A $100,000 Question for Maine's Highest Earners
If you're a single filer in Maine and your taxable income crosses $1 million this year, your top marginal state tax rate just jumped from 7.15% to 9.15%. If you file jointly, that threshold is $1.5 million. Either way, the extra 2% doesn't apply to your whole income — only the slice above the line — but for a growing number of small business owners, doctors, and real estate investors, that slice is no longer hypothetical.
Maine's new millionaire's surtax took effect for tax years beginning January 1, 2026, tucked into Governor Janet Mills' budget deal. State projections put the revenue at roughly $74 million a year, drawn from about 2,600 filers. That number isn't static, either — IRS data shows Maine's population of $1-million-plus filers nearly doubled between 2017 and 2022, from 980 to 1,900, so the surtax's reach is likely to grow with it.
What makes this law more than a headline for the ultra-wealthy is where that income comes from. According to state income data, roughly a third of the taxed income is capital gains, another third is pass-through business income, and the remainder is wages and other sources. In other words, this isn't just a tax on hedge fund managers — it's a tax that lands squarely on the owners of profitable S corporations, partnerships, and LLCs who happen to have a very good year.
Who Actually Owes the Extra 2%
The surtax applies at the individual level, on top of taxable income, using these thresholds for 2026:
- $1,000,000 for single filers and heads of household
- $1,500,000 for married filing jointly or surviving spouses
- $750,000 for married filing separately
It's a true marginal surcharge: only the income above the threshold is taxed at the extra 2%. A single filer with $1.2 million in Maine taxable income pays the surtax only on the $200,000 above the $1 million line — an extra $4,000, on top of what they already owed at the standard 7.15% bracket.
Critics, including some in the Maine business community, have argued the surtax functions as a de facto small-business tax, pointing to IRS data suggesting around 70% of filers above the $1 million threshold report some pass-through income on their return. Supporters counter that most of those filers have blended income from several sources — wages, investments, and business profits combined — so very few small business owners are paying the surtax on business income alone. Either way, if your S corp or partnership had a breakout year and you're the one reporting that income on your Form 1040, this law is worth understanding before you make estimated payments.
The New Pass-Through Entity Tax Election
The same budget bill that created the surtax also introduced a pass-through entity tax (PTET) election, effective for tax years beginning January 1, 2026. This is where the planning gets interesting.
Here's the mechanic: an eligible partnership, S corporation, or LLC taxed as either can elect to pay Maine income tax directly at the entity level, instead of passing that liability through to the owners' personal returns. The entity pays tax at 7.15% — the top individual rate — and, notably, the 2% surtax is not baked into that entity-level rate. Owners then receive a 90% refundable credit on their personal Maine return for the tax the entity already paid on their behalf.
Why bother with this extra step? Because of the federal SALT deduction cap. Individual taxpayers have been limited to deducting $10,000 of state and local taxes on their federal return since 2018. But a business entity paying its own state tax bill isn't subject to that cap — it deducts the payment as an ordinary business expense before the income ever reaches the owner's federal return. More than 30 states have adopted some version of this workaround, and Maine's 2026 rules bring it into that group with a state-specific twist: the entity-level rate is pegged to the pre-surtax rate, and the state has also added a credit for PTET paid to other states, which helps Maine residents with multistate operations avoid being taxed twice on the same income.
Where the Surtax and the PTET Election Collide
This is the part that trips people up: electing into the PTET does not make your surtax exposure disappear. The entity-level tax is calculated at 7.15%, not 9.15%, and the 90% credit only offsets tax paid at that base rate. If your share of the entity's income — combined with your other income — pushes your total taxable income over the $1 million (or $1.5 million joint) threshold, you still owe the 2% surtax on the overage, calculated on your personal return.
That has two practical consequences for high-earning owners:
- The PTET election still saves you money — largely through the federal SALT-cap workaround — but it doesn't eliminate the state-level cost of crossing the millionaire threshold. Model both pieces together, not just the entity-level credit.
- Estimated payments now have two moving parts. Because the 90% credit leaves 10% of the entity-level tax still due personally, and because the surtax sits on top of that, filers near the threshold may need to true up estimated payments more carefully than in past years to avoid an underpayment penalty at filing time.
A simplified example: say a Maine S corporation earns $1.4 million, all passed through to a single owner who has no other income. Under the PTET election, the entity pays roughly $100,000 in Maine tax (7.15% of $1.4 million) and the owner gets a 90% credit (about $90,000) against their personal liability. But because $1.4 million exceeds the $1 million single-filer threshold, the owner also owes 2% on the $400,000 overage — an additional $8,000 — separate from the PTET credit calculation entirely. The federal deduction benefit from the entity-level payment can still make the PTET election worthwhile, but the surtax bill doesn't go away.
Other Changes Riding Along in the Same Budget Bill
A few related provisions are worth knowing if you're a business owner mapping out 2026 tax planning:
- A permanent $300 per-child dependent exemption credit, which had previously been a temporary provision.
- Updated IRC conformity affecting how Maine treats federal research expense rules, depreciation deductions, and opportunity zone investments — areas that frequently diverge between federal and state treatment and are easy to miss if your state return isn't checked against the latest conformity date.
None of these changes are as headline-grabbing as the surtax, but they can shift your effective rate in either direction, and they reinforce the same lesson: 2026 is a year where Maine's tax code moved on several fronts at once, not just one.
Why This Is a Bookkeeping Problem, Not Just a Filing-Season One
The surtax and the PTET election both hinge on knowing your numbers well before April. You need a running, accurate picture of year-to-date taxable income to know whether you're tracking toward the $1 million threshold, whether the PTET election makes sense for your entity this year, and how much to set aside for estimated payments that now have two separate components to calculate.
That's much harder to do if your books are a few months stale or scattered across a bank feed you reconcile once a quarter. Plain-text accounting with Beancount.io keeps every transaction in version-controlled, human-readable files, so you can see exactly how close your business income is running to a tax threshold at any point in the year — not just after your accountant closes the books. Get started for free and keep your financial records as precise and auditable as the tax rules you're trying to plan around.