Maryland Comptroller Will Allow One-Time Late PTE Election for Tax Year 2023

On February 28, Maryland's Chief Deputy Comptroller, Andrew Schaufele, issued a communication to tax professionals allowing pass-through entities (PTEs) to make the Maryland PTE tax election for 2023, even if they had not made the PTE tax election with their 2023 estimated payments. For comprehensive details on the updated rules, refer to our alert, Maryland Comptroller Says PTE Tax Election Must Be Made With Q1 Estimated Payment.

In the letter, Schaufele said that as of November 2023, 80% of PTEs that made the Maryland PTE tax election for tax year 2022 had already correctly made the 2023 PTE election with their 2023 estimated payments. He also noted the challenges faced by PTEs that had not made timely elections for 2023. To mitigate those challenges – for tax year 2023 only – the Comptroller's Office will allow taxpayers to make the election on Form 511, “Maryland Pass-Through Entity Election Income Tax Return,” even if it is not the initial filing for the tax year.

The Comptroller’s Office reminded tax practitioners that several key steps will support faster and more accurate processing of returns: 

1. E-file and pay all estimated payments, ensuring proper election for tax year 2024 payments;
2. E-file the PTE return, verifying that the payments made match the number of resident credits claimed;
3. E-file member returns, incorporating the relevant Schedules K-1; and
4. File member returns after the PTE filing to facilitate the allocation of payment credits to members, ensuring the PTE return is filed and balanced.
   
   

For tax year 2024, any election must be made with the first filing of the tax year, whether a quarterly estimated declaration payment or other filing. Calendar-year taxpayers must make their first quarter estimated payments by April 15, 2024. 

The election made with the first filing is irrevocable. Once the election is made to remit tax at the entity-level on behalf of only nonresident members or for all members' shares, the same box must be checked with all subsequent filings. That ensures that Maryland can process PTE and member returns as efficiently and accurately as possible.

To aid practitioners and taxpayers, the Comptroller’s Office has revised Form 510/511D, “Pass-Through Entity Tax Declaration of Estimated Income Tax,” for tax year 2024 to clarify the mandatory nature of making the election or nonelection. The new section reads:

MANDATORY: You must select either Box A or Box B. The choice you make on your first filing of the tax year is irrevocable for the tax year. If this is not the first 510/511D for the tax year, your selection must match the selection you made on your first filing of the tax year.

• Box A: Check here if PTE has made the irrevocable election for Tax Year 2024 to remit tax with respect to all members’ shares. See instructions.    
• Box B: Check here if paying tax only on behalf of nonresident members.

Source: Maryland Form 510/511D, “Pass-Through Entity Tax Declaration of Estimated Income Tax"

Not selecting either box on tax year 2024 forms will be considered a failure to make the election. The Comptroller’s Office will interpret that as an election to pay tax solely for nonresident members, a decision that will remain binding for the tax year. Conversely, checking both boxes will be interpreted as an agreement to pay tax on behalf of all members' shares, which also is irrevocable. 

For additional guidance on making the election or nonelection with the estimated payment for the first quarter of tax year 2024, consult the instructions on Form 510/511D.