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Maryland LLC Taxes

Maryland LLCs are taxed pass-through entities by default. Rather than paying taxes at the entity level, LLCs pass their revenue on to LLC members, who pay individual income taxes on their share of the earnings. At the federal level, LLC income is taxed at the 15.3% self-employment rate (12.4% for social security and 2.9% for Medicare). Owners of Maryland LLCs are also subject to state and local income taxes, along with state sales tax.


In this article, we’ll cover:

  1. How Are Maryland LLCs Taxed?
  2. Maryland State Income Tax
  3. Sales and Use Tax
  4. Local Maryland Taxes
  5. Other Taxes in Maryland
  6. Do foreign LLCs in Maryland need to pay Maryland taxes?
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How Are Maryland LLCs Taxed?

The default tax status of your Maryland LLC will depend on how many LLC members you have. While single-member LLCs (SMLLCs) are taxed as disregarded entities (just like sole proprietorships), multi-member LLCs are taxed as partnerships. If filing under default status, you’ll need to use one of the following forms to file your federal taxes each year:

As an LLC, you also have the option of filing as an S-corp or a C-corp, which will change your filing requirements.

Maryland LLCs taxed as S-corp

S-corp is a tax classification available to both corporations and LLCs. Despite being labeled corporations by the IRS, S-corps don’t pay federal corporate income tax. Like LLCs, S-corps are taxed as pass-through entities. Unlike LLC members, however, S-corp owners are not subject to the 15.3% self-employment tax on distributions received (though S-corps still have to pay self-employment tax on salary).

If your LLC meets the IRS requirements for S-corps, you can choose to change your election status to S-corp by filing Form 2553. To make sure that electing S-corp status will financially benefit your business, we suggest consulting a CPA before making the switch.

To file your taxes as an S-corp, use Form 1120-S.

LLCs taxed as C-corp

C-corp is the default filing status for corporations, but LLC owners can choose to have their businesses taxed as C-corps if they wish. On top of the 21% federal corporate tax, C-corps must also pay 8.25% Maryland corporate income tax. However, some LLCs can benefit from C-corp filing status—corporations qualify for more tax deductions and are often more attractive to investors. Filing as a C-corp is much more complicated than filing under default, so discuss your decision with a CPA before electing C-corp status.

To file your taxes as a C-corp, use Form 1120.

Learn how to apply for C-corp status as an LLC.

Maryland State Income Tax

If you’re filing under default or S-corp status, you’ll pay individual income tax in Maryland. Maryland has a graduated individual income tax rate that ranges from 2% to 5.75%.

The tax rate applies to any excess over the lowest dollar amount in your income range. If you make $1,500, you’re in the $1,000 – $2,000 income range and will pay 3% on $500. However, you’ll also need to pay a flat amount, which will vary according to your income range. So, with an income of $1,500, you’ll pay 3% on $500 plus $20.

To calculate your exact tax responsibility (including the flat fee and tax rate for your income range), refer to section 17 of the most recent Maryland tax instruction booklet for residents.

Maryland individual income tax rates are as follows:

Taxable Income,

Filing Separate

Taxable Income,

Filing Jointly

Maryland Personal Income Tax Rate

$0 – 1,000

$0 – $1,000

2%

$1,000 – $2,000

$1,000 – $2,000

3%

$2,000 – $3,000

$ 2,000– $3,000

4%

$3,000 – $100,000

$3,000 – $150,000

4.75%

$100,000 – $125,000

$150,001 – $175,000

5%

$125,000 – $150,000

$175,000 – $225,000

5.25%

$150,000 – $250,000

$225,000 – $300,000

5.5%

$250,000 or more

$300,000 or more

5.75%

Even though you won’t pay taxes at the entity level when filing under default status, you’ll still need to file Form 510 to report your LLC’s income to the state.

If you file as a C-corp or elect to pay state taxes at the entity level, your LLC is subject to Maryland’s 8.25% corporate income tax. If you own an SMLLC and elect to pay state taxes at the entity level, you’ll pay 8%—the sum of the highest state individual income tax rate (currently 5.75%) and the lowest county individual income tax rate (currently 2.25%).

You can file your individual Maryland taxes online using the iFile Maryland Taxes Online portal.

Sales and Use Tax

Maryland charges a general sales tax of 6% that is collected from businesses on a quarterly basis.

Higher sales tax rates apply in special situations, including:

  • Short-term truck rental—8%
  • Alcoholic beverages—9%
  • Short-term passenger car or RV rentals—11.8%

Your LLC can pay sales tax online through bFile Maryland business taxpayer portal.

Local Maryland Taxes

All of Maryland’s 23 counties plus Baltimore City levy a local income tax. Local income tax rates vary by jurisdiction, ranging from 2.25% to 3.2%. You can find your local income rate using the Comptroller of Maryland’s list of Maryland Income Tax Rates and Brackets.

In addition to income tax, you may need to pay personal business property tax or other local taxes, such as Baltimore City’s Beverage Container Tax. Check with your municipality to find out which local taxes apply to you and your LLC.

Other Taxes in Maryland

As a business owner in Maryland, there are a few other taxes to keep in mind, including:

Maryland State Employer Taxes

If your LLC employs any workers, you’ll be required to pay unemployment insurance (UI) tax and sign up for workers’ compensation insurance. Here’s an overview:

  • Unemployment Insurance (UI) Tax—In Maryland, you’ll pay UI tax on the first $8,500 paid to each of your employees. The UI tax rate for most new employers is 2.3%, and the standard employer rate is 10.50%. You can register and find your UI tax rate through the Department of Labor’s BEACON 2.0 portal.
  • Workers’ Compensation—If you have one or more employees, you’ll be required to provide workers’ compensation insurance for your workers. You can purchase coverage from a private insurer or self-insure if you get approval from the Maryland Workers’ Compensation Commission.

Industry Taxes

Doing business in certain industries may mean that your LLC will need to pay additional Maryland taxes, such as:

  • Digital Advertising Gross Revenues Tax
  • Admissions & Amusement Tax
  • Tobacco Tax
  • Motor Fuel Tax
  • Boxing & Wrestling Tax

Find more information on industry taxes on the Comptroller of Maryland’s Information for Business Taxpayers page.

Do foreign LLCs in Maryland need to pay Maryland taxes?

Yes. As the owner of a Maryland foreign LLC, you’ll be required to pay all applicable Maryland business taxes, including industry and local business taxes. If you run an SMLLC and make over $12,550 of taxable income in Maryland filing as a single person or over $25,100 filing jointly, you’ll also need to file a non-resident individual income return in Maryland.