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Expect Credit Processing Delays from PTE Tax Filings; Proposed Solutions (Hopefully) on the Way

A pile of 20 dollar bills with a ripped paper that says delay on it to represent a processing delay for PTE Ta filings.

The 2023 tax season may require an additional level of patience for business owners filing for credits from pass-through entities (PTE). Maryland has seen a growing number of PTE filings the past few years. This increased workload coupled with administrative hurdles within the Comptroller’s office, has led to several cases of inaccurate returns and longer-than-expected processing delays. The Comptroller of Maryland sent a letter to tax professionals detailing the office’s struggles and offering solutions including asking tax filers for help.

What is PTE?

The owners of partnerships, S corporations and LLCs can decide to utilize the pass-through entity tax. When chosen, their business pays the state tax at the entity level instead of at the personal level. Those that elect to file their state income taxes via PTE receive a full federal deductibility. There is no limit to the amount of deductible PTE tax, allowing business owners to circumvent the $10,000 State and Local Tax (SALT) deduction cap.

Why is There a Delay for PTE Returns?

Over the past few years, Maryland has seen an increasing number of PTE filings. In 2021, over 176,000 filed with more expected this year. According to the Comptroller letter, the complexity of these filings requires manual validation for each individual PTE filing to ensure the accuracy of payment and deduction claim. The agency’s lack of sufficient staff and outdated technology only serves to make this process worse and has even led to several processing errors.

What Solutions Are There?

The Comptroller’s office has established some temporary solutions to aid in the timeliness and accuracy of its PTE filings. First, the office established a trained team of professionals to focus solely on PTE returns. They hope the team resolves any outstanding issues quickly. Second, due to questionable return accuracy, the office will stop sending notices of “underpayment”. Instead, those who don’t pay their full PTE tax will receive a statement that the credit cannot be granted. The office hopes that these steps will alleviate current areas of contention before this year’s filing.

How Can You Help?

The best way to help prevent a holdup is to ensure your filings are done correctly with the mandatory documentation. The Comptroller laid out the following steps:

  • File both your personal income tax return and your PTE return electronically;
  • Make all of your estimated payments electronically;
  • Ensure your PTE payment and individual deduction claim match;
  • Have the PTE confirm it made the tax payments it has reported to you;
  • Check the credit claimed on your individual return is added back as an addition to income on your individual return;
  • If you or your tax professional are using tax preparation software that includes the option to create an electronic version of the Schedule K-1 from the PTE, use that function and attach the electronic K-1 to your filing;
  • If the option for an electronic K-1 attachment is not available, attach the K-1 as a PDF.

We recommend you talk with your tax professional to ensure your filings follow the above steps. If you need help with your PTE filing or have questions about the process, please fill out our  contact form to get in touch with Richard Morris CPA, MST.

Councilor, Buchanan & Mitchell (CBM) is a professional services firm delivering tax, accounting and business advisory expertise throughout the Mid-Atlantic region from offices in Bethesda, MD and Washington, DC.

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