One of the most common misunderstandings Maryland business owners have is believing that an “S corporation” is a separate type of legal entity they need to form. It is not. An S corporation is a federal tax classification under Subchapter S of the Internal Revenue Code, specifically IRC Section 1362.

Your Maryland LLC stays a Maryland LLC under state law. You do not dissolve it, re-form it, or file anything new with the Maryland State Department of Assessments and Taxation (SDAT). What changes is how the IRS taxes the entity’s income. You make this election by filing IRS Form 2553 with the Internal Revenue Service.

Once the election is approved, your LLC files a federal income tax return on Form 1120-S instead of the default Schedule C (single-member LLC) or Form 1065 (multi-member LLC). Income, deductions, and credits pass through to shareholders, who report them on their individual returns via Schedule K-1. Maryland then recognizes this federal election for state tax purposes. A Maryland S corporation generally files Form 510 with the Comptroller, unless it elects entity-level taxation on all members’ shares and files Form 511 instead.

The financial case for an S corp election comes down to one key difference in how owner compensation is taxed. Under default LLC taxation, if you are the sole owner, all of your net business profit is treated as self-employment income and is subject to self-employment tax. For 2026, the self-employment tax rate is 15.3% (12.4% Social Security up to the $184,500 wage base, plus 2.9% Medicare with no cap, applied to 92.35% of net earnings).

Under S corp taxation, the IRS requires you to pay yourself a reasonable salary for your services. That salary is subject to payroll taxes, the same 15.3%, split between employer and employee shares. But here is the key: profit distributions above and beyond that salary are not subject to payroll taxes. They flow through to your personal return and are subject to income tax, but not Social Security and Medicare taxes.

A concrete illustration

Suppose your Maryland LLC generates $150,000 in net profit in 2026 and a reasonable salary for your role is $75,000. Here is a simplified comparison of the payroll tax exposure under default LLC taxation versus S corp taxation:

The savings in this illustration represent roughly $9,700 per year in avoided payroll taxes. Over five years, that is nearly $50,000, before compounding growth in business income. However, those savings must be weighed against the real cost of payroll compliance, which we address in the compliance obligations section below.

The reasonable salary requirement is the single most scrutinized aspect of S corp taxation, and it is the area where Maryland business owners most often get into trouble with the IRS.

The IRS requires that S corp shareholders who perform services for the corporation receive a salary that is reasonable and commensurate with the services they provide. The IRS has stated this in numerous Revenue Rulings and has used it as a basis for reclassifying distributions as wages, with back payroll taxes, interest, and penalties.

What factors the IRS considers

The IRS does not publish a fixed dollar amount or percentage rule for reasonable salary. Instead, it looks at a cluster of facts, including:

• The nature and extent of the shareholder’s services to the business
• The hours the shareholder works in the business
• The training, experience, and responsibilities of the role
• What the business pays non-shareholder employees for similar work, if any
• What comparable businesses pay for equivalent positions (industry benchmarking)
• The overall financial condition of the business
• Dividend history and the ratio of salary to distributions

What “too low” looks like to the IRS

A salary of $1 per year when the business generates $300,000 in profit is an obvious audit target. So is a salary that represents only a tiny fraction of distributions when the shareholder is performing meaningful services in the business. The IRS has successfully reclassified distributions as wages in numerous cases where the salary was demonstrably below market.

Documenting your reasonable salary

The best practice is to document your salary determination process at the time you establish it, not retroactively if the IRS ever asks. A reasonable approach includes written documentation of your role and responsibilities, a review of comparable compensation data for similar positions in your industry and region (sites such as the Bureau of Labor Statistics Occupational Employment and Wage Statistics can provide a starting reference), and regular salary reviews as the business grows. Working with a qualified Maryland tax attorney or CPA to establish and document your salary from the outset is far less expensive than defending a payroll tax audit later.

For professional context on what audit defense involves, see our Civil Tax Controversies & Penalties page.

