Maryland’s PTE tax rules change in 2026. The “Resident Fix” allows significantly more federal tax savings for resident owners—but only if structured correctly.

What Changed

Starting January 1, 2026, Maryland PTEs can pay entity-level tax on all income allocated to resident owners, even when earned outside Maryland. The result is a larger federal deduction and reduced overall tax liability.

Where Businesses Get Into Trouble

S-Corporations must maintain one class of stock. The new rules treat resident and non-resident owners differently. If tax payments or distributions are uneven, the IRS may view this as a second class of stock—putting S-Corp status at risk.

The penalty is severe: loss of S-Corp treatment and exposure to double taxation.

How to Protect the Benefit

• Update operating or shareholder agreements
• Balance distributions to preserve equal ownership economics
• Align Maryland PTE filings with federal entity rules

Implementation Matters

• Election timing: PTE elections must be made each tax year. Missed or improperly structured elections may eliminate the benefit entirely.
• Cash flow impact: Entity-level tax payments reduce available distributions and should be modeled to avoid unintended owner-level underpayment’s
• Mixed ownership structures: Businesses with resident and non-resident owners must ensure tax payments do not create disproportionate economic benefits.
• Multi-state coordination: Maryland PTE payments should be aligned with credits for taxes paid to other states to prevent double taxation or lost credits.
• Document readiness: Operating agreements and shareholder agreements should clearly authorize entity-level tax payments while preserving federal compliance.

Your Next Step

Time to Revisit Your Structure

At PSACPA we help Maryland business owners capture their PTE tax savings without risking their entity classification. Schedule your free consultation with us today.

Call us: (301)-879-0600 

Email: contact@psacpa.com