Maryland collects state income tax from most residents and workers
Yes, Maryland has a state income tax. If you live in Maryland or work there, you will owe state income tax on wages, self-employment income, investment gains, and other earnings. Maryland's tax rates range from 2% to 5.75% depending on your income bracket, and the state also taxes capital gains at a flat 8.75% rate.
The tax is withheld from paychecks if you work for an employer, or you pay it directly if you are self-employed or have investment income. Maryland residents must file a state tax return each year if their income exceeds the filing threshold, which varies by age and filing status.
Key Takeaways
- Maryland's income tax rates start at 2% for the lowest earners and reach 5.75% for the highest bracket, plus an additional 8.75% tax on capital gains.
- Your employer withholds state income tax from your paycheck automatically if you work in Maryland, similar to federal withholding.
- You must file a Maryland state tax return if your income is above the filing threshold, which depends on your age and whether you file as single, married, or head of household.
- Maryland taxes retirement income, including distributions from 401(k)s and IRAs, though some retirees may may have access to for a pension exclusion.
Maryland income tax brackets and rates
Maryland uses a progressive tax system, meaning your tax rate increases as your income rises. The state divides income into brackets, and you pay the corresponding rate only on income within each bracket. For the 2024 tax year, the brackets are:
| Income Range (Single Filer) | Tax Rate |
|---|---|
| $0 to $1,100 | 2% |
| $1,100 to $2,200 | 3% |
| $2,200 to $3,200 | 4% |
| $3,200 to $5,100 | 4.75% |
| Over $5,100 | 5.75% |
These brackets adjust slightly each year for inflation. If you file as married filing jointly, head of household, or in another status, your bracket thresholds differ. You can find your exact brackets on the Maryland Department of Revenue website or on your tax forms.
In addition to regular income tax, Maryland taxes long-term capital gains (profits from selling investments held over one year) at a flat 8.75% rate. Short-term capital gains are taxed as ordinary income at your regular rate.
Who must file a Maryland state tax return
You must file a Maryland state tax return if your income exceeds the filing threshold for your situation. The threshold depends on your age, filing status, and type of income. For 2024, a single person under 65 with only wage income must file if they earned more than $12,950. A married couple filing jointly with both spouses under 65 must file if their combined income exceeded $25,900.
If you are 65 or older, the threshold is higher. A single filer age 65 or older must file if income exceeded $14,550. These thresholds change each year, and they are lower if you have self-employment income or certain other types of earnings.
Even if your income is below the threshold, you should file if you had Maryland income tax withheld from your paychecks. Filing allows you to claim a refund of any overpayment. You also must file if you want to claim the Earned Income Tax Credit or other refundable credits.
How Maryland state income tax is withheld from paychecks
If you work for an employer in Maryland, your employer withholds state income tax from each paycheck based on the information you provide on Form MW507, the Maryland withholding certificate. This form is similar to the federal Form W-4 and asks about your filing status, number of dependents, and other income.
The amount withheld depends on your gross pay, filing status, and the withholding choices you made on your form. If you have multiple jobs, work a seasonal job, or have a spouse who also works, you may need to adjust your withholding to avoid owing money at tax time or receiving a large refund.
You can change your withholding at any time by submitting a new Form MW507 to your employer's payroll department. If you expect to owe money or want a larger refund, adjusting your withholding now is faster than waiting until tax time.
Retirement income and pension taxation in Maryland
Maryland taxes most retirement income, including distributions from 401(k)s, traditional IRAs, and similar plans. However, Maryland offers a pension exclusion for certain retirees. If you receive a pension from a government employer (federal, state, or local), you may exclude up to $31,110 of that pension income from your Maryland taxable income for 2024. The exclusion amount changes each year.
Social Security benefits are not taxed by Maryland, so you do not report them on your state return. Distributions from Roth IRAs are also not taxed. If you receive income from a part-time job in retirement, that income is taxed at your regular rate.
Military retirement pay receives special treatment. If you are a retired member of the U.S. military, you may exclude all of your military retirement pay from Maryland income tax. You will need to provide documentation of your military service and retirement status when you file.
Self-employment income and Maryland state tax
If you are self-employed, you owe Maryland state income tax on your net business income. You calculate this by subtracting your business expenses from your gross revenue. You must file a Maryland state tax return if your net self-employment income exceeds the filing threshold, which is lower than the threshold for wage earners.
Self-employed people do not have an employer to withhold state tax, so you may need to make quarterly estimated tax payments to Maryland. These payments are due on April 15, June 15, September 15, and January 15. If you do not pay enough throughout the year, you may owe a penalty when you file your return.
You can reduce your Maryland taxable income by deducting business expenses such as supplies, equipment, rent, utilities, and professional services. Keep receipts and records of all expenses. You may also be able to deduct a portion of your home if you use part of it exclusively for business.
Tax credits and deductions available in Maryland
Maryland offers several tax credits that can reduce the amount of tax you owe. The Earned Income Tax Credit (EITC) is available to low- and moderate-income workers and can result in a refund even if you owe no tax. The credit amount depends on your income, filing status, and number of dependents.
Maryland also offers a Child and Dependent Care Credit for people who pay for childcare so they can work, and a Dependent Exemption Credit for each dependent you claim. Homeowners may may have access to for the Property Tax Credit if their property taxes are high relative to their income.
In addition to credits, you can deduct certain expenses from your income. The standard deduction for 2024 is $9,100 for single filers and $18,200 for married couples filing jointly. If your itemized deductions exceed the standard deduction, you can itemize instead. Itemized deductions include mortgage interest, state and local taxes (up to $10,000 combined), and charitable contributions.
Frequently Asked Questions
Do I have to pay Maryland income tax if I live in another state but work in Maryland?
Yes. Maryland taxes income earned within the state, regardless of where you live. If you work in Maryland but live in another state, you owe Maryland income tax on your wages. You may also owe income tax in your home state, though many states offer credits to prevent double taxation. Check with your home state's tax authority about how to handle this situation.
Is Maryland income tax deductible on my federal return?
Yes, but only if you itemize deductions on your federal return. Maryland state income tax is part of the state and local taxes (SALT) deduction, which is capped at $10,000 per year. If your total state and local taxes exceed $10,000, you can only deduct $10,000 on your federal return.
What happens if I don't file a Maryland tax return when I'm supposed to?
Maryland charges penalties and interest on unpaid taxes. The penalty for filing late is usually 5% of the unpaid tax per month, up to 25%. Interest accrues daily at a rate set by the state. If you owe money, filing as soon as possible reduces the total penalty and interest you will owe.
Can I file my Maryland taxes online?
Yes. You can file through the Maryland Department of Revenue's online system, or use tax software that supports Maryland returns. If your income is below a certain threshold and your return is simple, you may be able to use free filing software through the IRS Free File program, which also handles Maryland taxes.
Does Maryland tax unemployment benefits?
Yes. Unemployment benefits are taxable income in Maryland. If you received unemployment during the year, you must report it on your state tax return. Your unemployment payments will show on a Form 1099-G, which you receive by January 31 of the following year.