Not every Maryland LLC automatically qualifies to elect S corp status. Before filing Form 2553, you must confirm that your entity meets all of the following IRS eligibility requirements under IRC Section 1361(b):

• Domestic entity: The business must be organized under U.S. law. A Maryland LLC qualifies on this requirement.
• No more than 100 shareholders: S corporations may not have more than 100 shareholders. For this purpose, all members of a family (under a six-generation rule) may be counted as a single shareholder.
• Eligible shareholders only: Permitted shareholders generally include U.S. citizens and resident aliens, estates, certain trusts, and certain exempt organizations. Corporations, partnerships, and nonresident aliens cannot be shareholders. Certain trusts, including Qualified Subchapter S Trusts (QSSTs) and Electing Small Business Trusts (ESBTs), are permitted if their requirements are met.
• Only one class of stock: An S corporation may have only one class of stock. Differences in voting rights are permitted, but differences in economic rights (such as preferential distributions) are not. This rule can become relevant for LLCs that use special allocation provisions in their operating agreements.
• Not an ineligible corporation: Certain entities such as insurance companies, certain financial institutions, and domestic international sales corporations are ineligible regardless of ownership structure.

Special note for LLCs: the entity classification piece

An LLC that has not previously elected to be taxed as a corporation must address the entity classification issue before or concurrently with the S corp election. A single-member LLC is treated as a disregarded entity by default (Schedule C). A multi-member LLC is treated as a partnership by default (Form 1065). To be eligible for S corp treatment, the LLC must be treated as a corporation for tax purposes.

In practice, the IRS permits an LLC to make both elections simultaneously: you can file Form 2553 alone for the S corp election, and the IRS will treat the filing as also incorporating the necessary entity classification change. However, if your LLC has previously been treated as a partnership or disregarded entity and you want to confirm your path, working with a Maryland business formation attorney before filing eliminates the risk of a defective election.

The 2026 deadline

To elect S corp status for the 2026 tax year, a calendar-year business must file Form 2553 no later than the 15th day of the third month of the tax year. For 2026, March 15 falls on a Sunday, so the deadline shifts to Monday, March 16, 2026.

New businesses formed during 2026 have a different window: 2 months and 15 days from the date of formation. For example, if your Maryland LLC was formed on February 1, 2026, your filing window runs through April 15, 2026.

You can also file Form 2553 at any time during the preceding tax year (2025) to have the election take effect for 2026, meaning, preparation and planning well before year-end is always the cleanest approach.

What if you missed the deadline?

Missing the deadline does not permanently foreclose the election. Revenue Procedure 2013-30 provides late election relief for up to 3 years and 75 days after the intended effective date of the election, provided the entity meets certain criteria and can demonstrate that the failure to file timely was due to reasonable cause. To request this relief, you must write “FILED PURSUANT TO REV. PROC. 2013-30” at the top of Form 2553 and attach a statement explaining the reasonable cause.

If the Rev. Proc. 2013-30 window has also passed, a private letter ruling from the IRS national office is an option, though it comes with a significant user fee. The tax attorneys at Iqbal Business Law can help evaluate which path makes sense for your situation.

How to file Form 2553

As of 2026, Form 2553 cannot be filed electronically. It must be mailed or faxed to the IRS Service Center for your region. The current mailing addresses and fax numbers are published on the IRS “Where to File” page for Form 2553. For Maryland businesses, confirm the applicable Service Center before submitting.

All shareholders must sign Form 2553 on the consent statement in Column K. A missing shareholder signature renders the filing invalid. The IRS typically sends a confirmation letter (CP-261) within approximately 60 days. If you have not received a response, follow up with the IRS Business and Specialty Tax Line at (800) 829-4933 and retain your proof of mailing or fax transmission.

What changes after the election is approved

Once approved, the primary changes to your compliance obligations include:

• Your LLC now files an annual Form 1120-S (U.S. Income Tax Return for an S Corporation) instead of Schedule C or Form 1065
• Each shareholder receives a Schedule K-1 reporting their pro rata share of income, deductions, and credits
• You must run payroll for owner-employees and deposit employment taxes on the required schedule
• Maryland requires the entity to file the appropriate Maryland pass-through entity return with the Comptroller, generally, Form 510, or Form 511 if the entity makes the Maryland entity-level election
• Estimated tax payments may be required at both the federal and Maryland state level

Maryland’s recognition of the federal S corp election

Maryland recognizes the federal S corp election. A Maryland S corporation generally files Form 510 (Pass-Through Entity Income Tax Return) annually with the Maryland Comptroller. If the entity makes Maryland’s entity-level election, it files Form 511 (Pass-Through Entity Election Income Tax Return) instead. Income passes through to shareholders, who report their Maryland-source income on their individual Maryland returns. Effective for tax year 2025, Maryland revised its State individual income tax brackets, including new higher brackets of 6.25% on taxable income of $500,001 to $1,000,000 for single filers (or $600,001 to $1,200,000 for joint filers) and 6.50% above those levels. Maryland counties and Baltimore City also impose a local income tax, which must be at least 2.25% and may be as high as 3.30%.

