Whether you’re settled down along the Chesapeake Bay or living under the city lights of Baltimore, the start of a new year always means one thing: it’s tax season. Understanding the ins and outs of tax season is anything but straightforward, even for the most seasoned vets. If you’re feeling wary about calculating your taxes, we’re here to ease the burden.

Dubbed as one of the least tax-friendly states in America, Maryland residents won’t likely welcome the season with open arms. But if you’re like most people, you’ll want to know exactly how your tax burden breaks down, and what lifestyle habits are affecting your wallet.

Before taking a deep dive into Maryland’s lengthy list of state tax laws, let’s clarify the difference between state and federal taxes, what state taxes mean for Maryland residents, and the fundamental tax rates you should know about.

One of the most common mistakes people make during tax season is assuming that there is no distinction between state taxes and federal taxes. So if it’s your first time filing, you were likely surprised to find that you had to file one form for the federal government, and another for your home state. While it is an obligation as a taxpaying citizen to file both, it’s equally important to understand how the two differ. Let’s break it down.

Federal taxes are government-mandated taxes levied by the United States Internal Revenue Service (IRS). Each form of taxation, be it income tax, estate tax, or gift tax, is governed by a separate body of law. Every federal tax is constructed using standardized rates and structures so the same requirements and restrictions apply to citizens across each of the 50 states. The funds collected from these federal fees go toward supporting a myriad of government expenditures. This includes everything from military defense and public education to federal insurance plans and transportation infrastructure.

On the contrary, state taxes are controlled and collected by each state’s independent government. This means that state tax regulations vary on a state to state basis. For example, Alaska, Nevada, and South Dakota are among seven states that forgo income tax completely. State tax systems work on either flat or progressive income tax systems. Depending on where you reside, you may be subject to a flat rate income tax rate or a scaled rate that follows a bracketed structured.

What does “state tax” mean in Maryland?

Maryland is one of the 33 states that imposes a marginal, progressive state income tax. This means higher levels of income are taxed at higher percentages. Marylanders are also subject to paying county taxes. These county tax rates vary per location, so it’s important to familiarize yourself with your county’s particular percentage.

Keep in mind that there is a distinction to Maryland’s state tax and county taxes. Residents are expected to pay both come tax season. Whether you’re planning to outsource your tax preparation or navigate it alone, be sure to have the correct information to ensure you’re meeting the terms of your legal taxpaying obligations.

Scratching your head asking yourself “how much is Maryland state tax, anyway?”, check out our quick facts section for the quick and easy fact rundown.

Quick facts: Maryland state tax rates

Maryland’s state income tax is progressive, so the more you earn, the more you pay. Depending on how you file, you may be subject to paying a higher or lower tax rate. There are eight different Maryland income tax brackets with rates ranging from 2% to 5.75%, as of 2019. Review our tax rate brackets below to see where you align.

Maryland has two tax rate schedules residents must adhere to. One for taxpayers who intend to file as single, dependent, or married filing separately, and the other for taxpayers who intend to file as head of household, married filing jointly, or qualifying widow/widower. Please note the changes in income thresholds between each tax rate schedule.

Tax Rate Schedule I

For taxpayers filing Single, Married Filing Separately, Dependent Taxpayers, and Fiduciaries:

Tax Rate Schedule II

For taxpayers filing Married Filing Jointly, Head of Household, or Qualifying Widower:

All 24 counties that make up the beautiful state of Maryland impose an income tax on residents. As of 2019, there are fourteen brackets spread out across the counties. They break down into these percentages: 1.75%, 2.25%, 2.40%, 2.50%, 2.60%, 2.65%, 2.80%, 2.85%, 2.90%, 3.00%, 3.05%, 3.10%, 3.15%, and 3.20%.

Local officials set the rates and return the revenue generated from these taxpayer withholdings to the local governments quarterly. These county tax rates are subject to change on a year by year basis, however for the 2019 tax year, the only change in local rates is Caroline County.

Non-residents are not subject to county tax rates however an additional state tax is withheld using the lowest tax rate of 1.75% for income earned within Maryland borders.

So where do you live? What rate will you be taxed at? Use this chart to find out how each Maryland county tax stacks up.

