Here are some of the most important changes and benefits affecting the approximately 3.5 million taxpayers working on their 2018 Maryland income tax returns.
Local Taxpayer Service Offices
Taxpayer Service Offices will be open from 8:30 a.m. to 4:30 p.m., Monday through Friday to help taxpayers fill out and electronically file Maryland income tax forms for free. Please bring any W-2 statements or other withholding statements, such as 1099s, that you have, along with your completed federal income tax return. The Annapolis office will serve customers at a new location at 60 West Street, Suite 102, Annapolis, MD 21401.
New Tax Rates
- Local Tax Rate Changes - For tax year 2018, Cecil County has increased its rate to 3.00%. For tax year 2019 Caroline County has increased its rate to 3.20%.
Exemptions and Deductions
There have been no changes affecting personal exemptions on the Maryland returns.
Personal Exemption Amount - The exemption amount of $3,200 begins to be phased out if your federal adjusted gross income is more than $100,000 ($150,000 for joint taxpayers). The $3,200 exemption is phased out entirely when the income exceeds $150,000 ($200,000 for joint taxpayers). See Instruction 10 in the Resident tax booklet for the reduced amounts, or review the page, Determine Your Personal Income Tax Exemptions. The additional exemption of $1,000 remains the same for age and blindness.
Dependent Form 502B - will be required to be attached to Form 502, Form 505 and Form 515 to determine what exemptions you are entitled to claim.
Standard Deduction – The tax year 2018 standard deduction is increased to a maximum value of $2,250 for single taxpayers and to $4,500 for head of household, a surviving spouse, and taxpayers filing jointly.
Itemized Deduction Limitation - The State of Maryland follows the new federal tax law treatment to suspend the itemized deduction limitation threshold (Pease Limitation). This means that high-income taxpayers are not required to reduce their itemized deductions using the itemized deduction worksheet used in prior years.
Increased pension exclusion - Maryland's maximum pension exclusion, which is available to qualifying taxpayers who are age 65 or older; are totally and permanently disabled; or have a spouse who is totally and permanently disabled, increased from $29,900 to $30,600 for tax year 2018.
Pension exclusion for qualifying retired correctional officer, law enforcement officer or fire, rescue, or emergency services personnel – Pursuant to House Bill 296 (Acts of 2018), the pension exclusion for Retired Law Enforcement Officer or Fire, Rescue, or Emergency Services Personnel has expanded eligibility to include retirement income of correctional officers. Up to a $15,000 subtraction for resident retired law enforcement officers, fire, rescue and emergency personnel who are at least 55 years old and (1) were employed by the State, a political subdivision of the State, or the federal government, and (2) receive pension income related to their above employment. An individual may not claim both this subtraction and the standard pension exclusion.
Subtraction modification updates for tax year 2018:
- The mileage rate for certain qualifying charitable use of a car on Form 502V has increased from 53.5 cents to 54.5 cents.
- A new subtraction modification is available for any amount included in federal adjusted gross income for the first $50,000 of compensation received by an individual during the taxable year in exchange for the sale of a perpetual conservation easement on real property located in the State of Maryland. If filing a joint return each spouse is entitled to claim up to the maximum amount allowed.
- A new subtraction modification of up to $7,500 is available for living organ donors who incur qualified expenses attributable to donation of that individual’s organs. “Organ” means all or part of an individual’s liver, kidney, pancreas, intestine, lung, or bone marrow. “Qualified expenses” means any unreimbursed travel or lodging expenses or lost wages. In the case of a joint return each spouse is entitled to claim the maximum subtraction amount.
- A new subtraction modification is available for full-time Kindergarten through Grade 12 classroom teachers. Teachers may subtract up to $250 of unreimbursed expenses paid or incurred during the taxable year for the purchase of classroom supplies used by students in the classroom or by the teacher to prepare for or during classroom teaching.. A teacher may not subtract any expense that has already been subtracted from federal adjusted gross income under §62 of the Internal Revenue Code.
Individual Taxpayer Changes
- Interest Rate Decrease: The annual interest rate decreases from 11.5% per annum to 11% per annum on January 1, 2019. The annual interest rate changes again on January 1, 2020. Interest is due at a rate of 11% annually or 0.9167% per month for any month or part of a month that a tax is paid after the original due date of the 2018 return but before January 1, 2020. Refundable earned income tax credit (REIC): For 2018, the REIC amount for eligible residents is 28% of the federal EIC.
- Income tax credit on Form 502CR for student loan debt: The refundable income tax credit available for certain individuals who have incurred at least $20,000 in undergraduate student loan debt has expanded eligibility to include graduate school debt. Certification must be attached.
- Many state revenue agencies, including Maryland, are requesting additional information in an effort to combat stolen-identity tax fraud and to protect you and your tax refund. If you and your spouse have a driver's license or state issued identification card, please provide the requested information from it. The return will not be rejected if you do not provide a driver's license or state-issued identification. If you provide this information, it may help to identify you as the taxpayer.
Business Taxpayer Changes
- Single Sales Factor Apportionment: For apportioning income to the state for corporate income tax purposes, a single sales factor formula will be phased in over a five year period beginning in tax year 2018.
- Small Business Relief Tax Credit: Small businesses that employ a qualified employee may claim a credit against state income tax for certain benefits provided to that employee. A qualified employee is one who earns wages equal to or less than 250% of the annual federal poverty guidelines for a single-person household. The credit may not exceed the lesser of $500 for each qualified employee or an amount equal to the total amount of qualified employer benefits accrued by all qualified employees. In order to claim the credit, the business must apply to the Department of Commerce.
Tax Professional Changes