Maryland income tax
Maryland income tax: The Maryland income tax rate is set at 4.75% and it is applicable to the taxable income of residents and non residents who derive income from a Maryland source.In addition to the 4.75%, the non residents are levied a special non resident tax rate of 1.25%, which means an effective tax rate of 6%.23 counties of Maryland and Baltimore city also levy a local income tax which is collected on the resident state tax return as a matter of convenience to local governments.It is calculated as percentage of the taxable income of the payer, which is set by the local officials.Taxes applicable to people belonging to various categories, the mode of payment, exemptions and tax benefits are discussed briefly in the following paragraphs
Maryland Residents: you will be considered as a legal resident, if you were domiciled in Maryland on the last day of the taxable year or have maintained a place to live in Maryland and were present in Maryland for more than six months of the tax year. All Maryland residents are required to file a Maryland income tax return if you are required to file a federal income tax return.You may be required to file a Maryland return even if you are not required to file a federal return if your Maryland addition modifications added to your gross income exceeds the filing requirements for your filing status.
If you are a Maryland resident but live in Maryland for only a part of the year and if you have either established or abandoned Maryland residency during the calendar year, you must file as a part-year resident, using form 502.You may also be required to file a return with your other state of residence.
If you live in Maryland and work in Washington, D.C., Pennsylvania, Virginia or West Virginia, you should file your state income tax return with Maryland.Maryland residents who work in Delaware must file tax returns with both states.To avoid dual taxation, you can get a credit for tax paid to Delaware by completing Maryland form 502CR and filing it with your Maryland income tax return.
Nonresidents: If you are a nonresident of Maryland, you are required to file a nonresident Maryland income tax return (form 505) for the income you have derived from:
- Tangible property which may be real or personal, permanently located in Maryland;
- A business, trade or profession or occupation being undertaken in Maryland;
- Winnings from gambling derived from Maryland sources.
If your Maryland gross income is less than the minimum filing level for your filing status or if you either dont have any income from a Maryland source or you have earned only wages in Maryland and reside in the neighboring states, then you need not file a return.
If you are a nonresident who works in Maryland and/or derives other income from a Maryland source, you are subject to the 4.75% income tax rate as well as the special nonresident tax rate of 1.25%.According to the law, the nonresident tax rate must be equal to the lowest local income tax paid by the Maryland residents combined with the top state tax rate of 4.75%.
If you work in Maryland but reside in a reciprocal tax state (Pennsylvania, Virginia, West Virginia or Washington, D.C.), you can be exempt from Maryland withholding.
If you work in Maryland but reside in Delaware, you must file Form 505.
If you sell or exchange real property which you own in Maryland, the tax must be withheld at the time of sale unless a specific exemption applies.The tax must be withheld based on the total payment from the sale of that property and associated tangible personal property.
Income tax benefits and exemptions
- Two-income families: if you and your spouse have taxable income and are filing a joint federal return, you may be able to subtract up to $1,200, or the income of the spouse with the lower income (whichever is less) on your Maryland income tax return.The benefit is available only on the Maryland return and it applies to wages, pensions or business income.
- Military personnel
If you are a legal resident of Maryland and serve in the military, you must file a resident Maryland tax return, regardless of the place where you are stationed.You must also report all your taxable income from all sources, including military pay.However, military service may entitle you to special tax breaks for overseas pay (the subtraction you are allowed to make from your taxable income if you are a legal Maryland resident and a member of the U.S armed forces who earned military pay while in active service outside U.S.boundaries or possessions) and retirement income.
- Senior citizens: if you are 65 years or older, you are eligible for several tax benefits on your Maryland return.You are allowed a higher income level before being required to file a return and you are also entitled to an additional personal exemption of $1,000.You may also qualify for a pension exclusion that increases each year, and your Social Security and Railroad Retirement benefits are not subject to Maryland tax.
Penalty and interest charges
In the situation where the tax is not paid correctly, you will receive an income tax notice from the comptrollers office.If not responded to the first notice, an assessment notice will be served which will include penalty and interest charges.Under Maryland law, the assessment notice is a legal assessment.Collection procedures may begin after a 30-day period when the assessment can be appealed.
Basic rights of a Maryland tax payer:
- Fair and courteous treatment under the law.
- Clear and comprehensive instructions to help you comply with the law.
- Free assistance and personal income tax return preparation at any branch of the comptrollers office.
- A copy of a previous filing period tax return at no charge, when requested in writing.
- Strict confidentiality of your tax records, within the provisions of the law.
- Freedom to inspect any record held by the Comptrollers office containing personal information about you.
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