Pass-through Withholding FAQs

  1. I already file withholding for my employees. Can I include nonresident partners on that withholding listing?
  2. Do I need to register if I already have an employee withholding account?
  3. Can I withhold from resident members, too?
  4. What if a nonresident member is making or wants to make estimated payments -- do I have to withhold for that member?
  5. Is every nonresident member required to file a Maine income tax return?
  6. Do I need to withhold from composite filers?
  7. How much must be withheld?
  8. Can I make payments more often than quarterly?
  9. What if I make a mistake on a return?
  10. Do I need to withhold for nonresident members that are pass-through entities?
  11. What about the nonresident threshold for taxability?
  12. What if I am operating at a loss?
  13. I represent a tax-exempt organization that is a member of a pass-through entity. Must the pass-through entity withhold from my organization’s share of the entity income?
  14. My business reports on a fiscal year basis. How do I determine the amount to withhold?
  15. Real estate withholding has been withheld for an entity during the year. Should the REW funds be listed on the 941P-ME as payment withheld?
  16. A nonresident owner is on the payroll of my business and has extra withholding taken out to cover the Maine tax liability. Do I still have to file pass-through entity withholding?
  17. My pass-through entity is owned by other pass-through entities (upper-tier). Can those upper tier entities qualify for the compliant taxpayer exemption?
  18. I represent an upper-tier entity with Maine-source income only from a lower-tier entity. How can I be sure the lower-tier entity is withholding so that I don’t have to do it?
  19. Are withholding statements required to be filed by the pass-through entity at the end of the year?
  20. How long are Forms 941CF-ME and 941AF-ME effective and retained?
  21. Is an upper-tier entity required to file Form 941P-ME to report amounts withheld by a lower-tier entity?

1. I already file withholding for my employees. Can I include nonresident partners on that withholding listing?

No. The withholding requirement for nonresident members of pass-through entities is separate from the employee withholding requirement. The forms used for filing nonresident member withholding are different than those for employee withholding.

You must file Form 941P-ME to report withholding on Maine source income of nonresident members.  For more information, visit www.maine.gov/revenue/incomeestate/pte-with/ptewith.htm.

Revised: March 1, 2019

2. Do I need to register if I already have an employee withholding account?

No. Although registration is required for employee withholding, it is not required for pass-through entity withholding.

Revised: December 3, 2012

3. Can I withhold from resident members, too?

Yes. Although withholding is required for nonresident members only, you may also make voluntary withholding payments for a resident member, with that member's consent.

Revised: December 3, 2012

4. What if a nonresident member is making or wants to make estimated payments -- do I have to withhold for that member?

If a nonresident member has $1,000 or more in Maine-source income, but that member prefers making estimated payments, the member must file an affidavit with the entity promising to comply with Maine's income tax laws. The entity must then list that member on Schedule 3 when it files Form 941P-ME for the year. Each participating nonresident member must sign an affidavit (Form 941AF-ME) which must be retained by the entity.

Revised: December 3, 2012

5. Is every nonresident member required to file a Maine income tax return?

Yes, if that nonresident member has Maine-source income. A pass-through entity having Maine-source income may file a composite income tax return for all of its eligible nonresident individual members who agree to participate. If a nonresident member participates in the composite return, an individual income tax return is not required from that member. See MRS Rule 805 on the "Laws & Rules" page at http://www.maine.gov/revenue/rules/. Forms and instructions are located on our "Forms, Publications & Applications" page at http://www.maine.gov/revenue/forms/.

Revised: December 23, 2013

6. Do I need to withhold from composite filers?

No. Each nonresident member participating in the composite exemption must sign an agreement to participate in the composite filing (Form 941CF-ME). This affidavit must be held by the pass-through entity. The entity must then list that member on Schedule 3 when it files Form 941P-ME for the year. It is not necessary to submit a new affidavit each year. The affidavit will remain in force continuously as long as the member retains an ownership interest in the pass-through entity or it is revoked. Estimated payments are required to be made by the entity on behalf of the composite filing group as long as the aggregate Maine income tax liability is greater than $1,000.

Revised: January 25, 2016

7. How much must be withheld?

You must withhold 7.15% of the estimated Maine-source distributive income of each nonresident member, except you must withhold 8.93% if the nonresident member is a C corporation. The Maine-source distributive income of a nonresident member is equal to the member’s share of the net income of the entity for the calendar year (or, for fiscal year filers, for the fiscal year ending during the calendar year) apportioned to Maine in accordance with 36 M.R.S., Chapter 821.

