How to Make a Maryland PTET Election: Form 511 and the 8.75% Rate (2026)

A Bethesda design studio organized as an S-corp sends in its first Maryland estimated payment on April 15 the way it always has, on a plain Form 510/511D, no boxes checked. In October the owner's new accountant asks why the studio never elected the pass-through entity tax when it cleared $400,000 in Maryland profit. The answer is that the election had to be made with that first payment, and the window for the year has closed. The studio is theoretical, but the trap is real, and it quietly costs Maryland S-corp and partnership owners a federal deduction every spring.

What the Maryland PTE tax actually does

Since 2018, IRC §164(b)(6) has capped the individual deduction for state and local taxes. Maryland's pass-through entity tax is the state's answer to that cap. Instead of you paying Maryland tax on your K-1 income as an individual, where the deduction is limited, the S-corp or partnership pays the tax at the entity level and deducts it as an ordinary business expense on Form 1120-S or Form 1065. That deduction reduces the income that flows to your K-1, so it lands on your federal return at full value with no cap. The IRS blessed this structure in Notice 2020-75, and Maryland wrote it into Tax-General Article §10-102.1. Every state workaround follows the same logic. The differences are all in the rate, the forms, and the timing, and Maryland's timing is where owners get hurt.

The 8.75% rate, and why it went up

For tax year 2026, an electing Maryland pass-through entity pays 8.75% on each individual member's distributive share of income attributable to Maryland. That rate is the top marginal state income tax rate of 6.50% plus the lowest local income tax rate of 2.25%. Corporate members are taxed at Maryland's 8.25% corporate rate instead. The 8.75% figure is new. Maryland's top individual rate was 5.75% for years, which made the old electing PTE rate 8.0%. The Budget Reconciliation and Financing Act of 2025 added two brackets on high earners, a 6.25% rate above $500,000 of taxable income for single filers and a 6.5% rate above $1 million, effective for tax years beginning after December 31, 2024. That pushed the top rate to 6.50% and the electing PTE rate to 8.75%.

One 2026 detail matters for planning. The 2025 legislation was set to change how a PTE computes its taxable income, but the Budget Reconciliation and Financing Act of 2026 postponed that to tax year 2027. So for 2026, the tax is imposed on resident and nonresident shares attributable to Maryland only, the same as 2025. If your business operates entirely in Maryland, that is your whole distributive share. If you have income sourced to other states, only the Maryland slice runs through the election.

How to make the election

You make the election by checking the entity-level box on the first form the entity files for the tax year. For an entity that owes estimated tax, that is the first-quarter Form 510/511D payment. For an entity with no estimated payment requirement, the election is made on a timely filed Form 511. The election is irrevocable for that tax year. There is no separate application and no advance notice to the Comptroller. The box on that first form is the whole election.

A Maryland pass-through entity has to make quarterly estimated payments if its total pass-through entity tax is reasonably expected to exceed $1,000 for the year. An S-corp pays those estimates on the 15th day of the 4th, 6th, 9th, and 12th months of the tax year. A partnership pays on the 15th day of the 4th, 6th, and 9th months, then the 15th day of the first month of the next year. You file the annual return on Form 511, which is the return reserved for electing entities, by the 15th day of the fourth month after year-end, plus any extension.

The member credit and the addback

On the individual side, the tax the entity pays does not disappear. Each member claims a refundable credit for their share of it. For members of an electing entity, that credit goes on Form 502CR, Part CC, line 9, and flows to Form 502. Because the credit is refundable, a member with little other Maryland liability still gets the cash back. Maryland then requires the member to add the credit amount back to Maryland income, which stops the same dollars from being deducted twice at the state level. The result is close to a wash. The member claims a refundable credit for the tax the entity paid on Form 502CR, Part CC, line 9, and adds the same amount back to Maryland income. The credit offsets the member's Maryland liability, so the real benefit is the federal deduction, not a change in Maryland tax.

The deadline trap

Here is the part that catches people. The Comptroller's position is that the election must be made with the first estimated payment. For a calendar-year entity that owes estimates, the first Form 510/511D payment is due the 15th day of the fourth month, which is April 15. If you send that first payment without checking the election box, you generally cannot elect for that year. There is no cure like the federal late S-corp relief under Rev. Proc. 2013-30, and no clean way to unwind a nonelecting first payment. This is different from the federal S-corp election, which you can file late with reasonable cause. In Maryland the decision has to be made before money moves in April, not sorted out with your return the following spring. If you think the pass-through entity tax might help you, decide before you cut the first check.

Is it still worth it after the higher SALT cap?

It depends on your income. The One Big Beautiful Bill Act raised the SALT cap to $40,400 for 2026, with a phasedown that begins at $505,000 of modified AGI. Owners under that threshold with modest property taxes may already deduct their state tax without the workaround. Owners above the cap or the phaseout still use the election to move nondeductible Maryland tax onto the federal return at the full 8.75%. Maryland's rate is high enough, and its top brackets low enough, that a lot of ordinary business owners now clear the cap on state income tax alone before property tax is even counted. For most of the Maryland S-corp and partnership owners in that position, the election still pays for itself, as long as the box gets checked in April.

Before you commit, run your own numbers. The EntityIQ S-Corp tax calculator shows what an S-corp election saves in self-employment tax, and pairs with the PTE workaround on the state side. If you also have income from another state, start with our broader PTET deduction overview, and compare Maryland's mechanics to a hard year-end state like Utah's PTET election.

This article is educational and is not legal or tax advice. The owner described is theoretical, and the numbers are rounded 2026 estimates. Please consult a Maryland CPA or EA before filing the election.