What Are the Tax Requirements for a Maryland LLC?

A Limited Liability Company (LLC) combines liability protection with operational flexibility. For entrepreneurs in Maryland, an LLC has tax requirements at the federal, state, and local levels that are determined by its structure, business activities, and any tax elections made by its owners.

Federal Income Tax Treatment for LLCs

The Internal Revenue Service (IRS) determines the default federal tax classification of an LLC based on the number of its owners, known as members. For a single-member LLC (SMLLC), the IRS treats it as a “disregarded entity,” meaning it does not file a separate federal income tax return. The owner reports all business income and expenses on their personal tax return using Schedule C, which is filed with their Form 1040.

If an LLC has two or more members, the IRS classifies it as a partnership for tax purposes. As a pass-through entity, the company itself does not pay federal income tax but must file Form 1065, an informational return that reports the business’s financial performance.

The LLC then provides each member with a Schedule K-1, which details their specific share of the LLC’s profits and losses. Members use the information from their Schedule K-1 to report their portion of the business’s income on their individual Form 1040 tax returns.

Maryland State and Local Income Taxes

Maryland’s tax system for LLCs aligns with the federal pass-through framework but has its own filing requirements. The primary state-level obligation is filing Form 510, the Maryland Pass-Through Entity (PTE) Income Tax Return. The purpose of this form is to report the LLC’s income from Maryland sources and to pay tax on behalf of its nonresident members.

For nonresident individual members, the LLC must pay tax at a rate of 8% on their share of income. For any members that are nonresident entities, the rate is 8.25%.

When the LLC pays tax for its nonresident members, those members can claim a credit on their home state’s tax return to avoid double taxation. Maryland resident members receive a credit on their personal Maryland return for their portion of any tax the LLC paid at the entity level.

Each member is responsible for reporting their share of the LLC’s income on their personal Maryland income tax return, Form 502. Maryland’s 23 counties and Baltimore City also impose local income taxes, which are calculated and collected on the state’s Form 502.

Maryland Annual Report and Business Personal Property Tax

Every LLC in Maryland must file an Annual Report with the Maryland Department of Assessments and Taxation (SDAT) by April 15th each year to maintain good standing. This filing is combined with the Business Personal Property Tax Return on a single document, Form 1. The filing fee is $300, and failure to file can lead to penalties and forfeiture of the LLC’s right to do business.

To complete Form 1, owners need the LLC’s SDAT ID number, resident agent information, and principal office address. The form requires a detailed list of all business personal property in Maryland, such as furniture, equipment, and inventory. This does not include real estate or vehicles registered with the state, and the original cost of the property must be reported.

Form 1 must be filed electronically through the Maryland Business Express (MBE) portal, which determines if a personal property tax return is required. If the total original cost of personal property is less than $20,000, the business may be exempt from the property tax, though the Annual Report must still be filed. If tax is due, the SDAT assesses the property, and the county or Baltimore City sends a tax bill.

Sales and Employment Taxes in Maryland

If an LLC sells taxable goods or services in Maryland, it must register with the Comptroller of Maryland for a sales and use tax license. The business must then collect and remit sales tax to the state. The statewide sales tax rate is 6%, and beginning July 1, 2025, a 3% tax applies to certain data, software, and IT services; there are no local sales taxes.

An LLC with employees must register for a withholding tax account with the Comptroller to withhold and remit state and local income taxes from employee wages. This registration is handled through the Maryland Combined Registration Online Application.

Employers must also pay unemployment insurance taxes by setting up an account with the Maryland Department of Labor’s Division of Unemployment Insurance. Employers pay taxes on a portion of each employee’s wages, and the rate for new employers is 2.6% for 2025.

Electing Corporate Tax Status in Maryland

An LLC can elect to be taxed as a corporation, which alters how profits are taxed. Maryland recognizes federal tax elections, so a change at the federal level automatically changes state filing requirements.

One option is the S Corporation election, made by filing Form 2553 with the IRS, which can offer savings on self-employment taxes. Owners can be paid a reasonable salary subject to payroll taxes, while remaining profits are distributed as dividends. For state purposes, an S Corp maintains pass-through taxation and continues to file Form 510 in Maryland.

An LLC can also file Form 8832 to be taxed as a C Corporation, though this can result in double taxation. The LLC itself pays corporate income tax by filing a Maryland Form 500 at the state’s 8.25% corporate rate. When profits are distributed to members as dividends, the members pay personal income tax on that money again.