If you do not know the amount of Maine-source distributive income of a nonresident member, you must estimate.

For purposes of Maine pass-through entity withholding, the net income of an entity for the calendar year (or fiscal year) is calculated on an estimated basis. See the instructions for Form 941P-ME, Schedule 1P, line 5 for more information.

An entity that is required to withhold a total of more than $1,000 from its members for the calendar year must, for each calendar quarter, make estimated payments equal to 25% of the lesser of the following:

(a) 90% of the amount required to be withheld for the calendar year; or

(b) The amount required to have been withheld for the prior calendar year, except that this paragraph does not apply if the preceding year was less than 12 months, or if the pass-through entity was not required to withhold, or if the entity did not file an annual return for the prior year.

The estimated payments may be made electronically or by check using Form 901ES-ME. Payments are due for each calendar quarter on or before the following dates: April 30th, July 31st, October 31st, and January 31st of the following year.

Revised: March 1, 2019

8. Can I make payments more often than quarterly?

Yes. You are not required to make payments more frequently than quarterly, but you may make them as often as you like, using Form 901ES-ME. Be sure to enter your federal employer identification number on the check, as well as the form, to ensure that the payment goes to the correct account.

You may make 901ES-ME payments online using the Maine EZ Pay internet service or by ACH Credit. For more information, go to http://www.maine.gov/revenue/netfile/gateway2.htm and select the Maine EZ Pay or EFT option under "Electronic Payments".

Revised: March 1, 2019

9. What if I make a mistake on a return?

If you make a mistake on the return, you must file an amended Form 941P-ME. Check the box indicating you are filing an amended return.

Revised: March 1, 2019

10. Do I need to withhold for nonresident members that are pass-through entities?

Yes, you are generally required to withhold for all nonresident members, individuals and business entities alike. However, if you can identify all of the ultimate nonresident individual (or business) members in a tiered entity structure, you may withhold against those members' income directly if you prefer, but only after making a written request to the Assessor and receiving approval to do so.

For example, Partnership A (lower-tier entity) is partially owned by nonresident Partnership B (upper-tier entity), which is owned by nonresident Individual 1 and nonresident Individual 2. Partnership A (lower-tier entity) must withhold 7.15% of Partnership B's share of Maine-source income, and assign that withholding to Partnership B. If, however, Partnership A can identify the ultimate nonresident members, Partnership A may withhold 7.15% against each ultimate member's (Individual 1 and Individual 2) share of income.

If a lower-tier entity is withholding for ultimate nonresident members, the lower-tier entity must also report the amount of withholding to those ultimate nonresident members. If the lower-tier entity is withholding for an upper-tier entity, the amount withheld must be reported to the upper-tier entity and the upper-tier entity must then report the appropriate portion of withholding to each member (resident and nonresident).

Revised: March 1, 2019

11. What about the nonresident threshold for taxability?

Maine has a threshold for the taxability of income earned by a nonresident individual working in Maine. Generally, if a nonresident individual works in Maine fewer than 12 days or has total Maine-source income for the year of $3,000 or less, that income is not taxable to Maine. However, income earned from a pass-through entity is not subject to this threshold. Therefore, all Maine-source income from a pass-through entity is taxable to Maine.

Revised: December 3, 2012

12. What if I am operating at a loss?

If a pass-through entity incurs a net loss for the current taxable year, that entity does not have to withhold from any nonresident member unless that member receives guaranteed payments exceeding the member’s allocated share of the net loss. If the entity has income in the current year, but had a net loss for the prior year, withholding will be required, but estimated payments will not be required provided the prior year was a full year and the entity filed Form 941P-ME for that year. It is important to note that even if withholding is not required, the company must still file Form 941P-ME.

Revised: January 25, 2016

13. I represent a tax-exempt organization that is a member of a pass-through entity. Must the pass-through entity withhold from my organization’s share of the entity income?

A pass-through entity is not required to withhold from income distributable to a tax-exempt entity member, if that income is not taxable to the entity member. However, the pass-through entity may not be aware of the tax status of each of its members. A nonprofit, or tax-exempt, member may be required to provide the pass-through entity with documentation showing the tax-exempt status.