Maryland’s elective Pass-Through Entity (PTE) tax

Maryland has an elective Pass-Through Entity tax that qualifying S corporations, among other pass-through entities, can elect annually. When elected, the entity pays Maryland income tax at the entity level on behalf of its shareholders. Shareholders then receive a credit against their individual Maryland income tax for their share of the PTE tax paid. The primary benefit is a federal SALT deduction workaround: because the entity’s payment is a state income tax paid by a business, it can be deducted as a business expense on the federal return, effectively bypassing the $10,000 SALT cap for individual itemized deductions.

The Maryland PTE election is made annually by the entity and must be reflected on the entity’s first filing for the tax year. Once made for that year, the election is irrevocable. An electing entity files Form 511 rather than Form 510.

Important Maryland PTE rule change for 2026

Effective for tax years beginning after December 31, 2025, Maryland significantly expanded the PTE tax base for resident shareholders. Under prior law, the PTE tax applied only to a member’s share of Maryland-source income. Under the new rule enacted in Maryland’s FY 2026 Budget Reconciliation and Financing Act (H.B. 352), resident shareholders are now taxed on their full distributive share of entity income from all sources, not just Maryland-source income. For non-resident shareholders, the PTE tax base remains limited to Maryland-source income.

Maryland Form 510 / Form 511 filing deadlines

Electing Maryland pass-through entities file Form 511 by April 15 of the year following the tax year. Nonelecting Maryland S corporations generally file Form 510 by that same deadline. Maryland provides a seven-month extension to file for calendar-year S corporation filers if a timely extension request is filed on Form 510/511E or through the Comptroller’s online extension system. This is an extension to file, not an extension to pay. Tax payments remain due by the original due date. When the entity’s expected Maryland tax exceeds $1,000 for the year, it generally must make quarterly estimated tax payments on Form 510/511D.

Maryland’s SDAT annual report obligations

An S corp election does not change your Maryland SDAT obligations. Maryland LLCs, whether or not they have made an S corp election, must continue to file their Annual Report and Personal Property Return with SDAT by April 15 each year. The standard filing fee is $300, although some businesses may qualify for a MarylandSaves-related waiver of that annual report filing fee. Failure to remain in good standing with SDAT can prevent the entity from enforcing contracts, maintaining lawsuits in Maryland courts, and obtaining certain financing. See our overview of Maryland Business Formation & Structuring for more on these obligations.

The S corp election is not a universal recommendation. It is a planning tool that delivers meaningful benefit in specific circumstances. The following profiles tend to represent the strongest candidates for election:

Consistently profitable single-owner service businesses

A Maryland LLC owned by one person, such as a consultant, attorney, financial advisor, contractor, medical professional, or other service provider, who is generating strong annual net profit is often the clearest candidate. When net profit consistently exceeds approximately $50,000 to $60,000 after a reasonable salary, the self-employment tax savings typically exceed the incremental compliance costs of running payroll and filing Form 1120-S. The breakeven point varies by business, but this is the range where the math typically begins to work.

Established businesses with predictable income

The S corp election works best when income is reasonably predictable. A business with highly variable income, e.g., strong years followed by loss years, may find the payroll obligation during slow years creates cash flow challenges. An established business with stable, growing net income is a more natural fit.

Businesses where the owner performs significant services

The tax savings come from splitting compensation between salary (taxed for payroll) and distributions (not taxed for payroll). If the owner performs substantial services in the business, a meaningful salary is required, and distributions above that salary generate savings. If the business is primarily passive or investment-based, the owner may not be required to receive a salary at all, but those businesses also may not benefit as strongly from the election structure.

Maryland business owners facing Maryland’s expanded income tax brackets

For higher-income Maryland business owners, Maryland’s new 6.25% and 6.50% state income tax brackets, combined with county local income taxes up to 3.30%, mean the combined state and local marginal income tax rate can exceed 9.5% on upper-tier income. Coordinating the S corp election with Maryland’s PTE election (where appropriate) and careful salary and distribution planning can have a meaningful effect on the total state and federal tax burden. This is not a DIY calculation. It requires careful modeling with a Maryland tax attorney or CPA. Our General Counsel Services can provide ongoing strategic coordination of these planning decisions.

