Maryland Delays Pass-Through Entity Tax Changes
On April 8, 2026, Maryland Governor Moore signed The Budget Reconciliation and Financing Act (BRFA) of 2026 (SB 284). The law delays changes to the Maryland Pass-Through Entity Tax (PTET) that were scheduled to take effect for the 2026 tax year. As a result, pass through entities will continue using the current method to compute and pay PTET for their Maryland resident members and shareholders.
The Budget Reconciliation and Financing Act of 2025 (HB 352) changed how an electing passthrough entity calculated income subject PTET. Before the law, PTET was calculated only on the share of a Maryland resident’s income from the passthrough entity that was derived from Maryland trade or business sources. The 2025 law changed this to include 100% of a Maryland residents’ distributable income from the passthrough entity as income subject to PTET.
This change expanded the income eligible for a PTET credit to the resident members and increased the federal deduction available to the passthrough entity. The expansion of the PTET base was largely seen as advantageous to Maryland taxpayers and was set to take effect for the 2026 calendar year.
That is no longer the case. The BRFA of 2026 suspended implementation of the new PTET calculation until 2027. Maryland passthrough entities must continue using the PTET rules used in 2025 for the 2026 calendar year.
What this means for you:
For tax year 2026, the tax on electing passthrough entities will be imposed on resident and nonresident income attributable to Maryland sources only, as it was in tax year 2025.
A passthrough entity is required to make an election to pay tax at the entity level with the first quarter’s estimated payment. Due to the timing of the BRFA of 2026, some passthrough entities may have already elected to be taxed at the entity level and submitted their first quarter estimated taxes assuming the new, expanded taxable income base. The Comptroller of Maryland has provided additional guidance on estimated tax payments for those entities. Additionally, the Comptroller will ignore the election or nonelection made with the first quarter estimated taxes for 2026 and will instead honor the election made with the passthrough entity’s second quarter estimated tax payment.
While frustrating for taxpayers relying on previously passed legislation, the BRFA of 2026 provides an opportunity for Maryland passthrough entities to reassess their options with respect to electing to be taxed at the entity level for 2026.
Contact your tax advisor or reach out to the GRF Tax team to assess how the changes will impact your company.