Maryland tax brackets are significantly different than the current federal tax brackets. Under Trump’s Tax Cuts and Jobs Act, Fthe brackets range between 10% and 37%. Maryland’s range between 2% and 5.75%.

Because Maryland uses an 8-section tax bracket system to impose income taxes, it’s important to familiarize yourself with your particular income threshold and what to expect when it comes to filing your tax return. Your filing status will play a key part in determining your personal income tax rate, so be sure to check our charts Accordingly.

If you are self-employed, an independent contractor, or do not have Maryland income taxes withheld by an employer, you can fulfill your taxpaying duties by making quarterly estimated tax payments. Estimated taxes are part of a pay-as-you-go plan for state income tax collection. You may be required to file estimated taxes if the following are true to your financial situation:

• You are required to file a Maryland state tax return
• You do not have any taxes withheld by an employer
• Your gross income would develop a tax of more than $500 in excess of any withholding
• You received over $500 from wagering, awards, raffles, lotteries, or prizes

If you meet these criteria, you must file Maryland Form 502D, or the Declaration of Estimated Tax form. Because Maryland estimated taxes function on a pay-as-you-go quarterly format, you must file on a quarterly schedule. You are required to file Form 503D by the following dates:

• 1st quarter: April 15th
• 2nd quarter: June 15
• 3rd quarter: September 15
• 4th quarter: January 15 (of the next calendar year)

In order to avoid accruing interest on your payments, each of your four equal installment payments must be paid on time and amount to:

• 90% of the state income tax developed by the current year or
• 110% of the previous year’s state tax liability unless the income in question is from wagering, awards, or prizes.

You can file Maryland estimated taxes electronically using iFile Maryland with the information provided by our state tax calculator. This program allows you to file your Maryland state tax return without a pen, paper or postage. You can also schedule and submit payments via iFile. Estimated tax balances can also be paid by using major credit card providers MasterCard, Visa, American Express, or Discover.

Capital gains tax is the government-mandated fee levied on the profits made from selling certain types of assets. These assets include real estate property and stock investments. Capital gains can be subject to both federal and state taxation. As of 2019, the federal government taxes long-term capital gains at rates ranging between 0-15% depending on the taxpayer’s income bracket; short-term capital gains, which are held for under a year, are taxed at your standard income tax rate. As for capital gains generated in Maryland, taxpayers will be taxed at a rate of 5.8% of the profit earned.

Sales tax can be a burden when you’re ready to cash out and your final total rings higher than the price-tag promises. Sales tax is controlled by state governments and rates vary on a state to state basis. The funds collected from sales tax fees go toward state-funded programs, resources, and services ranging from local law enforcement and public education to infrastructure maintenance and community development. Unless you live in Oregon, New Hampshire, Delaware or Montana, you can expect to pay your fair share of sales tax.

Maryland’s standard sales tax rate is 6%. Sales tax applies to an assortment of consumer products including clothing, prepared foods, non-prescription drugs, and more. Fortunately, Maryland does not have any special sales tax jurisdictions with local sales taxes in addition to the standard 6% sales tax rate.

There are a number of sales tax exemptions in Maryland, too. Residents do not have to pay sales tax on basic necessities like groceries, clothing, and prescription drugs. However there are rules to this exemption; expensive clothing, unhealthy foods (candy, soda, etc.), and non-prescription drugs are subject to the 6% sales tax rate.

If you’ve made an eligible purchase online or out-of-state that was not charged the Maryland sales tax, it is your responsibility as a taxpayer to voluntarily list your liable purchase on your Maryland Use Tax Return.

What are excise taxes?

Excise taxes are often referred to as indirect taxes because instead of charging the consumer, they are charged to the producer or the vendor, then typically passed onto the consumer at the point of sale. Excise taxes are charged by both the federal and state governments and apply to a vast array of goods and services including telecommunications, tourism, and gas.

Taxpayers should note that excise taxes are typically reflected in the purchase price of the item. This means you may be paying above retail for a session at the indoor tanning salon to properly account for the state and federal government’s mandated excise tax.

Excise taxes are commonly used to deter consumers from engaging in activities that could be considered harmful to society. Common examples of these “sin taxes” include alcohol, marijuana, tobacco, and gambling.