The S corp election is frequently oversold online. For a meaningful portion of Maryland LLCs, the election would add compliance costs and complexity without delivering enough tax savings to justify them. The following situations typically do not benefit:

Low-profit or early-stage businesses

If your LLC’s net profit is below the $50,000 to $60,000 range, the annual cost of payroll compliance, typically $1,500 to $3,000 or more per year for payroll services, additional accounting fees, and Form 1120-S preparation, may consume most or all of the self-employment tax savings. Early-stage businesses should build profitability first, then revisit the election when the numbers support it.

Businesses with ineligible shareholders

If any of your LLC’s members are non-resident aliens, corporations, partnerships, or disqualified trust types, you cannot elect S corp status without restructuring ownership. Attempting to file Form 2553 without confirming eligibility can result in an invalid election and an unexpected tax classification outcome.

Businesses planning to raise outside investment

Venture capital and institutional investors typically require preferred equity with economic preferences, which violates the S corp single-class-of-stock rule. An LLC expecting to raise institutional capital is generally better served by a C corporation or by maintaining default LLC treatment until the capital raise structure is finalized. See our Business Transactions page for how entity structure intersects with investment planning.

Businesses with international tax considerations

LLCs with foreign owners, foreign-source income, or planned international operations face additional complexity that the S corp election can complicate significantly. Non-resident alien shareholders are disqualified, and certain international tax structures are incompatible with S corp status. If your business has international dimensions, review our International Tax Planning & Compliance page before making any entity election decisions.

Sole proprietors with very modest service income

A freelancer or sole proprietor generating $30,000 to $40,000 in net income may be better served by the Qualified Business Income (QBI) deduction under Section 199A, which can reduce taxable income by up to 20% of qualified business income, than by an S corp election that adds significant compliance overhead. For more on the QBI deduction, see our detailed post on Section 199A: Enactment, Evolution, and Interpretation.

Many Maryland business owners focus on the tax savings of the S corp election without fully accounting for the ongoing compliance obligations it creates. These are real, recurring costs and obligations that must factor into the breakeven analysis.

Federal compliance obligations

• Payroll: You must run formal payroll for all shareholder-employees. This means withholding and depositing federal income tax, Social Security, and Medicare taxes on a regular schedule (semi-weekly or monthly, depending on payroll size). Failure to deposit payroll taxes on time triggers the Trust Fund Recovery Penalty, which can be assessed personally against responsible individuals.
• Form 941: Quarterly federal employer tax returns must be filed reporting wages paid, taxes withheld, and deposits made.
• Form W-2: Annual wage statements must be issued to all employee-shareholders by January 31.
• Form 1120-S: The annual S corporation income tax return, due March 15 (or September 15 with extension). For returns required to be filed in 2026, if no tax is due, late filing generally carries a penalty of $255 per shareholder per month (or part of a month), up to 12 months, unless the failure is due to reasonable cause.
• Schedule K-1: Each shareholder receives a Schedule K-1 reporting their pro-rata share of income, deductions, credits, and other tax items, which they report on their individual returns.
• Basis tracking: Shareholders must track their stock basis using Form 7203. Distributions in excess of basis have tax consequences, and losses are deductible only to the extent of a shareholder’s basis. Poor basis record-keeping is a common source of tax problems down the road.

Maryland compliance obligations

• Maryland Form 510 or Form 511: Maryland S corporations generally file Form 510 if they are nonelecting pass-through entities, or Form 511 if they make Maryland’s entity-level election. The return is generally due April 15, and an extension to file may be obtained if timely requested.
• Estimated tax payments: Generally required quarterly on Form 510/511D when expected Maryland tax exceeds $1,000 for the year.
• SDAT Annual Report: The $300 annual report and personal property return, due April 15 each year, continues regardless of the S corp election.
• Maryland payroll withholding: Maryland income tax must be withheld from wages paid to Maryland residents and filed with the Comptroller.

