MARYLAND RELIEF ACT MAKES CHANGES TO NEW PASS-THROUGH ENTITY TAX

This week Maryland passed the Recovery for the Economy, Livelihoods, Industries, Entrepreneurs, and Families Act (the RELIEF Act). Included in this new law are technical corrections made to the pass-through entity (PTE) tax that affects partnerships and s-corporations.

Under the 2020 legislation, Maryland PTE’s had the option to elect to pay Maryland state income tax at the entity level instead of the entity’s owner level. This allows an entity level federal tax deduction which would benefit the entity’s owners whose state tax deductions have been limited to $10,000 under the Tax Cuts & Jobs Act of 2017 (TCJA).

Prior to this technical correction, Maryland PTE’s could elect to pay this new tax for resident individuals, corporations, and certain trusts. Under the RELIEF Act, all resident owners (including other PTE owners) and all nonresident owners will be included in the PTE tax. This allows all owners to benefit from the federal tax deduction allocated to them.