Legal Bulletins
Maryland Tax Alert 2025
On May 27, 2025, Maryland Governor Wes Moore signed The Budget Reconciliation and Financing Act of 2025 (the “Act”), which becomes effective on July 1, 2025, for taxable years beginning after December 31, 2024. Below is a summary of the changes regarding Maryland taxes as a result of the Act.
State Individual Income Tax Rates
Pre-Act
There were eight tax brackets, with the lowest being 2% and the highest being 5.75%. The highest bracket applied when taxable income reached $250,000 for single taxpayers and $300,000 for married taxpayers.
Post-Act
Two new brackets have been created: (i) a 6.25% bracket, which applies when taxable income exceeds $500,000 for single taxpayers and $600,000 for married taxpayers; and (ii) a 6.5% bracket, which applies when taxable income exceeds $1,000,000 for single taxpayers and $1,200,000 for married taxpayers.
County Income Tax Rates
Pre-Act
The maximum income tax rate that a Maryland county was permitted to impose was 3.2%. The county income tax rates range between 2.25% and 3.2%.
Post-Act
Counties are permitted to set an income tax rate up to 3.3%.
Capital Gain Surtax
Pre-Act
Maryland did not provide for a preferential tax rate, or a surtax, for net capital gain income.
Post-Act
A two percent surtax will now be imposed on net capital gain for taxpayers whose federal adjusted gross income exceeds $350,000. The surtax does not apply to net capital gain attributable to certain transactions, including the sale of a primary residence for a sales price of less than $1,500,000.
Standard Deductions
Pre-Act
The standard deduction was based on the amount of the taxpayer’s adjusted gross income, with the maximum standard deduction for single taxpayers set at $2,700 and $5,450 for married taxpayers.
Post-Act
All taxpayers within the same filing status will receive the same standard deduction, regardless of the taxpayer’s adjusted gross income. The standard deduction for single taxpayers is $3,350, and $6,700 for married taxpayers, subject to a cost-of-living adjustment.
Itemized Deductions
Pre-Act
The amount of itemized deductions was based on the amount of itemized deductions claimed on the taxpayer’s federal income tax return.
Post-Act
The amount of otherwise allowable itemized deductions will be reduced by 7.5% of the amount of federal adjusted gross income in excess of $300,000 ($200,000 for married taxpayers filing separately).
Sales Tax
Pre-Act
Although certain services are subject to sales and use tax, the list of taxable services did not include certain data and information technology services.
Post-Act
A three percent sales and use tax applies to a (i) data or information technology service described under North American Industrial Classification System (“NAICS”) sector 518, 519 or 5415 (which includes computing infrastructure providers, data processing, web hosting and related services; web search portals, libraries, archives and other information services; and computer systems design and related services), and (ii) system software or application software publishing service described under NAICS sector 5132.
Sales of the services listed above to or by a company located in the University of Maryland Discovery District in Prince George’s County that contracts with the University of Maryland’s Applied Research Laboratory for Intelligence and Security to develop systems and technologies to advance the use of quantum computers are exempt from the tax. Additionally, the sale of cloud computing services to a “qualified cybersecurity business” — defined as a for-profit entity engaged in developing cybersecurity technologies or providing cybersecurity services — is exempt.
There is a special rule regarding the purchase of digital code, digital product, taxable data service, taxable information technology service or taxable software publishing service that will be used concurrently both inside and outside the State of Maryland. In such a case, the purchaser may provide the vendor with a multiple point of use certificate (“MPU Certificate”). The MPU Certificate must apportion the use of the code, product or service within and outside the State of Maryland. When a vendor receives a properly completed MPU Certificate, the vendor is relieved of its obligation to collect the sales and use tax, and the purchaser is obligated to remit the apportioned tax to the State of Maryland.
If you have any additional questions, please contact Douglas T. Coats.
Douglas T. Coats
410-576-4002 • dcoats@gfrlaw.com