For deaths in 2021, the Maryland estate tax exemption is $5 million per person. Estates with a gross value below that figure generally owe no Maryland estate tax, and only the portion of a taxable estate above $5 million is subject to the tax.1Maryland General Assembly. Maryland Tax – General Code Section 7-309 The exemption has held at $5 million since January 1, 2019 and remains $5 million through 2026.
The federal exemption sat at $11.7 million in 2021, so plenty of estates owed nothing to the IRS but still owed Maryland.2Internal Revenue Service. Estate Tax Clearing the federal bar does not clear the state one.
How the Tax Is Calculated Above $5 Million
Maryland’s estate tax is capped at 16% of the amount by which the taxable estate exceeds the $5 million exclusion.3Comptroller of Maryland. Estate and Inheritance Tax Information The actual rate usually comes in lower because the calculation is tied to the maximum state death tax credit allowed under the pre-2002 federal estate tax. Congress repealed that federal credit years ago, but Maryland froze the formula in place for its own tax.4Comptroller of Maryland. What You Need to Know About Marylands Estate Tax
So the effective rate on an estate just above $5 million is far below 16%, climbing toward the ceiling as the estate grows. An estate worth $5.5 million might face an effective rate in the low single digits; an estate worth $10 million or more gets closer to 16% on the excess. There is no simple bracket table. The personal representative runs the numbers through the old federal credit tables built into Form MET-1.
Farmland gets a separate break. Up to $5 million of qualifying agricultural property passing to a qualified recipient can be excluded from the gross estate entirely, and amounts above that are taxed at 5% rather than the standard rate.1Maryland General Assembly. Maryland Tax – General Code Section 7-309
The gross estate includes jointly held property, life insurance proceeds, retirement accounts, and real estate. Allowable debts and administrative expenses come off to reach the taxable figure.
Spousal Portability Can Push the Shelter to $10 Million
For deaths after 2018, Maryland allows portability of the deceased spousal unused exclusion (DSUE). If the first spouse to die uses only $2 million of the $5 million exemption, the surviving spouse can add the remaining $3 million to their own $5 million.5Comptroller of Maryland. Estate-Inheritance-Fiduciary Tax FAQs When the first spouse uses none of the exemption, a married couple can shelter up to $10 million from Maryland estate tax.1Maryland General Assembly. Maryland Tax – General Code Section 7-309
Portability is not automatic. The personal representative of the first spouse’s estate has to file a Maryland estate tax return and affirmatively elect it, even when the estate falls below the $5 million filing threshold. Skip that step and the surviving spouse permanently loses the unused amount. For estates filing only to make the portability election, Maryland allows the return up to five years after the date of death.5Comptroller of Maryland. Estate-Inheritance-Fiduciary Tax FAQs
The Separate Inheritance Tax
The $5 million exemption governs the estate tax only. Maryland also imposes a separate inheritance tax based on who receives the property, not what the decedent owned, and it applies at a flat 10%.6Maryland Register of Wills. Inheritance Tax A small estate well under the $5 million line can still generate an inheritance tax bill.
These beneficiaries are completely exempt:
- Spouses
- Children, grandchildren, and other lineal descendants, including stepchildren
- Parents and grandparents
- Siblings and spouses of the decedent’s children
- Charitable organizations exempt under IRC ยง 501(c)(3)
Everyone else owes 10%: nieces, nephews, aunts, uncles, cousins, friends, unmarried partners (for deaths before October 2023), and non-exempt entities.6Maryland Register of Wills. Inheritance Tax A $500,000 bequest to a nephew triggers $50,000 in inheritance tax; the same bequest to a child triggers none.
Credit for Inheritance Tax Paid
Where the same property would be hit by both taxes, Maryland prevents the double tax through a credit. Inheritance tax paid to the Register of Wills is subtracted directly from the gross Maryland estate tax liability, and if the inheritance tax equals or exceeds the estate tax, nothing further is owed to the Comptroller.4Comptroller of Maryland. What You Need to Know About Marylands Estate Tax If an additional inheritance tax payment later comes due, the Comptroller can redirect an estate tax refund to the Register of Wills to cover it.3Comptroller of Maryland. Estate and Inheritance Tax Information
Who Has to File a Maryland Estate Tax Return
A return is required whenever the gross estate plus adjusted taxable gifts equals or exceeds $5 million, and the decedent was either a Maryland resident or a nonresident who owned real or tangible personal property in the state.5Comptroller of Maryland. Estate-Inheritance-Fiduciary Tax FAQs The threshold looks at the gross estate before debts and expenses. An estate with $5.5 million in assets and $1 million in debts still has to file, even though the taxable estate ends up below $5 million.
An estate under $5 million may also need to file to elect portability for the surviving spouse. There is no shortcut around a return to claim the DSUE.
The return is Form MET-1, filed with the Comptroller of Maryland rather than the Register of Wills. The Comptroller then forwards it to the Register of Wills for certification.5Comptroller of Maryland. Estate-Inheritance-Fiduciary Tax FAQs A completed federal Form 706 for the year of death must be attached with all schedules, even if no federal filing is otherwise required.7Comptroller of Maryland. Tax Guidance – Filing the Estate Tax Return Assets are valued at fair market value as of the date of death, with appraisals for real estate, business interests, and other hard-to-price items.
Deadlines, Extensions, and Penalties
The return is due nine months after the date of death.7Comptroller of Maryland. Tax Guidance – Filing the Estate Tax Return The Comptroller can grant a filing extension of up to six months, or up to one year if the person responsible is outside the United States.8New York Codes, Rules and Regulations. Maryland Code Tax – General 7-305.1 – Extension of Time to File Estate Tax Return
An extension to file is not an extension to pay. The full estimated tax is due at the nine-month mark regardless of any filing extension, and unpaid balances accrue interest automatically.7Comptroller of Maryland. Tax Guidance – Filing the Estate Tax Return
Late payment brings a penalty of up to 10% plus mandatory interest.5Comptroller of Maryland. Estate-Inheritance-Fiduciary Tax FAQs The annual interest rate for 2021 was 10%, charged monthly at one-twelfth of the annual rate.9Maryland General Assembly. Maryland Code Tax – General 13-604 Interest runs from the original due date until payment in full, even on an approved payment schedule. On a $200,000 tax bill paid six months late, penalty and interest together can easily top $30,000.
Why Falling Below the Federal Exemption Is Not Enough
The gap between the two exemptions is the whole reason the Maryland number matters. The 2021 federal exemption of $11.7 million was more than double Maryland’s $5 million.2Internal Revenue Service. Estate Tax An $8 million estate owed the IRS nothing but owed Maryland tax on $3 million. The federal exemption has since risen to $15 million per individual for 2026, widening the spread further.
Personal representatives who assume no federal liability means no tax at all can be surprised by a substantial state bill. Any estate approaching $5 million in total value should plan for a potential Maryland filing obligation, and any plan involving bequests to nieces, nephews, friends, or unmarried partners should account for the separate 10% inheritance tax on top.