Maryland charges income tax on wages, investments, and other earnings

Maryland has a state income tax that applies to most people who live or work in the state. The tax rate depends on how much you earn — Maryland uses a progressive system, meaning higher earners pay a higher percentage. If you work in Maryland or live there, you almost certainly owe state income tax unless your income falls below the filing threshold.

The state also taxes certain types of income differently. Wages from a job are taxed one way. Capital gains — money you make selling stocks or property — are taxed another way. Interest and dividends have their own rules. Understanding which type of income you have helps you figure out what you actually owe.

Maryland is one of 41 states that collect income tax. The money funds schools, roads, public safety, and other state services. Unlike federal income tax, which goes to Washington, Maryland income tax stays in Maryland.

Key Takeaways

  • Maryland income tax rates range from 2% to 5.75% depending on your income level, with higher earners paying the higher percentage.
  • You must file a Maryland tax return if you earned more than the state's filing threshold, which changes each year based on your age and filing status.
  • Your employer withholds Maryland income tax from your paycheck automatically, but you may owe more or receive a refund when you file your return.
  • Maryland taxes capital gains at a flat 5.75% rate, separate from the progressive rates that explore to wages and salary.
  • If you moved to or from Maryland during the year, you may owe tax to both Maryland and another state, though you can claim a credit to avoid double taxation.

How Maryland income tax brackets work

Maryland uses tax brackets — income ranges where each dollar is taxed at a specific rate. The lowest bracket starts at 2% for the smallest earners. As your income climbs, you move into higher brackets: 3%, 4%, 4.75%, 5%, and finally 5.75% for the highest earners. You do not pay the top rate on all your income — only on the dollars that fall into that bracket.

The exact income thresholds for each bracket change every year because Maryland adjusts them for inflation. For example, the 5.75% bracket might start at $250,000 one year and $255,000 the next. When you file your return, you use the brackets that were in effect for that tax year.

Your filing status matters too. Single filers, married couples filing jointly, and heads of household all have different bracket thresholds. A married couple filing together reaches the top bracket at a higher income level than a single person does.

What counts as Maryland taxable income

Maryland taxes most types of income. Wages from your job are taxable. So are tips, bonuses, and commissions. Self-employment income — money you earn running your own business — is taxable. Rental income from property you own is taxable. Interest from savings accounts and bonds is taxable.

Some income is not taxed by Maryland. Social Security benefits are generally not taxable in Maryland, even though they are taxable federally. Certain retirement distributions may be excluded. Gifts and inheritances are not taxable income. Proceeds from selling your primary home are not taxed (though capital gains on investment property are).

Capital gains — the profit you make when you sell an investment at a higher price than you paid — are taxed at a flat 5.75% rate in Maryland. This is separate from the progressive brackets that explore to wages. If you sold stocks or real estate for a profit, you owe this capital gains tax on top of any other Maryland tax you owe.

How withholding and estimated tax work

If you work for an employer, they withhold Maryland income tax from your paycheck automatically. The amount withheld depends on the W-4 form you filled out when you started the job. On that form, you tell your employer how much to withhold based on your expected income and personal situation.

Withholding is an estimate. It is meant to get you close to what you actually owe, but it is rarely exact. Some people have too much withheld and receive a refund. Others have too little withheld and owe money when they file. You can adjust your withholding during the year by submitting a new W-4 to your employer.

If you are self-employed or have income that is not subject to withholding, you may need to pay estimated tax quarterly. This means sending Maryland a payment four times a year instead of waiting until tax time. The Maryland Department of Revenue provides a worksheet to calculate how much to send.

Filing requirements and important date

You must file a Maryland tax return if your income exceeds the filing threshold for your age and filing status. The threshold is higher for people 65 and older. It is also higher for married couples filing jointly than for single filers. If you are below the threshold, you do not have to file, though you may want to if you had taxes withheld and are due a refund.

Maryland tax returns are due on the same day as federal returns — typically April 15. If April 15 falls on a weekend or holiday, the important date moves to the next business day. You can request an extension, which gives you until October 15 to file, but any tax you owe is still due by April 15 or you will owe interest and penalties.

You file your Maryland return using Form 502 (the main return form) plus any schedules that explore to your situation. If you have capital gains, you use Schedule D. If you are self-employed, you use Schedule C. The Maryland Department of Revenue website lists all required forms and provides instructions.

Credits and deductions that reduce what you owe

Maryland offers several tax credits that directly reduce the amount of tax you owe. The Earned Income Tax Credit (EITC) helps lower-income workers. The Child and Dependent Care Credit helps people who pay for childcare. The Education Credit helps with college expenses. Credits are more valuable than deductions because they reduce your tax dollar-for-dollar.

Maryland also allows a standard deduction — a set amount you can subtract from your income before calculating tax. The standard deduction varies by age and filing status. Most people use the standard deduction rather than itemizing deductions, because the standard deduction is simpler and often larger.

If you moved to Maryland from another state or moved away during the year, you may be able to claim a credit for taxes paid to the other state. This prevents you from paying income tax on the same earnings to two states.

What happens if you do not file or pay on time

If you owe Maryland income tax and do not pay by the important date, the state charges interest on the unpaid amount. The interest rate changes quarterly. You also face a penalty — typically a percentage of the unpaid tax. The longer you wait, the more interest and penalties accumulate.

If you do not file your return at all, the penalty is steeper than if you file late but pay late. The Maryland Department of Revenue can also file a return on your behalf based on information they have, though this return may not include deductions or credits you are may have access to to.

If you believe you cannot pay what you owe, contact the Maryland Department of Revenue. They offer payment plans that let you pay over time instead of in one lump sum. They also have hardship programs for people facing genuine financial difficulty.

Frequently Asked Questions

Do I owe Maryland income tax if I work in Maryland but live in another state?

Yes, you owe Maryland income tax on wages earned in Maryland, even if you live elsewhere. You file a Maryland return for that income and also file in your home state. You can claim a credit on your home state return for taxes paid to Maryland to avoid paying tax twice on the same earnings.

Is Maryland income tax withheld from my paycheck automatically?

Yes, if you work for an employer in Maryland, they withhold state income tax based on the W-4 you completed. The amount depends on your income and the withholding elections you made. You can change your withholding by submitting a new W-4 to your employer.

What is the difference between Maryland income tax and federal income tax?

Maryland income tax is a separate tax that goes to the state. Federal income tax is a separate tax that goes to the federal government. You owe both. The rates, brackets, and rules are different for each. You file a separate return for each.

Do I have to file a Maryland return if I did not earn much money?

Only if your income exceeds the filing threshold for your age and filing status. If you earned less than the threshold, you are not required to file. However, if your employer withheld Maryland income tax, you should file to get a refund of the amount withheld.

Can I file my Maryland return online?

Yes. The Maryland Department of Revenue accepts returns filed through approved tax software, through a tax professional, or by mail. Many free software options are available if your income is below a certain level. You can also file by mail using paper forms.