the non-election result on each owner's personal return.
  3. Settle the operating agreement, including who pays the entity tax and how any owner disagreement is resolved.
  4. Make the election on the first filing for the year. For 2026, remember the timing rule: the Comptroller honors the election made with the next filing or payment after April 15, 2026, which is usually the second-quarter estimate.
  5. Keep records of the entity-level payment and of each member's Maryland-attributable share, so the members can report the payment correctly.
  6. Calendar the April 15 annual report with SDAT. If you need more time to file, extension requests are filed at pprextensions.dat.maryland.gov.

Items to confirm with the agencies

Some details are better checked with the agency than assumed from a guide. Confirm these before you file:

  • The form number, filing due date, and payment schedule for the PTE return and the election with the Comptroller of Maryland.
  • How the PTE payment is credited on each member's personal return, and any limits on that credit.
  • Whether any particular entity type or ownership structure has special treatment under current Maryland rules.

Call or write the Comptroller directly for a written answer on any point that affects your filing. A guide cannot replace an answer from the agency that administers the tax.

Official resources

Bottom line

The Maryland PTE election can reduce the cost of state income tax for owners who cannot fully use that deduction on their personal returns. For 2026, the rates are 8.75% on individual and fiduciary shares and 8.25% on entity shares, the base is Maryland-attributable income, and the election is irrevocable once made on the first filing. The 2026 timing rule gives some flexibility, but it is a transition provision, and the rules change again for 2027. Model the numbers, settle the operating agreement, and have a CPA review the federal effect before you elect.

Keep exploring: related Maryland guides