Maryland Comptroller Says PTE Tax Election Must Be Made With Q1 Estimated Payment

The Maryland Comptroller’s Office recently updated the instructions to Maryland Form 510/511D, “Pass-Through Entity Declaration of Estimated Income Tax,” to include a requirement to make the passthrough entity (PTE) tax election in Maryland. Per the instructions, “for tax years beginning after December 31, 2022, the election must be made, if at all, with the first estimated tax payment of the tax year.” The instructions go on to state that “the election made with the first estimated payment is irrevocable.” 

For eligible PTEs interested in making the PTE tax election for the 2023 tax year, the election must be made by April 17, 2023. 

Maryland’s PTE Tax Election

On May 7, 2020, the Maryland legislature enacted Senate Bill 523 (S.B. 523), which created an election to be taxed at the PTE level for tax years beginning on or after December 31, 2019. Maryland was among the first states to enact a PTE election, allowing taxpayers to make the election with the filing of their extended returns by filing the specifically created Maryland Form 511, “Maryland Pass-through Entity Election Income Tax Return.”  

Since enactment, the Comptroller’s office has had problems processing Form 511 and ensuring payments were applied to PTEs and, thereby, to their owners.  

The new instructions are an effort by the Comptroller’s office to help identify entities that intend to make the PTE election for the tax year and match payments to the correct accounts. The Comptroller’s office intends to issue additional guidance by updating Maryland Administrative Release No. 6, “Taxation of Pass-Through Entities” (revised July 2021).  

While taxpayers may be accustomed to making quarterly estimated tax payments in Maryland, they might be unaware of the new requirement that the PTE tax election be made on Form 510/511D by checking the box denoting the PTE election is being made for tax year 2023. According to the Comptroller’s office, although the entity might have an overpayment from a previous tax year that covers the Q1 estimated tax payment, because the PTE election must be made annually, that overpayment alone will not be treated as making the PTE election for tax year 2023. Thus, affirmative action must be taken for tax year 2023 by April 17. 

BDO Insights 

Until now, taxpayers had more time to decide to make the Maryland PTE election. But pending further guidance, taxpayers should be aware that the Comptroller’s Office has issued these instructions and that action is required in Maryland by April 17. 

Several taxpayer advocacy groups have raised concerns that the new requirement will be limiting, especially if the taxpayer has an event later in the year that affects the benefits of the PTE election. Stayed tuned for further developments.