Maryland’s estate tax can affect the value of assets beneficiaries receive, making it a consideration in financial planning. While federal estate taxes often receive more attention, Maryland has separate rules and thresholds, meaning some estates exempt federally may still owe state taxes.
Understanding this tax is important for estate managers and individuals planning their legacies. Missteps can lead to unexpected liabilities or penalties, so clarity on the process is beneficial.
Determining Liability
Whether a Maryland estate tax is owed depends first on the “gross estate.” Maryland law, under Tax-General Article 7-301, generally aligns the state’s gross estate with the “federal gross estate” as defined by the Internal Revenue Code.1Justia US Law. Maryland Tax-General Code § 7-301 (2024) – Definitions This includes all property the decedent owned or had an interest in at death, such as real estate, bank accounts, investments, and personal items. It also covers annuities, jointly owned assets with survivorship rights, certain life insurance proceeds, and property under a general power of appointment. Non-probate assets, like those in a revocable living trust, are also included for tax calculations.
After establishing the federal gross estate, Maryland law requires an “augmentation.” This involves adding the value of any Qualified Terminable Interest Property (QTIP) for which a Maryland QTIP election was made on a prior Maryland estate tax return for the decedent’s predeceased spouse, if not already in the federal gross estate. This sum is the “augmented gross estate.”
Maryland imposes its estate tax on decedents who were Maryland residents or non-residents with Maryland real or tangible personal property. For 2025, the Maryland estate tax exemption is $5 million per individual.2Comptroller of Maryland. Administrative Release No. 30: Maryland Estate Tax Exemption and Return Filing Requirements If the sum of the federal gross estate, adjusted taxable gifts made by the decedent after December 31, 1976, and any Maryland QTIP (as described above) is $5 million or less, generally no Maryland estate tax is due. This $5 million exemption is not indexed for inflation. Maryland also allows “portability,” permitting a surviving spouse to use their deceased spouse’s unused Maryland estate tax exemption.
The tax is calculated based on the maximum credit for state death taxes allowable under a prior version of Internal Revenue Code Section 2011.3Bloomberg Tax. IRC § 2011: Credit For State Death Taxes [Repealed] The tax rate cannot exceed 16% of the amount by which the decedent’s taxable estate (after deductions) surpasses the $5 million exemption. If an estate also owes Maryland inheritance tax, the amount of inheritance tax paid is subtracted from the Maryland estate tax liability. If the inheritance tax paid equals or exceeds the estate tax, no estate tax is due, though the estate tax remains technically due until the inheritance tax is paid.
For non-resident decedents, Maryland estate tax generally doesn’t apply to personal property if the decedent’s home state offers a reciprocal exemption. This does not cover tangible personal property located in Maryland. If a non-resident’s estate includes Maryland real or tangible personal property and the total estate value (including adjusted taxable gifts and QTIP) exceeds the $5 million threshold, a Maryland return is required. The tax for non-residents is typically prorated based on the value of Maryland property relative to the total gross estate.
Important Deductions
After determining the total assets subject to Maryland’s estate tax, certain deductions can reduce the taxable estate. The Maryland taxable estate is the Maryland adjusted gross estate (the federal gross estate augmented as previously described) less allowable deductions, as outlined in Tax-General Article 7-304.
Primary deductions include reasonable funeral expenses paid by the estate and costs of administering the estate. Administration expenses, such as executor’s commissions, attorney’s fees, court costs, and appraisal fees, are deductible if allowable under Maryland law and necessarily incurred.
Valid debts owed by the decedent at death also reduce the taxable estate. These include personal loans, credit card balances, and other enforceable claims. Unpaid mortgages or liens on property are deductible if the full value of the property is included in the gross estate.
A significant marital deduction is available for property passing to a surviving spouse. This generally aligns with federal marital deduction rules under Internal Revenue Code Section 2056, allowing qualifying property transfers to a spouse to be fully deducted, deferring potential tax until the surviving spouse’s death.4Cornell Law School Legal Information Institute. 26 U.S. Code § 2056 – Bequests, etc., to Surviving Spouse
Charitable deductions are permitted for property transferred to qualified charitable, religious, educational, or public organizations, generally mirroring federal provisions under Internal Revenue Code Section 2055.5Cornell Law School Legal Information Institute. 26 U.S. Code § 2055 – Transfers for Public, Charitable, and Religious Uses The recipient organization must meet specific criteria, and the bequest must be for public purposes.