1. Paying an unreasonably low reasonable salary

The most common and most audited mistake. Setting a token salary to maximize distributions is a well-known IRS audit strategy target, and the IRS has successfully recharacterized low-salary distributions as wages in numerous Tax Court cases. The consequence can include reclassified wages, back employment taxes, interest, and penalties. In some cases, the Trust Fund Recovery Penalty can be assessed personally against responsible persons for the trust fund portion of unpaid employment taxes. The cost of getting this wrong far exceeds the short-term tax savings from an artificially low salary. If you are subject to an audit on this issue, our IRS & State Tax Audits team can assist.

2. Missing payroll deposit deadlines

Payroll taxes are trust fund taxes, meaning money withheld from employee wages must be deposited with the IRS on a strict schedule. Missing deposit deadlines triggers a cascading penalty structure: 2% for deposits 1 to 5 days late, 5% for 6 to 15 days late, 10% for deposits more than 15 days late, and 15% for amounts not deposited after receiving an IRS notice. The Trust Fund Recovery Penalty can be assessed personally against any “responsible person,” including owners, officers, and bookkeepers. This is one of the most serious compliance risks in running an S corp.

3. Failing to maintain shareholder eligibility

Adding an ineligible shareholder, like a non-resident alien, a corporation, or an ineligible trust, automatically terminates S corp status from the date of the disqualifying event. The IRS generally does not provide advance warning when this happens; the termination is self-executing. Termination can trigger significant tax consequences, including treating the entity as a C corporation for the period after the termination date. S corps with multiple members should have their operating agreement and ownership structure reviewed periodically. Our Corporate Governance practice can assist with ongoing governance reviews.

4. Not tracking shareholder basis

Distributions that exceed a shareholder’s stock basis are taxed as capital gains. Losses are deductible only to the extent of basis. Without accurate, ongoing basis records, maintained separately from the entity’s general accounting, shareholders can face unexpected tax liability on distributions or lose deductions they were entitled to. This is an often-overlooked bookkeeping obligation that compounds over time if not addressed from year one.

5. Ignoring estimated tax obligations

S corp shareholders receive K-1 income that is not subject to withholding. If quarterly estimated payments are not made at both the federal and Maryland state levels, shareholders can face underpayment penalties at year-end. Maryland requires estimated payments when expected state tax liability exceeds $500. Federal rules generally require payments to avoid penalty when liability will be $1,000 or more. For high-income Maryland shareholders facing the new 6.25% and 6.50% state brackets, properly structured estimated payments are especially important.

6. Treating the election as set-and-forget

An S corp election requires ongoing attention. If your ownership structure changes, if your profit levels shift dramatically, or if Maryland law changes (as it did significantly for the PTE tax in 2026), the election that made sense when you filed it may no longer be optimal, or may create new risks. Periodic review of your entity structure and tax elections as part of a broader tax planning relationship is the right approach. Our General Counsel Services provide that kind of ongoing strategic review for Maryland businesses.

For a deeper dive into how S corp treatment compares to C corporation treatment, see our companion post: LLC vs. Corporation: Tax Implications and How to Choose the Right Structure for Your Business in 2026.

For a calendar-year business, Form 2553 must be filed no later than the 15th day of the third month of the tax year. For 2026, that deadline is March 16, 2026 (because March 15, 2026 falls on a Sunday and the due date moves to the next business day). New businesses formed during 2026 have 2 months and 15 days from their date of formation. If the deadline has already passed, late election relief may still be available under Revenue Procedure 2013-30 for up to 3 years and 75 days after the intended effective date, provided there was reasonable cause for the late filing. You can also file Form 2553 at any time during 2026 to have the election effective for the 2027 tax year.

Yes. Maryland recognizes the federal S corp election for state income tax purposes. A Maryland S corporation generally files Form 510 (Pass-Through Entity Income Tax Return) with the Maryland Comptroller annually. If the entity makes Maryland’s entity-level election, it files Form 511 (Pass-Through Entity Election Income Tax Return) instead. Income passes through to shareholders, who report their shares on their individual Maryland returns. Maryland also allows qualifying S corporations to elect the Maryland Pass-Through Entity (PTE) tax on Form 511, which can provide a federal SALT deduction benefit for shareholders in the right circumstances. The S corp election does not change your obligations with the Maryland State Department of Assessments and Taxation (SDAT).

