Navigating the complexities of state taxes can be daunting, but understanding Maryland's tax landscape is essential for residents and newcomers alike.
In this guide, we'll explore key components of The Free State's tax system, from income and sales taxes to property taxes and retirement benefits.
Maryland state tax: Overview
Maryland might not have high state income tax rates on paper, but there's more to the story.
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Each county can add its own tax rate, which means your actual bill could be higher than you'd expect. Even those earning just over $3,000 in taxable income can end up paying at least 4.75%.
Gas prices aren't exactly a break either, thanks to hefty fuel taxes. And unlike many states, Maryland has both an inheritance tax and an estate tax.
But there is good news. The state offers property tax credits for those who qualify, and if you rely on Social Security for retirement income, you're in luck because Maryland doesn’t tax it.
Related: Maryland Property Tax Assessment: What It Means for You
[Data for this state tax guide was gathered from several sources including the U.S. Census Bureau, the state’s government website, the Sales Tax Handbook, and the Tax Foundation. Property taxes are cited as a rate percentage rather than the assessed value.]
Maryland income tax
Maryland has a graduated state individual income tax rate that ranges from 2% to 5.75%, according to the Tax Foundation.
Maryland retirement taxes
Maryland taxes some retirement income, and localities can tax your income.
However, there is a pension exclusion of up to $39,500 for retirees age 65 and older. Maryland has both an estate and an inheritance tax.
The estate tax exemption is $5 million. However, the inheritance tax is mostly exempt for lineal descendants and ascendants, and 10% for most others.
- Social Security: Not taxable
- Pensions: Partially taxed (due to pension exclusion)
- 401(k) and IRA Distributions: Taxable
Maryland sales tax
Maryland's state sales tax is 6%, according to the Tax Foundation
Groceries: Exempt
Clothing: Taxable
Motor Vehicles: Exempt
Prescription Drugs: Exempt
How much are property taxes in Maryland?
In Maryland, the average effective property tax rate is 0.95%.
Source: Tax Foundation
Maryland property tax breaks for retirees
Local governments can establish a property tax deferral program that allows Maryland residents 65 or older to defer the increase in their tax bill for county taxes. The deferred taxes become a lien on the property and must be repaid when the property is transferred.
Maryland's Renters' Tax Credit program provides up to $1,000 annually for qualifying residents. Income limits apply, but the credit is not limited to renters over age 65.
Maryland gas tax
Gasoline: $0.33 per gallon
Diesel: $0.33 per gallon
Source: Sales Tax Handbook
Maryland taxes on alcohol and tobacco
Product | Tax Amount |
|---|---|
Cigarette | $2 per pack |
Cigars | 70% of wholesale price |
Tobacco/Snuff | 30% of wholesale price |
Source: Sales Tax Handbook
Product | Tax Amount |
|---|---|
Wine | $0.40 per gallon |
Beer | $0.09 per gallon |
Liquor | $1.50 per gallon |
All alcohol has an additional sales tax of 9%.
Source: Sales Tax Handbook
Maryland estate and inheritance taxes
Maryland has estate and inheritance taxes ('Death Taxes'). Maryland's estate exemption is $5 million, so you don't need to worry about paying this tax if your estate is valued under that amount.
However, Maryland's inheritance tax, which is 10% of the clear value (fair market value minus qualified expenses), applies to some heirs when the value of the property exceeds $1,000. Many descendants (including but not limited to spouses and children) are exempt from paying inheritance taxes in Maryland.
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