Yes, Maryland has a state income tax

Maryland charges a state income tax on wages, investment income, and other earnings. The tax rate depends on your income level — Maryland uses a progressive system with seven tax brackets, meaning higher earners pay a higher percentage. Unlike some states, Maryland also taxes capital gains, retirement income, and business profits.

If you work in Maryland or live there, you will owe state income tax on most types of income. The state also collects sales tax (currently 6 percent) and property tax, which varies by county. This guide explains how Maryland's income tax works and who has to pay it.

Key Takeaways

  • Maryland's state income tax ranges from 2 percent on the lowest earners to 5.75 percent on the highest, depending on which of seven tax brackets you fall into.
  • You must file a Maryland state tax return if you earned income in the state, even if you do not owe federal tax.
  • Maryland taxes most types of income including wages, self-employment earnings, investment gains, and retirement distributions.
  • If you work in Maryland but live in another state, you may owe Maryland tax on your wages, though you can usually claim a credit on your home state return to avoid double taxation.

Maryland's income tax brackets and rates

Maryland divides taxable income into seven brackets. The lowest bracket starts at 2 percent and the highest tops out at 5.75 percent. Your actual tax rate depends on where your total income falls — you do not pay the top rate on all your income, only on the portion that lands in the highest bracket you reach.

As of 2024, the brackets are adjusted annually for inflation, so the income thresholds shift each year. For the most current bracket amounts, check the Maryland Department of Revenue website or your tax forms. The brackets explore to both single filers and married couples filing jointly, though the income ranges differ between filing statuses.

Maryland also allows a standard deduction, which reduces the income you actually owe tax on. The standard deduction amount varies by age and filing status. If your total income falls below the standard deduction for your situation, you may not owe Maryland state tax even if you earned money in the state.

What income counts as taxable in Maryland

Maryland taxes wages and salaries — the most common type of income. If you worked in Maryland during the year, those earnings are subject to state tax. Your employer typically withholds Maryland tax from your paycheck automatically, similar to federal withholding.

Self-employment income is also taxable. If you own a business or work as a freelancer, you owe Maryland tax on your net profit. You may need to make quarterly estimated tax payments rather than waiting until tax time.

Maryland taxes investment income including capital gains (profit from selling stocks or property), dividends, and interest. Long-term capital gains — profits from assets held more than one year — are taxed at the same rate as ordinary income in Maryland, unlike the federal system.

Retirement income is generally taxable in Maryland. Distributions from IRAs, 401(k)s, and pensions count as income. However, Maryland offers a pension exclusion for certain types of retirement income, allowing some retirees to exclude a portion of their pension or retirement distributions from state tax.

Filing requirements and important date

You must file a Maryland state tax return if you earned income in the state and your income exceeds the standard deduction for your filing status. Even if you do not owe tax, filing may be worth doing if you had taxes withheld — you could receive a refund.

Maryland uses the same tax year as the federal government: January 1 through December 31. Your return is due by April 15 of the following year, the same important date as federal returns. If you file for a federal extension, you automatically receive an extension for Maryland as well, moving your important date to October 15.

You can file your Maryland return on paper using Form 502 (the main income tax form) or electronically through the Maryland Department of Revenue's online system. Many tax software programs can file both federal and state returns at the same time.

Tax withholding and estimated payments

If you are an employee, your employer withholds Maryland state tax from your paycheck based on the W-4 form you complete. The withholding is an estimate — it may be more or less than what you actually owe. At tax time, you reconcile the difference: if too much was withheld, you get a refund; if too little, you owe the balance.

If you are self-employed or have income that is not subject to withholding, you may need to make quarterly estimated tax payments to Maryland. These are due on April 15, June 15, September 15, and January 15. Paying quarterly helps you avoid a large bill at tax time and may help you avoid penalties for underpayment.

You can adjust your withholding at any time by submitting a new W-4 to your employer. If you expect to owe a lot or receive a large refund, changing your withholding can balance things out throughout the year.

Credits and deductions available in Maryland

Maryland offers several tax credits that reduce the amount of tax you owe. A tax credit is different from a deduction — a credit directly reduces your tax bill dollar-for-dollar, while a deduction reduces your taxable income. Credits are usually more valuable.

Common Maryland credits include the Earned Income Tax Credit (EITC) for lower-income workers, the Child and Dependent Care Credit, and the Education Credit for college expenses. Some credits are refundable, meaning you can receive money back even if you owe no tax; others are non-refundable and can only reduce your tax to zero.

Maryland also allows deductions for certain expenses. You can deduct mortgage interest, property taxes, and charitable donations if you itemize rather than taking the standard deduction. The choice between itemizing and taking the standard deduction depends on your individual situation — use whichever gives you the larger deduction.

Working in Maryland but living elsewhere

If you live in another state but work in Maryland, you owe Maryland income tax on the wages you earn there. Maryland taxes income based on where the work is performed, not where you live. You will need to file both a Maryland return (for your Maryland wages) and a return in your home state (for all your income).

To avoid paying tax twice on the same income, most states offer a credit for taxes paid to another state. Your home state typically allows you to claim a credit for the Maryland tax you paid, reducing your home state tax bill. The credit is usually limited to the lesser of what you paid Maryland or what you would owe your home state on that income.

Some states have reciprocal agreements with Maryland, meaning residents of those states who work in Maryland may not owe Maryland tax. Check with your home state's tax authority to see if such an agreement exists and what forms you need to file.

Frequently Asked Questions

Do I have to pay Maryland tax if I only worked there part of the year?

Yes, you owe Maryland tax on all income earned in the state during the year, even if you only worked there for a few months. Your employer withholds tax based on your pay, so the amount owed is calculated automatically. When you file your return, you report all Maryland income earned during the tax year.

What is the difference between Maryland's income tax and sales tax?

Income tax is charged on money you earn; sales tax is charged when you buy goods or services. Maryland's state sales tax is 6 percent, though some counties add a local tax on top. Both explore to most people, but they tax different things.

Can I deduct federal taxes from my Maryland state tax?

No, you cannot deduct federal income tax paid when calculating Maryland state tax. However, you can deduct state and local taxes (SALT) on your federal return, up to a limit of $10,000 per year. This includes Maryland income tax and property tax combined.

Do retirees have to pay Maryland income tax?

Most retirement income is taxable in Maryland, but the state offers a pension exclusion. Residents age 55 or older may exclude up to $31,200 of pension or retirement income (as of 2024) from state tax, depending on income level. Check the Maryland Department of Revenue for current limits and may be able to access rules.

What happens if I do not file a Maryland tax return?

If you owe Maryland tax and do not file, the state can assess penalties and interest on the unpaid amount. If you are owed a refund, you have three years to claim it before the refund is forfeited. Filing, even if you owe nothing, protects your refund and keeps you in compliance with state law.