There were several state tax updates in Maryland in 2019 that are just now starting to really affect Maryland residents and businesses, as the 2020 tax season is beginning. Rates in some areas increased, while some residents will experience tax relief, and a new tax deduction could be a valuable way to save on taxes while giving back to the community. Read on for more information.
Tax Rate Changes in Maryland
Seven Maryland counties experienced changes in their tax rates. The new rates are as follows:
- Anne Arundel County: 2.81%
- Baltimore County: 3.2%
- Dorchester County 3.2%
- Kent County 3.2%
- Mary’s County: 3.17%
- Washington County: 3.2%
- Worcester County: 2.25%
Other Maryland Resident Tax Changes
In addition to the new tax rates listed above, there are two other changes that residents should be aware of. First, the maximum pension exclusion increased to $31,100 for tax year 2019. The pension exclusion applies to residents age 65 or older, are completely and permanently disabled, or have a spouse who is completely and permanently disabled.
Second, there are five changes to how Maryland residents can subtract income for Adjusted Gross Income on an annual tax return.
- $5,000: the new maximum amount of the Honorable Louis L. Goldstein Volunteer Fire, Rescue and Emergency Medical Services Personnel Subtraction Modification Program
- $5,000/$15,000: Under Code letter U, qualified residents under the age of 55 are now eligible for up to $5,000 of military retirement income, including death benefits, or up to $15,000 over the age of 55
- $0.58: the new mileage rate for qualifying charitable use of a car on Form 502V
Tax form changes for subtractions:
- Part B and Part CC of Form 502CR: These instructions will provide guidance on possible credits for taxable Child Care Expenses, in addition to subtracting Child Care Expenses on their own.
- Code Letter OO: Changed to include Maryland Transportation Authority Police
Individual Maryland Resident Tax Changes
Maryland residents can look forward to more opportunities for tax credits and a lower interest rate on taxes that are due by April 15, 2020 (for the 2019 tax year) but paid late. One of the biggest changes is the addition of a new 25% tax credit for donations to permanent endowment funds to Maryland Historically Black Colleges and Universities. To qualify, donors must apply to Maryland’s Comptroller for certifications; credits are limited and first come, first serve.
Another welcome change, the lower interest rate on late tax payments, is in effect for any taxes paid after the original due date of the 2019 return but before January 1, 2021. The annual interest rate is 10.5% and the monthly or partial month interest rate is 0.8750%. This represents a decrease.
On tax forms, be aware that there is a new checkbox for taxpayers claiming the Maryland Earned Income Credit, but not federal. This is a result of Maryland’s changes to the tax law, which allow taxpayers without a qualifying child to claim the state credit regardless of minimum age requirements for the federal credit. The Form 502CR, among its other changes, now includes the option for eligibility of a refundable tax credit for Child and Dependent Care expenses. Finally, Form 502 includes a new section for Maryland residents to indicate the taxpayer’s desire for minimum essential healthcare coverage.
Finally, Maryland state tax returns may start asking for additional personally identifiable information. This information can be found on driver’s licenses or state ID cards and is meant to combat tax fraud and identity theft. It is not mandatory.
Maryland Business Tax Changes
Not much has changed for businesses in Maryland from a tax standpoint, except that the new 25% credit to permanent endowments of Historically Black Colleges and Universities applies to businesses, too. An application to the Comptroller is still required. If the tax credit is more than the state income tax owed for the year 2019, the excess credit is non-refundable but may be carried forward to future tax years.
Film production entities in Maryland can also claim a film production tax credit, provided it has been incorporated in Maryland for at least three months and meets other requirements.
Finally, multi-state corporations doing business in Maryland should know that the formula for single sales factor apportionment has been updated. The tax apportionment began to change with the 2018 tax year and was a welcome update from the previous three-factor apportionment requiring companies to pay additional income tax on payroll and property investments in Maryland.
For the 2019 tax year, the sales factor is weighted four times; for the 2020 tax year, the sales factor is weighted five times.
There are exemptions available. Chief among these is the option to use a three-factor, double-weighted sales factor for corporations with worldwide headquarters in Maryland with at least 500 full-time employees. Click here for more information, or contact your tax professional for guidance.
New Maryland Tax Changes In 2020
Among other proposed legislation this year, the Retirement Tax Reduction Act of 2020 was recently made into law. It stands to benefit 230,000 Maryland residents and claims to cut retirement taxes by more than $1 billion over five years, once it is in effect. Under the law, state tax is eliminated on the first $50,000 of income for retirees making up to $100,000 in federally adjusted gross income. Retirees with income of $50,000 or less will pay no state tax at all. The legislation is being phased in over five years beginning in fiscal year 2022.
This and other proposed legislation is meant to address recent surveys that put Maryland among the worst states to retire in, in terms of affordability.
Maryland individuals and businesses unsure of how these or other tax changes are affecting their annual and quarterly planning can reach out to Naden/Lean’s tax team for more information.