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2025 Maryland Tax Law Changes

The State of Maryland enacted significant tax changes that affect both individuals and businesses.  The following provides an overview of tax updates from Maryland's 2025 legislative session, covering changes to income tax, sales and use tax, and other miscellaneous updates. Key highlights include:

Income Tax Updates (Effective for Tax Year 2025):

New Brackets and Rates:

  • Two new top individual income tax brackets:
  • 6.25% for income between $500,001-$1,000,000 (Single) or $600,001-$1,200,000 (Joint/HOH).
  • 6.50% for income above $1,000,000 (Single) or $1,200,000 (Joint/HOH).
  • Counties can set local income tax rates up to 3.30%.
  • Interest for underpayment of estimated tax is waived for 2025 due to rate increases.

Standard Deduction:

  • Increased to $3,350 for Single, Married Filing Separate, or Dependent.
  • Increased to $6,700 for Married Filing Joint, Head of Household, or Qualifying Surviving Spouse.
  • Adjustments based on cost-of-living increases.

Itemized Deductions:

  • Phaseout begins for federal adjusted gross income exceeding $100,000 (married filing separately) or $200,000 (other statuses).
  • Deductions reduced by 7.5% of income exceeding thresholds.

Capital Gains Surtax:

  • 2% surtax on net capital gains for federal adjusted gross income exceeding $350,000.
  • Exemptions for gains from primary residences under $1.5M, retirement accounts, certain farming assets, conservation land, business property, and nonprofit-owned affordable housing.

Sales and Use Tax Updates (Effective July 1, 2025):

New Taxable Services:

  • 3% tax on data/information technology services (NAICS Sectors 518, 519, Subsector 5415) and software publishing services (NAICS Subsector 5132).
  • Contracts entered before July 1, 2025, are exempt, but subscription payments due on or after July 1, 2025, are taxable.

Vendor Requirements:

  • Vendors selling taxable goods/services in Maryland must register for a sales and use tax account and collect tax.
  • Remote sellers must collect tax if annual revenue exceeds $100,000 or 200+ transactions occur in Maryland.
  • Vendors must file returns and remit tax by the 20th of the following month.

Buyer Responsibilities:

  • Buyers must pay sales tax to vendors or remit use tax directly to the State if the vendor fails to collect.

Special Situations:

  • Exemptions for cloud computing sales to cybersecurity businesses and sales to/from qualified companies in the University of Maryland’s Discovery District.
  • Higher tax rates apply to certain items (e.g., SaaS for individuals taxed at 6%).

Miscellaneous Updates:

  • Sales tax on adult-use cannabis increases from 9% to 12%.
  • Exemptions repealed for snack food from vending machines, photographic material, and custom computer software.
  • Precious metal bullion/coin exemption limited to sales at Baltimore Convention Center.

Maryland Tax Connect:

Maryland Tax Connect is an online portal for business taxpayers to apply for tax accounts, file taxes, and make payments.

New users can apply for a sales tax account via the Combined Registration Application and receive a PIN to complete their profile.

Resources, FAQs, and tutorials are available on the Maryland Tax Connect website.

For more details, visit Maryland Tax Connect or Maryland Comptroller.