Maryland State Income Tax Increase

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I don’t usually write about specific state by state tax issues but since I live in Maryland, I hope you’ll indulge me a little as I chew through the recent news that the Maryland Assembly approved a budget bill that would raise $260+ million in income taxes. This isn’t a soak the rich type of proposal, which the millionaire’s tax seemed to be, but one borne out of a need to raise more funds for education and other “positive” things.

We’ll take a look at the income tax situation as it stands now and what will be changing once the bill is signed. Please let me know if I get anything wrong and I’ll fix it as soon as possible. If you just want to know the difference, basically if you make more than $100,000 (or are married filing jointly and make more than $150,000), your tax liability will go up.

2011 Maryland State Income Tax Brackets

Maryland has a lot of income tax brackets. There are six Federal income tax brackets, Maryland has seven. Seeing how they’re set up now will help you, and me, understand how the brackets are changing.

Single, married filing separately, dependent taxpayers or fiduciaries share one grouping, listed only as “single” below. Taxpayers with joint returns, head of household, and qualifying widows/widowers share another group, listed only as “married filing jointly.”

Tax Bracket Single Married Filing Jointly
2% Bracket $0 – $1,000 $0 – $1,000
3% Bracket $1,000 – $2,000 $1,000 – $2,000
4% Bracket $2,000 – $3,000 $2,000 – $3,000
4.75% Bracket $3,000 – $150,000 $3,000 – $200,000
5% Bracket $150,000 – $300,000 $200,000 – $350,000
5.25% Bracket $300,000 – $500,000 $350,000 – $500,000
5.75% Bracket $500,000+ $500,000+

These are just the brackets, don’t use them to figure out taxes because there are a lot of rules regarding exemptions and the like.

Approved Changes for 2012

The 4.75% bracket is wide, spanning $3,000 to $150,000 and the new changes would break that up and expand it upward. Single filers making between $100,001 and $125,000 (joint filers $150,001 and $175,000) would see a 25 basis point increase in their taxes, from 4.75% to 5%. Single filers making $125,001 and $150,000 (joint filers $175,001 and $225,000) would see a 50 basis point increase, from 4.75% to 5.25%.

Expansion of 4.75% bracket:

Tax Bracket Single Married Filing Jointly
4.75% Bracket $3,000 – $100,000 $3,000 – $150,000
5% Bracket $100,000 – $125,000 $150,000 – $175,000
5.25% Bracket $125,000 – $150,000 $175,000 – $225,000

That also pushes into the higher brackets, which also get an increase in taxes. Single filers who make between $150,001 and $250,000 (joint filers earning between $225,001 and $250,000) would see a 50 basis point increase, from 5% to 5.5%. Finally Anyone making more than $250,000 a year would pay 5.75%, which decreases that bracket from the current one of $500,000.

Here’s what the Maryland brackets would look like for 2013 if approved as described:

Tax Bracket Single Married Filing Jointly
2% Bracket $0 – $1,000 $0 – $1,000
3% Bracket $1,000 – $2,000 $1,000 – $2,000
4% Bracket $2,000 – $3,000 $2,000 – $3,000
4.75% Bracket $3,000 – $100,000 $3,000 – $150,000
5% Bracket $100,000 – $125,000 $150,000 – $175,000
5.25% Bracket $125,000 – $150,000 $175,000 – $225,000
5.5% Bracket $150,000 – $250,000 $225,000 – $250,000
5.75% Bracket $250,000+ $250,000+

In addition to adjustments to the brackets, your exemptions will be reduced if you earn more than $100,000 ($150,000 for joint filers) and completely eliminated if you earned more than $200,000.

If you live in a state and would like to see a similar wrap up of your state’s income taxes, let me know in the comments and I’ll be happy to oblige.

{ 14 comments, please add your thoughts now! }

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14 Responses to “Maryland State Income Tax Increase”

  1. Texas Wahoo says:

    As someone living in Virginia, I would prefer that Maryland and DC continue to raise their taxes, as it will just drive home values in Virginia up.

  2. I live in MD today, and am very tired of getting nickeled and dimed at every turn with a new tax by this governor and legislator that can’t seem to find a penny of waste or unnecessary programs. Virginia is looking awfully attractive as is Delaware.

  3. Courtney says:

    We moved to VA from MD last year (for other reasons) and have definitely come out ahead so far financially. Our car insurance dropped by nearly 40% (although a lot of this was offset by personal property tax on the cars, county stickers and annual vehicle inspections) and our overall state tax rate dropped from about 8.5% to 5%, because the brackets listed above are only for state taxes, and don’t include the addition of county taxes which were about another 3% and filed on your state tax return. The sales tax rate is also lower.

  4. freeby50 says:

    Just a side comment : Those 2%, 3% and 4% brackets seem kind of pointless. I don’t know why you’d bother to differentiate based on $1000 steps like that. Only a very small % of the population will be in those specific brackets and pay those rates. I assume those have probably been in place for decades back when $1000 increments meant more. They may as well just delete those rates and give anyone with less than $3000 a tax break.

  5. I grew up in MD and now live in WA. While I miss the blue crabs and old bay, I certainly don’t miss the state income taxes :-).

    • dcdco says:

      And if you leave an estate in excess of $1M, your heirs will appreciate that you chose VA over MD, since VA has no estate or inheritance tax, while MD has both.

  6. Ben says:

    Once again I am thankful to be living in TEXAS.

  7. Tony says:

    How do you figure “this isn’t a soak the rich type of proposal” if taxes are only going up for those making $100,000 or more?

  8. James says:

    Notice how the MD tax brackets aren’t indexed for inflation, so more and more of the middle class will be paying these higher rates ever year as their salaries go up.

    The nickle and diming doesn’t stop. Those getting water from Baltimore will see their rates go up another 9%.

  9. Jerry Chin says:

    Excellent break down of the MD state income tax brackets, Jim! I would expect you to be doing more stories of this nature in the years to come. For all the attention the national deficit receives, the states are in much worse financial situation than the federal government. And states provide many more services that touch individual citizens day to day lives that if they were to be cut would spell a real change in standard of living. As many of the commentators have already stated, increases in state income tax rates do result in people moving to other states, whereas when the federal government raises taxes (I’m predicting the future here), it is unlikely too many people would pack up and move to Canada or Mexico.

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