As you have no doubt heard, the Maryland General Assembly enacted significant tax reforms as part of the FY 2026 budget to address a projected $3 billion deficit. These changes, effective beginning in tax year 2025, aim to modernize the tax code, increase revenue, and shift the tax burden toward higher-income earners and specific industries. 

Of course, no one likes to face higher tax rates but it is now a reality for MD residents. Below is a summary of some of the specific changes we expect to impact our clients in 2025 and beyond.

Key Personal Income Tax Changes

  • New High-Income Tax Brackets: Two new brackets have been introduced:
    • 6.25% for individuals earning over $500,000 (or $600,001 for joint filers)
    • 6.5% for individuals earning over $1 million (or $1.2 million for joint filers)
    • Note: For 2024 the highest rate was 5.75% so this is a big jump in rates
  • Capital Gains Surcharge: A 2% surcharge applies to capital gains for taxpayers with federal adjusted gross income exceeding $350,000
  • Itemized Deduction Phase-Out: For filers with federal AGI over $200,000, itemized deductions are reduced by 7.5% of the excess over $200,000
  • Increased Standard Deduction: The standard deduction has been increased to $3,350 for individuals and $6,700 for joint filers/head of households
  • Local Income Tax Cap Raised: Counties may now set local income tax rates up to 3.3%, an increase from the previous cap of 3.2%

Business and Consumption Tax Changes

  • 3% Sales Tax on Digital Services: A new 3% sales tax is imposed on digital services, including cloud computing and IT support
  • Vehicle Excise Tax Increase: The vehicle excise tax rate increases from 6% to 6.5%
  • Various fee and tax increase on items like tire purchases, cannabis sales and sports betting

Unsurprisingly, these tax increases have given rise to a number of clients inquiring about redomiciling to other lower or no tax states. If that is something you are considering please let us know. There are specific procedures that must be follow to become a MD non-resident and understanding those procedures beforehand can save you some hassle and possibly some taxes.

If you aren’t prepared to go through the process of moving but want to understand the true impact of these taxes on your situation, please feel free to contact us.