Maryland pass-through entity tax

An electing pass-through entity pays Maryland income tax on its members' distributive shares and files Form 511. Members then claim a credit on their own Maryland returns. Non-electing entities with nonresident members file Form 510 and pay nonresident tax on those members' shares.

The election is made with the entity's first payment for the year, on Form 510/511D (estimated) or 510/511E (extension), or on a timely filed Form 511. Once Form 511 is filed, the election is irrevocable for that year.

• Individual members: the top Maryland individual rate plus the lowest county rate. For 2025 that's 6.50% + 2.25% = 8.75%.
• Entity members: the corporate rate of 8.25%.
• The new 2% capital gains surtax applies to individuals, not to the electing entity.

Maryland had planned to change the tax base for electing entities starting in 2026. The 2026 budget law (the Budget Reconciliation and Financing Act, Chapter 6) postponed that change to tax year 2027. For 2026, an electing entity still pays tax on Maryland-source income only, for both resident and nonresident members.

Because of the earlier uncertainty, the Comptroller will disregard elections made with first-quarter 2026 payments and will honor the election or non-election shown on the entity's first 2026 filing or payment made after April 15, 2026.

Individuals can deduct only a capped amount of state and local taxes on their federal returns ($40,000 for 2025 and $40,400 for 2026, reduced for higher incomes). Tax paid by the entity is generally deducted at the business level, which can reduce the owners' federal taxable income. Whether it helps depends on each owner, so model it before the year closes. See year-end tax planning for businesses.