Alcohol tax in Maryland is collected by the Revenue Administration Division who also monitors the manufacture, transportation, storage, sale, and distribution of alcoholic beverages in Maryland. Alcohol excise tax is one of the most common examples of “sin tax” in Maryland. This “sin tax” varies on a state to state basis, so some states have higher rates than others, and some have more complex alcohol tax systems than others.

Maryland’s alcohol excise tax is broken into three different categories:

• Maryland beer tax - $0.09 per gallon
• Maryland wine tax - $0.40 per gallon
• Maryland liquor tax - $1.50 per gallon

Tobacco excise tax in Maryland

Tobacco excise tax is another common example of Maryland’s sin taxes. Though tobacco excise taxes are not paid by the consumer, they are reflected in the sale price of cigarettes and other tobacco products. See the table below to see how tobacco consumption affects Maryland residents’ pockets:

• Maryland cigarette tax: $2.00 / 20 cigarettes + 6% sales tax
• Maryland cigar tax: 70% wholesale price + federal excise taxes
• Maryland tobacco and snuff tax: 30% wholesale price + federal excise taxes

Gas tax in Maryland

Owning a car is an expensive lifestyle, especially for those who own a gas-guzzling vehicle. Excise taxes on gasoline are common across the country, but Marylanders can expect to pay an extra $0.33 per gallon on gasoline, diesel, and gasohol.

Airplane or jet owners can expect to pay an excise tax on both aviation fuel and jet fuel. The two are subject to a state excise tax of $23.90 per gallon

Maryland’s admissions and amusement tax is one of the Old Line State’s lesser-known taxes, yet one of the most expensive mandated business taxes. The A&A tax allows cities and counties to impose a 10% tax on the gross receipts generated from any admissions or amusement charges. Common examples of these include nightclub admission, bottle service, use of a game of entertainment (arcade games, darts, pool tables, etc.), cover charges, and more.

All real property in Maryland is subject to the state’s property tax. The average tax rate of 1.10% measures far below the national average, although Marylanders typically end up paying more in annual property taxes due to high property values. The state’s median annual property tax payment is $3,191— the 11th highest median rate in the country.

Fortunately for Maryland homeowners, the average tax rate varies by county, so if you’re living in Talbot County, you can enjoy an average property tax rate of 0.64%. Check out our chart below to assess your expected property tax rate.

Taxpayers who have inherited money or property in Maryland from a deceased decedent after December 31, 2001 are required to file an estate tax return. The Maryland inheritance tax is 10% of the fair market value of the property.

There are a number of exemptions to Maryland’s inheritance and estate tax laws. If you are the deceased’s close relative, this tax may not apply to you. To be considered a “close relative” you must be deceased’s:

• Spouse
• Child (biological or adopted), grandchild, stepchild
• Grandparent
• Brother or sister

Maryland is home to one of the most expansive lists of available tax credits in the country—lucky you, Marylanders! Tax credits are leveraged by the federal and state government as a way to assist taxpayers in limiting their tax liability. By meeting certain criteria and qualifications, you may be eligible to lower your final tax bill, dollar-for-dollar.

The state of Maryland has over fifteen active tax credits that individual taxpayers may be able to qualify for (with the proper paperwork and criteria, of course). Here are a few of the most common that may apply to your return this year.

Student Loan Debt Relief Credit: If you have incurred at least $20,000 on undergraduate or graduate student loan debt and have at least $5,000 in outstanding student loan debt, you may qualify for Maryland’s Student Loan Debt Relief Credit. The Maryland Higher Education Commission prioritizes tax credit recipients and numerical amounts based on taxpayers who:

• Have higher debt burden to income ratios
• Graduated from a higher education institution located in Maryland
• Did not receive a tax credit in a prior year
• Were eligible for in-state tuition

State Poverty Level Credit: If your Maryland state tax is higher than 50% of your federal earned income credit and both your earned income and federal adjusted gross income totals below the poverty level for the number of people in your family, you may be eligible for Maryland’s Poverty Level Credit. This credit allows you to claim a credit of 5% of your annual earned income. Dependent filers will not qualify for this credit.

Quality Teacher Incentive Credit:Teachers who made payments toward graduate course tuition in order to maintain a teaching certification may be eligible for the Quality Teacher Incentive Credit.

Earned Income Tax Credit:Low-to-moderate income taxpayers who have received the federal earned income tax credit (EITC) will generally be approved for the Maryland state-level EITC. The credit amount depends on the recipient’s income and number of dependents.