Savings depend on your net profit, your reasonable salary, and your full Maryland and federal tax picture. As a simplified illustration: if your LLC generates $150,000 in net profit and a reasonable salary is $75,000, avoiding payroll taxes on the remaining $75,000 in distributions could save roughly $9,000 to $11,000 per year in self-employment taxes, before accounting for payroll compliance costs of $1,500 to $4,000 or more annually. For Maryland business owners subject to the new 6.25% and 6.50% state income tax brackets, additional savings may be available through coordination with Maryland’s PTE tax election. These are illustrative figures; your actual savings require analysis of your specific situation with a qualified Maryland tax attorney or CPA.

The IRS requires S corp owner-employees to pay themselves a reasonable salary commensurate with the services they provide. The IRS looks at factors including the shareholder’s role, hours, industry benchmarks, compensation paid for similar work by non-shareholder employees, and the financial condition of the business. There is no fixed dollar or percentage rule. Paying an unreasonably low salary is a well-documented audit trigger. The IRS has successfully reclassified distributions as wages in numerous cases, resulting in back payroll taxes, interest, and penalties that can exceed the original savings. Documenting the salary determination at the time it is set — rather than retroactively — is the best practice.

Yes. An S corp election is a federal tax classification change, not a change to your legal entity. Your Maryland LLC remains a Maryland LLC in the eyes of SDAT and under Maryland law. You file IRS Form 2553 to change how the entity is taxed for federal purposes, and Maryland then recognizes that election for state purposes. You do not need to dissolve your LLC, form a new corporation, or make any additional filings with SDAT as a result of the S corp election itself.

To elect S corp status, the entity must: (1) be a domestic entity organized under U.S. law; (2) have no more than 100 shareholders; (3) have only permitted shareholders – generally, U.S. citizens and resident aliens, estates, certain trusts, and certain exempt organizations; (4) have only one class of stock (differences in voting rights are permitted, but differences in economic rights are not); and (5) not be an ineligible entity type such as an insurance company or domestic international sales corporation. Corporations, partnerships, and nonresident aliens are not permitted shareholders. A Maryland LLC with any member who is a non-resident alien, a corporation, or a partnership is ineligible until that ownership is restructured.

Late election relief is available under Revenue Procedure 2013-30. You can file a late Form 2553 for up to 3 years and 75 days after the intended effective date, provided you meet the eligibility criteria and can show reasonable cause for the late filing. You must write “FILED PURSUANT TO REV. PROC. 2013-30” at the top of the form and attach a reasonable cause statement. If the relief window has also passed, a private letter ruling from the IRS national office is an option but involves a significant user fee. Contact a Maryland tax attorney to evaluate which avenue applies to your situation.

Yes. S corp status can be voluntarily revoked by shareholders holding more than half of all shares. It can be involuntarily terminated if an ineligible shareholder is added, the 100-shareholder limit is exceeded, a second class of stock is created, or, for S corporations with prior C corp accumulated earnings and profits, if more than 25% of gross receipts are passive investment income for three consecutive tax years. Termination has serious federal and Maryland tax consequences and should be discussed with a qualified Maryland tax attorney before any transaction or ownership change that could trigger it. Our Corporate Governance team can assist with shareholder and governance structure reviews.

No. The S corp election is not a universal recommendation. It tends to make financial sense when net profit consistently exceeds approximately $50,000 to $60,000 after a reasonable salary, the ownership structure is eligible, the business is stable, and the payroll compliance costs are clearly outweighed by self-employment tax savings. LLCs with low profits, foreign owners, variable income, or plans for institutional investment often do not benefit from the election — and may be harmed by the additional compliance obligations it creates. The right answer always depends on your specific facts.

Several Maryland-specific points deserve attention. First, Maryland requires S corporations to file the appropriate Maryland pass-through entity return annually with the Comptroller, generally Form 510, or Form 511 if the entity makes the Maryland entity-level election, and to continue SDAT annual reports. Second, Maryland’s elective PTE tax, available through Form 511, provides a potential federal SALT deduction benefit, but for tax years beginning after December 31, 2025, Maryland law expands the PTE tax base for resident members to their full distributive or pro rata shares, while nonresident members remain limited to Maryland-source income, creating added complexity for entities with mixed-residency ownership. Third, effective for tax year 2025, Maryland revised its State individual income tax brackets, including new 6.25% and 6.50% brackets for higher-income filers, and counties and Baltimore City may impose local income tax rates up to 3.30%. That makes careful salary, distribution, and PTE-election planning especially important for higher-income Maryland S corp owners.