Important Updates for Maryland Pass-Through Entities

Prior to the end of 2020, the State of Maryland passed a law that allows pass-through entities (PTEs) to elect to be taxed at the entity level rather than the individual level. The election is intended to be a work-around the $10,000 limit on the federal income tax deductibility of state and local taxes (the SALT deduction) imposed by the Tax Cuts and Jobs Act of 2017.

tax related actionsDuring July 2021, the Maryland Comptroller provided specific guidance associated with entities who make this election. This included releasing an updated version of Form 510, “Pass-Through Entity Income Tax Return,” for the 2020 tax year, as well as new Form 511, “Pass-Through Entity Election Income Tax Return.” The guidance included the following:

  • PTEs who have not yet filed their 2020 income tax returns, can make the election to pay Maryland tax on behalf of all members on the new Form 511.
  • Those entities that have already made the election on a filed Form 510 return will now need to amend by filing the new Form 511 in order to secure this election.
  • Any taxes paid and credited on the previously filed Form 510 may be applied as a credit on the Form 511.
  • PTEs making the election are ineligible from filing a composite return on behalf of qualifying nonresident individual members.
  • Before this recent guidance, any overpayment of the Maryland tax could be applied or refunded at the individual level. However, the new guidance now states that it should be recognized at the entity level. This may require an amended Maryland personal return as well.
  • Nonresident members of electing PTEs have the option of filing their own Maryland income tax return and claiming a credit for their pro-rata share of tax paid on their behalf.

 

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