Filing Requirements
The personal representative of the decedent’s estate is generally responsible for filing the Maryland Estate Tax Return, Form MET-1.6Comptroller of Maryland. Tax Tip #42: Maryland Estate Tax If a federal estate tax return (IRS Form 706) is required, the same person files the Maryland return. If no personal representative is appointed, anyone in possession of the decedent’s property must file.
A Maryland estate tax return is required if the decedent’s federal gross estate, plus adjusted taxable gifts and any Maryland QTIP property, meets or exceeds the Maryland estate tax exemption for the year of death. This applies to Maryland residents and non-residents owning Maryland real or tangible personal property. A return may be needed even if no tax is due after deductions.
The filing deadline is nine months after the decedent’s date of death, aligning with the federal due date. Returns are filed with the Comptroller of Maryland. A complete copy of the federal Form 706 (or a pro forma version if no federal filing is required), a certified death certificate, and the decedent’s will and any trusts must be included.
An extension to file may be requested using Form MET-1E by the original due date.7Comptroller of Maryland. Form MET-1E: Maryland Estate Tax Application for Extension of Time to File The Comptroller may grant up to six months (or one year if the filer is abroad). An approved federal extension (Form 4768) is generally recognized by Maryland. An extension to file does not extend the time to pay the estate tax; payment is still due by the original nine-month deadline.
Payment Procedures
Maryland estate tax is due nine months after the decedent’s death. Payment, with remittance Form MET-3, should be mailed to the Comptroller of Maryland, Revenue Administration Division, P.O. Box 828, Annapolis, Maryland 21404-0828.8Comptroller of Maryland. Maryland Estate Tax Return (Form MET-1) 2024
Interest will accrue on any unpaid tax from the original due date, as provided in Tax-General Article 13-601, even if a filing extension was granted.
The Comptroller may permit an alternative payment schedule, such as a deferral or installment plan, under Tax-General Article 7-307.9Justia US Law. Maryland Tax-General Code § 7-307 (2024) – Alternative Payment Schedule If approved and followed, this can help avoid penalties for late payment.
Unpaid Maryland estate tax and accrued interest become a lien on the estate’s property in favor of the State, established under Tax-General Article 13-805. A notice of lien may be filed in the circuit court where the property is located.
If an overpayment occurs, a refund can be claimed by filing an amended Form MET-1, generally within three years from the event causing the refund. A personal representative can elect to have a refund paid to the Register of Wills for inheritance tax using Form MET-2ADJ.
Penalties for Noncompliance
Failure to meet Maryland’s estate tax obligations can result in financial penalties. If a return is not filed on time (nine months after death, unless extended), a late filing penalty of up to 25% of the tax due may be assessed, accruing at 5% per month or part of a month the return is late.
Failure to pay the tax by the due date also incurs penalties. Under Tax-General Article 13-701, a penalty of 0.5% of the unpaid tax per month (or fraction thereof) can be imposed, up to a maximum of 25% of the tax liability.10Justia US Law. Maryland Tax-General Code § 13-701 (2021) – Penalty for Failure to Pay Tax This is in addition to interest on the unpaid tax. The interest rate is set annually by the Comptroller; for example, it was 10.0% for calendar year 2024. Interest accumulates from the original payment due date, regardless of filing extensions.
Underpayments due to negligence or disregard of rules (without fraudulent intent) can result in a penalty of 10% of the negligent portion of the underpayment. A substantial understatement of tax (generally exceeding 10% of the correct tax or $5,000) can trigger a 25% penalty on the understatement.
The most severe civil penalty is for fraud. If any part of an underpayment is due to fraud, Tax-General Article 13-706 imposes a penalty of 100% of the fraudulent portion. Fraudulent activity can also lead to criminal charges, including fines and imprisonment for willfully attempting to evade tax (a felony) or willfully failing to file or pay (a misdemeanor). These criminal sanctions are separate from civil penalties and interest.