Revised: November 12, 2010

14. My business reports on a fiscal year basis. How do I determine the amount to withhold?

A fiscal year business should calculate member withholding based on the year in which the fiscal year ends.  For instance, if an entity's fiscal year is July 1, 2017 through June 30, 2018, income for that period is considered income earned in 2018.  For 2018 purposes, withholding must be based on the income for the period 7/1/17 - 6/30/18.

Example: Partnership XYZ operates on a fiscal year ending on September 30.  Maine apportionment is 50%.  Partner A is not a resident of Maine and owns a 33% share of Partnership XYZ. Partner A files a calendar year return.

IRS requires Partner A to include fiscal year partnership results in his calendar year return for the year during which the partnership year ends.  Thus, XYZ results for fiscal year ended 9/30/18 would be included in Partner A's calendar year 2018 return.  XYZ's budget projections for fiscal year ending during 2018 estimate income of $30,000.  Maine income would be $15,000 and Partner A's share would be $5,000.

Thus, the income base for calculating the withholding requirement for Partner A for calendar 2018 would be $5,000.

Revised: March 1, 2019

15. Real estate withholding ("REW") has been withheld for an entity during the year. Should the REW funds be listed on Form 941P-ME as payment withheld?

No. The REW payment may be deducted from the withholding required for the year. Simply reduce the amount of pass-through withholding by the amount of REW withholding. REW payments are reported to Maine Revenue Services separately on Form REW-1. Each member’s share of real estate withholding payments may be entered in Box #3 of Form 1099ME.

Revised: December 3, 2012

16. A nonresident owner is on the payroll of my business and has extra withholding taken out to cover the Maine tax liability. Do I still have to file pass-through entity withholding?

If the nonresident member has $1,000 or more in Maine-source income, but wants to pay through extra payroll withholding, the member must file an affidavit with the entity, promising to comply with Maine 's income tax laws. Each nonresident member participating in the compliant taxpayer exemption must sign an affidavit (Form 941AF-ME). Withholding is not required if the appropriate affidavits have been obtained. However, the entity will still be required to file Form 941P-ME annually to report entity information and list the exempt members on Schedule 3.

Revised: December 3, 2012

17. My pass-through entity is owned by other pass-through entities (upper-tier). Can those upper tier entities qualify for the compliant taxpayer exemption?

Yes, an upper tier entity may qualify. However, the upper tier entity will become responsible for withholding on any Maine-source income flowing from the lower tier to the upper tier or obtaining exemptions for the subsequent upper tier owners. In addition to obtaining Form 941AF-ME from the upper-tier pass-through entity, the lower-tier entity must file Form 941P-ME for the year and list the upper tier entity on Schedule 3.

Revised: December 23, 2013

18. I represent an upper-tier entity with Maine-source income only from a lower-tier entity. How can I be sure the lower-tier entity is withholding so that I don’t have to do it?

The lower-tier entity must withhold from its upper-tier members unless it obtains Form 941AF-ME from an upper-tier entity that wishes to be exempt. At the end of the year, the lower-tier entity is required to provide the upper-tier entity with Form 1099ME showing the portion of withholding for the year that is attributable to that upper-tier entity. The upper-tier entity then provides its members with Form 1099ME reporting their proportionate distributive share of the withholding in box 2.

Revised: December 3, 2012

19. Are withholding statements required to be filed by the pass-through entity at the end of the year?

After the calendar year and by the following January 31st, pass-through entities must issue Form 1099ME to each member from whom Maine income tax was withheld. Do not file Forms 1099ME directly with Maine Revenue Services. Form 1099ME identifies the member's share of Maine income tax withheld, and must be submitted with the nonresident owner's Maine personal income tax return. Failure to provide Form 1099ME to your members may result in disallowance of the withholding claimed on the member’s personal return.

Revised: December 23, 2013

20. How long are Forms 941CF-ME and 941AF-ME effective and retained?

These affidavits must be held by the pass-through entity. It is not necessary for members to submit a new affidavit each year. Provided it has not been revoked, the affidavit will remain in force continuously as long as the member retains an ownership interest in the pass-through entity. A revoked affidavit must be retained by the pass-through entity for at least three years after the year in which it is revoked.

Revised: December 3, 2012

21. Is an upper-tier entity required to file Form 941P-ME to report amounts withheld by a lower-tier entity?

No. An entity should report only those amounts withheld directly by that entity. The lower-tier entity will file returns and report the amounts it withheld. However, the upper-tier entity will need to issue Forms 1099ME to its members and report in box 2 each member’s share of the amount withheld by the lower-tier entity.

Revised: December 3, 2012