An Overview of Maryland State Taxes
As a citizen of the United States, it’s important to understand the taxes that you owe based on where you live. While the majority of income-earning adults are responsible for paying federal taxes, each state has its own unique taxes that residents are required to pay. No matter where you live, it’s important that you understand what you owe the government when tax time arrives.
Some people who don’t understand their state’s taxes neglect to pay them or make mistakes on their taxes. One of the most common mistakes made on taxes is incorrectly calculating deductions and credits, which vary by state. Down the line, these mistakes can ultimately result in a penalty or fine.
This guide is designed to provide you with valuable information you need to understand the taxes in Maryland. You’ll gain an understanding of the types of taxes Maryland residents owe as well as the best way to file taxes in Maryland. This will help you avoid common issues and penalties, and ultimately, receive your tax return in a timely manner.
Table of Contents
Maryland Income Tax
Maryland has a graduated tax system, not a flat tax rate. Unlike a flat tax, which charges each resident of the state the same percentage of their income, a graduated tax imposes a higher tax on higher-earning individuals. If you’re a Maryland resident, the amount you owe for income taxes will depend on how much you earn and which county you live in.
Tax Brackets and Rates
There are eight income tax brackets in Maryland. For individuals, taxes are as follows:
|Net Income.||Tax Imposed.|
|$0 to $1,000||2%|
|$1,000 to $2,000||$20 plus 3% of earnings greater than $1,000|
|$2,000 to $3,000||$50 plus 4% of earnings greater than $2,000|
|$3,000 to $100,000||$90 plus 4.75% of earnings greater than $3,000|
|$100,000 to $125,000||$4,697.50 plus 5.00% of earnings greater than $100,000|
|$125,000 to $150,000||$5,947.50 plus 5.25% of earnings greater than $125,000|
|$150,000 to $250,000||$7,260.00 plus 5.5% of earnings greater than $150,000|
|Over $250,000||$12,760.00 plus 5.75% of earnings greater than $250,000|
For those filing married jointly, the tax brackets are slightly different for earnings over $150,000.
- If your earnings are between $150,000 and $175,000, taxes are $7,072.50 plus 5% of earnings greater than $150,000.
- If your earnings are between $175,000 and $225,000, taxes are $8,322.50 plus 5.25% of earnings greater than $175,000.
- If your earnings are between $225,000 and $300,000, taxes $10,947.50 plus 5.50% of earnings greater than $225,000.
- If your earnings are greater than $300,000, taxes are $15,072.50 plus 5.75% of earnings greater than $300,000.
Local Income Tax Rates
In addition to the tax rates listed above, residents must pay an additional percentage in taxes depending on the county they live in. The local income tax rate ranges from 2.5% to 3.2%. For example, residents of Prince George’s County have to pay an additional 3.2% in local income tax, while Anne Arundel County only has to pay an additional 2.5%. Check your Maryland county tax rates to ensure you understand what you owe.
Maryland Sales Tax
In Maryland, there is no general local sales tax, but the state does charge sales and use taxes. The law requires every state that has a sales tax to collect a use tax on the purchase of goods and services not subject to sales tax. Maryland sales taxes apply to purchases made in state, while the use tax covers goods that were purchased out of state and used in Maryland.
Tangible goods purchased outside of Maryland are subject to Maryland’s 6% use tax or 9% alcoholic beverage tax.
Sales and Use Tax Exemptions
There are certain items that are exempt from sales and use taxes in Maryland. Marylanders don’t have to pay taxes on feminine hygiene products, including:
- Sanitary pads.
- Menstrual sponges.
- Menstrual cups.
There are other items that are exempt from sales and use taxes at specific times. For example, Maryland has a tax-free week for back-to-school shopping. Each year, there is a seven-day period beginning the second Sunday in August when the sales and use tax does not apply to:
- Clothing or footwear with a price tag of $100 or less.
- The first taxable $40 of any backpack or bookbag.
Accessories are not exempt from sales and use tax during the tax-free week. Examples of items that are not exempt include jewelry, purses, umbrellas, headbands, and belt buckles.
Maryland Property Taxes
Property taxes are determined by the Maryland Department of Assessments and Taxation.
This government agency assesses real property on a three-year cycle, covering one-third of the properties in Maryland each year. By assessing the entirety of a property, this division makes an appraisal of its fair market value in an attempt to accurately provide tax rates to taxpayers.
Property taxes are set by the state, county, and city units of the government. Rates may vary widely, so it’s important to understand how much you might owe in Maryland property taxes by checking with your local property assessment office. Property tax bills are issued during July and August each year and due back by September 30.
Property Tax Credit Programs and Exemptions
Maryland has three tax credit programs that residents may take advantage of to help offset their costs come tax season:
- Homeowners’ Property Tax Credit Program: This credit goes against what a homeowner owes in property taxes if their taxes exceed a fixed percentage of the homeowner’s income. Eligible applicants must make less than $60,000 a year, own property, and live there primarily.
- Homestead Credit: This tax credit limits the increase in taxable assessments that an assessor can make to a principal residence. Each Maryland county must limit taxable assessment increases to 10% or less each year. Homeowners only need to submit a one-time application to apply for this credit.
- Renters’ Tax Credit: This program provides tax credits to renters who indirectly pay property taxes as part of their monthly rent amount. Your total household income and rent determine your eligibility for this tax credit.
Maryland also has a personal exemption of $3,200. Once a taxpayer’s federal adjusted gross income exceeds $100,000, this exemption is reduced.
Maryland Estate Taxes
Maryland’s estate tax comes into play whenever a property is transferred from a deceased owner to another owner. Everything a person owned at their time of death falls under the estate tax. Maryland’s inheritance tax is applied to those people who are receiving the property of the deceased. In Maryland, estate tax limits increased to $5 million in 2019, up from $4 million in 2018.
Tips for Filing Taxes in Maryland
Tax returns must be filed by April 15 every year. While citizens can file their taxes traditionally or through a financial advisor, the easiest way to file taxes in Maryland is online.
To prepare your taxes, start by gathering all of your income statements, including W2s and 1099s. Having all of this information, as well as your full legal name, contact information, and Social Security number at the ready will make filing your taxes quick and simple. After you file your taxes, you’ll be able to see how much you owe or will receive in your tax refund.
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This post was updated January 28, 2020. It was originally published January 23, 2020.