Maryland’s Pass-Through Entity Tax: A New Process

In 2020, the Maryland legislature introduced the Pass-Through Entity (PTE) tax as a valuable workaround for Maryland businesses to bypass the $10,000 limit on state and local tax (SALT) deductions on the Form 1040 Schedule A, a cap instituted by the federal Tax Cuts and Jobs Act. This tax allows PTEs to pay their Maryland income tax at the entity level, which effectively creates a deductible expense that flows through to individual owners. However, processing this unique tax credit posed some initial hurdles, particularly around matching credits to recipients—a situation that led to processing delays and miscommunication between taxpayers and the Comptroller’s Office. 

But there’s good news! A fresh, streamlined workflow to address these issues and enhance the PTE credit process is now available for all Maryland businesses and their owners. 

New Workflow Enhances Processing of Form 511

Previously, the process for handling Form 511 (the PTE credit-generating form) lacked synchronization with individual returns, often leading to multiple notices being sent to taxpayers and delays in credit distribution. Under the new system, the processing of Form 511 will follow a more efficient categorization to avoid unnecessary notices and delays. Here’s how the incoming Form 511 returns will be classified: 

• Approved. These returns meet all the necessary criteria for immediate approval. 

• Parked. These returns need additional verification to process fully. 

• Denied. These returns will be denied fully or partially due to discrepancies or underfunded credits. 

For any outstanding forms from previous years still under review, the Comptroller’s Office is expediting these returns to clear the backlog and focus on the current tax year. 

What Happens If Your Form 511 Is Parked?

When a Form 511 is “parked,” any associated refunds for recipients will be held until the PTE is either approved or denied. For the upcoming 2025 filing season, the Comptroller’s Office is setting up a notification system specifically for parked returns. This will allow individual taxpayers to stay updated and informed about their status, while providing notifications directly to entities about any PTE deficiencies, enabling them to correct issues at the source. 

Getting Your Form 511 Approved Quickly

If you want to expedite the approval of your Form 511, file and pay electronically! Starting November 1, 2024, Maryland taxpayers will be able to make PTE estimated payments online through a new secure payment tool. While it’s not mandatory to use, this tool offers a convenient and efficient way to manage your tax payments. Here are some key features: 

• Easy Payment Scheduling and Management. Make payments and adjust scheduled amounts in a few clicks. 

• Increased Transparency. Keep track of payments with real-time updates. 

• Enhanced Security. All transactions through the tool are encrypted for maximum security. 

Registration Requirements

To register, make sure you have the following information on hand: 

• A valid Federal Employer Identification Number (FEIN) for your PTE account. 

• Current mailing address, including city, state, and ZIP. 

• Payment amount and payment date (today or a future date). 

• Bank details, including bank name, routing number, and account number. 

Have Questions About the New System?

The Comptroller’s Office offers a dedicated email for PTE inquiries at TACORPORATE@marylandtaxes.gov. Additionally, you may also visit the PTE Payment Guide on the Comptroller’s Office website, which has additional resources and an FAQ section that covers common questions related to the new PTE process.  

With this updated process, Maryland businesses can more confidently navigate the PTE tax, maximize their deductions, and enjoy a smoother experience. The Comptroller’s Office is committed to making this process as seamless as possible for all Maryland taxpayers.