Maryland collects both income tax and sales tax

Yes, Maryland has a state income tax. If you earn money in Maryland or live there, you will owe state income tax on your wages, self-employment income, investment gains, and other earnings. Maryland also charges a sales tax on most purchases. Both explore whether you work for an employer or run your own business.

Maryland's income tax is progressive, meaning the rate increases as your income rises. The lowest bracket starts at 2% and the highest reaches 5.75%. Your actual rate depends on your filing status and total income. Sales tax in Maryland is 6%, though some counties add a local tax on top of that, bringing the total to 6.25% or higher in certain areas.

Key Takeaways

  • Maryland income tax rates range from 2% to 5.75% depending on your income level and filing status.
  • You owe Maryland income tax if you live in the state or earn income there, including wages, self-employment income, and investment gains.
  • Maryland's state sales tax is 6%, but some counties add a local sales tax that can raise the total to 6.25% or higher.
  • You file Maryland state taxes using Form 502 (the state income tax return) and submit it to the Comptroller of Maryland.
  • If your employer withholds too much or too little, you can adjust your withholding using Form MW507.

How Maryland income tax brackets work

Maryland's income tax uses tax brackets, which means different portions of your income are taxed at different rates. If you are single, the 2% rate applies to income up to a certain threshold, then the next bracket kicks in at a higher rate, and so on. The exact thresholds change slightly each year, so the state publishes updated brackets annually.

Your filing status matters. Single filers, married filing jointly, married filing separately, and head of household each have their own bracket structure. A married couple filing jointly will reach higher income levels before moving into the next bracket compared to a single filer, which can result in a lower overall tax rate for the same household income.

The top rate of 5.75% applies to high earners, but most Maryland residents pay somewhere between 2% and 5.75% depending on where their income falls. You can find the current year's brackets on the Comptroller of Maryland's website, which updates them each January.

What income is subject to Maryland state tax

Maryland taxes most types of income. This includes wages from your job, tips, bonuses, and overtime. If you are self-employed, you owe tax on your net business income. Investment income counts too: interest from savings accounts, dividends from stocks, capital gains when you sell an investment at a profit, and rental income all get taxed.

Some income is exempt. Social Security benefits are not taxed in Maryland. Certain retirement distributions and pension income may be partially or fully excluded, depending on your age and income level. If you receive a distribution from a traditional IRA or 401(k) before age 59½, you owe Maryland tax on it (though you may also owe a federal penalty). Roth IRA withdrawals of contributions are not taxed, but earnings withdrawn early may be.

If you live outside Maryland but work there, you still owe Maryland income tax on the wages you earn in the state. However, you may be able to claim a credit on your home state's return to avoid paying tax twice on the same income.

Sales tax and local tax variations

Maryland's base sales tax is 6%, but the total you pay at checkout depends on where you shop. Some Maryland counties and municipalities add a local sales tax on top of the state rate. For example, Baltimore City adds an additional 0.25%, bringing the total to 6.25%. Other areas may have different local rates.

Not everything is taxed at the full rate. Groceries and prescription medications are exempt from Maryland sales tax. Clothing and footwear are also exempt. However, prepared food, restaurant meals, and non-prescription items are fully taxable. If you buy something online from an out-of-state seller, Maryland sales tax may or may not explore depending on whether the seller has a physical presence in the state and current tax law.

You do not pay sales tax on services in most cases. Haircuts, car repairs, and medical services are generally not subject to sales tax, though there are exceptions. If you are unsure whether a specific purchase is taxable, the Comptroller of Maryland's website has a searchable tax guide.

Filing your Maryland state tax return

You file Maryland state income taxes using Form 502, the Maryland Individual Income Tax Return. You submit it to the Comptroller of Maryland, not to a county office. The important date is the same as the federal important date: typically April 15 of the year following the tax year, though it shifts if April 15 falls on a weekend or holiday.

You can file by mail or electronically. Electronic filing is faster and reduces errors. Maryland accepts returns filed through most major tax software providers and through the IRS Free File program if your income is below the threshold. If you file by mail, send Form 502 and any supporting documents to the address listed on the form.

If you owe money, you can pay online, by mail, or through an installment plan. If you are owed a refund, filing electronically usually gets you the money faster than filing by paper. The Comptroller's office processes returns in the order they are received, so filing early can speed up your refund.

Adjusting your withholding if your employer is taking too much or too little

Your employer withholds Maryland income tax from each paycheck based on information you provide on Form MW507, the Maryland Employee Withholding Allowance Certificate. If your withholding is too high, you will get a refund when you file your return. If it is too low, you will owe money.

You can adjust your withholding at any time by completing a new Form MW507 and giving it to your payroll department. You might do this if you get married, have a child, take a second job, or experience a major change in income. Adjusting early in the year gives you more time to correct the withholding before tax time arrives.

If you are self-employed, you do not have an employer to withhold taxes, so you may need to make quarterly estimated tax payments to Maryland. These are due on the 15th of April, June, September, and January. The Comptroller's office provides a worksheet to help you calculate how much to pay each quarter.

Tax credits and deductions available in Maryland

Maryland offers several tax credits that can reduce what you owe. The Earned Income Tax Credit (EITC) is available to low- and moderate-income workers and families. Maryland's version supplements the federal credit, so you may receive additional money from the state. The Child and Dependent Care Credit helps pay for childcare expenses. The Dependent Exemption Credit provides relief for dependents.

You can also deduct certain expenses on your Maryland return. If you itemize deductions on your federal return, you can itemize on your state return as well. Maryland allows a deduction for contributions to a Maryland 529 college savings plan, which can lower your taxable income. Some military pensions and certain retirement income also may have access to for deductions.

If you are over 65 or blind, Maryland offers additional standard deductions. Homeowners may be able to claim property tax credits if their property taxes are high relative to their income. The rules for these credits change periodically, so check the Comptroller's website or speak with a tax professional to see which ones explore to your situation.

Frequently Asked Questions

Do I have to file a Maryland tax return if I only lived there part of the year?

If you lived in Maryland for any part of the tax year and earned income there, you must file a Maryland return for that year. You file as a part-year resident, and Maryland taxes only the income you earned while you were a resident. You will need to show when you moved in or out of the state.

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

If you owe taxes and do not file, the Comptroller can assess penalties and interest on the unpaid amount. The penalty starts at 5% of the unpaid tax and increases over time. If you are owed a refund, there is no penalty for not filing, but you cannot claim the refund after three years have passed.

Can I deduct federal income taxes from my Maryland state taxes?

No, Maryland does not allow you to deduct federal income taxes paid. However, you can deduct state and local property taxes, state sales taxes (if you choose not to deduct property taxes), and certain other state and local taxes, subject to federal limits on the total deduction.

Is there a Maryland tax on retirement income?

Some retirement income is taxed and some is not. Social Security is exempt. Distributions from traditional IRAs and 401(k)s are taxable. Military pensions and certain government pensions may be partially or fully exempt depending on your age and when you retired. Check the Comptroller's website or consult a tax professional about your specific situation.

What if I moved out of Maryland but still own property there?

You do not owe Maryland income tax on wages earned after you move out, but you still owe tax on income generated by Maryland property, such as rental income. You file as a non-resident and report only the Maryland-source income. You may also owe local property taxes on the property itself.