Check out these additional tax credits that could reduce your tax liability:

• Child and Dependent Care Tax Credit
• Aquaculture Oyster Float Credit
• Preservation and Conservation Easement Credit
• Income Taxes Paid to Other States Credit
• Heritage Structure Rehabilitation Tax Credit
• Solar Energy Grant Subtraction
• Long-Term Care Insurance Credit
• Venison Donation Tax Credit
• Independent Living Tax Credit
• Preceptors in Areas with Health Care Workforce Shortages Tax Credit
• Endow Maryland Income Credit
• Endowments of Maryland Historically Black Colleges and Universities Tax Credit
• Community Investment Income Credit

At Community Tax, we work hard to find every potential tax credit you may qualify for—giving you the absolute most out of your annual state and federal tax return.

State tax deductions are very similar to tax credits, however instead of reducing your tax liability dollar-for-dollar, tax deductions reduce your taxable income.

Standard deduction in Maryland

Maryland allows a 15% standard deduction rate from your adjusted gross income. Depending on your income and your filing status, your standard deduction could range anywhere from $1,500 to $4,500. If you took the standard deduction on your federal tax return, you are required to take the Maryland standard deduction as well. Those who itemized their deductions on their federal return may do so on their Maryland return.

Itemized deductions in Maryland

Maryland residents can enjoy a number of deductions used to reduce taxable income. These itemized deductions apply to those who:

• Are parents to foster children
• Are parents to an adopted child with special needs vis public or nonprofit agencies
• Are active-duty military
• Have purchased a Maryland Prepaid College Trust
• Have contributed to a Maryland college investment plan
• Have completed a living organ donation

Looking to estimate how much money you’ll get back on your Maryland tax refund? Use our tax calculator to budget how much state tax you’ll owe and how much you may receive in a refund check.

Using our tax calculator is simple—all you’ll need is your:

• AGI
• Zip code
• Number of exemptions
• Number of dependents
• List of tax credits or deductions you qualify for

To ensure you’re filing your taxes as efficiently and accurately as possible, check out our many tax tips.

According to the Comptroller of Maryland, you can pay your Maryland state taxes using the following methods:

• Personal check
• Money order
• Credit card (MasterCard, Visa, American Express, or Discover)
• Direct debit

Each time tax season rolls around, it’s important to remember that the taxes you owe to the state of Maryland are completely separate from the taxes you owe to the federal government. Be sure to have both tax return files in order to ensure you’re following the many legal stipulations behind both.

There are some states with the weirdest tax laws, like the $0.08 bagel tax in New York. Vermont has a few of its own quirks; for example, buskers on Church Street are required to pay tax to the city of Burlington on their earnings from street performances.

This information is current as of 2019. Taxpayers should consider special circumstances which could impact their individual state tax return.

Resources

1. https://taxes.marylandtaxes.gov/Resource_Library/Tax_Publications/Tax_Facts/Withholding_Tax_Facts/Withholding_Tax_Facts_2019.pdf
2. https://taxes.marylandtaxes.gov/Resource_Library/Tax_Publications/Tax_Tips/Personal_Tax_Tips/tip54.pdf
3. https://forms.marylandtaxes.gov/18_forms/502D.pdf
4. https://taxes.marylandtaxes.gov/Resource_Library/Taxpayer_Assistance/Frequently_Asked_Questions/Business_Tax_FAQs/Alcohol_and_Tobacco_Tax/Alcoholic_Beverages_FAQs/1.shtml
5. https://taxes.marylandtaxes.gov/Individual_Taxes/General_Information/Tax_Credits_and_Deductions/
6. https://taxes.marylandtaxes.gov/Individual_Taxes/Individual_Tax_Types/Income_Tax/Payment_Information/
7. https://forms.marylandtaxes.gov/current_forms/resident_booklet.pdf
8. https://www.nolo.com/legal-encyclopedia/maryland-inheritance-tax.html
9. http://www.tax-rates.org/maryland/property-tax
10. http://www.tax-rates.org/maryland/sales-tax
11. https://taxfoundation.org/state/maryland
12. https://taxfoundation.org/sales-tax-rates-2019/
13. https://m.benzinga.com/article/5357700