Earlier this year, Maryland enacted significant tax changes as part of the Budget Reconciliation and Financing Act of 2025. Below is a concise guide to the new brackets, surtaxes, and planning implications for individuals and joint filers.
New Tax Brackets (2025)
Two new brackets were added for higher‑income taxpayers, raising the top rate. Brackets for 2025 are:
| Single Filers | Tax Rate | Joint Filers | Tax Rate | |
| $0 – $1,000 | 2.00% | $0 – $3,000 | 2.00% | |
| $1,001 – $2,000 | 3.00% | $3,001 – $150,000 | 4.75% | |
| $2,001 – $3,000 | 4.00% | $150,001 – $175,000 | 5.00% | |
| $3,001 – $100,000 | 4.75% | $175,001 – $225,000 | 5.25% | |
| $100,001 – $125,000 | 5.00% | $225,001 – $300,000 | 5.50% | |
| $125,001 – $150,000 | 5.25% | $300,001 – $600,000 | 5.75% | |
| $150,001 – $250,000 | 5.50% | $600,001 – $1,200,000 | 6.25% | |
| $250,001 – $500,000 | 5.75% | $1,200,001 and above | 6.50% | |
| $500,001 – $1,000,000 | 6.25% | |||
| $1,000,001 and above | 6.50% |
Capital Gains Surtax (2%)
- Applies when federal AGI exceeds $350,000.
- 2% surtax is applied to capital gains income on the Maryland return.
- Home sale exclusion: If you sell your primary residence for $1,500,000 or less, any gain is exempt from the surtax.
- Example: A married couple with $400,000 AGI, including $50,000 of capital gains, owes an additional $1,000 to Maryland (2% × $50,000).
Itemized Deductions Phaseout
- Thresholds: Begins at federal AGI over $200,000 (joint) or $100,000 (single).
- Reduction: Itemized deductions are reduced by 7.5% of AGI above the applicable threshold.
- Example: A married couple with $400,000 AGI would see a $15,000 reduction to itemized deductions, increasing state/local tax by roughly $1,300.
Local/County Income Tax Cap
- Maximum local rate increased from 3.2% to 3.3%.
- Expect many counties near D.C. and Baltimore to move toward the new cap.
Standard Deduction Increase
- Single filers: from $2,250 to $3,350.
- Joint filers: from $4,500 to $6,700.
Sales, Use, and Excise Tax Changes
- IT & digital services: newly subject to a 3% sales and use tax.
- Vehicle excise tax: increased from 6% to 6.5%.
- Rental vehicle tax: newly implemented at 3.5%.
- Cannabis sales tax: increased from 9% to 12%.
- Sports betting tax: increased from 15% to 20%.
Planning Notes
While state taxes are typically a smaller share of the overall tax picture than federal taxes, the changes above will raise liabilities for many—particularly those who are still working, itemize deductions, and/or realize capital gains.
Because several provisions hinge on Adjusted Gross Income (AGI), it’s critical to monitor your AGI throughout the year. In your planning, we will consider:
- Charitable giving (including timing and bunching strategies)
- Gain/loss harvesting
- Roth IRA conversions
- Income timing strategies (e.g., bonuses, stock options, business income)
If you have questions about how these changes affect your situation, please reach out to your paraplanner or advisor.
Presented by Christopher Rivers, CFP®, CRPC®
