Maryland Tax Credits and Deductions

Maryland offers a variety of tax credits and deductions that aim to reduce the tax burden on individuals and businesses, encouraging economic growth and supporting essential needs such as education, healthcare, and environmental sustainability. Understanding and utilizing these tax incentives can lead to significant savings and contribute to financial well-being.

Maryland Tax Credits

Earned Income Tax Credit (EITC)

The Maryland Earned Income Tax Credit (EITC) is a powerful tool designed to support low- to moderate-income working individuals and families. This credit is modeled after the federal EITC and provides a percentage of the federal credit to eligible taxpayers. The Maryland EITC can significantly reduce the amount of state income tax owed and, in many cases, result in a refund. It is especially beneficial for working families with children, helping to offset the costs of living and encouraging continued employment. To qualify, you must meet the income requirements set by the federal EITC program, and the amount of the Maryland credit is a percentage of your federal EITC.

Child and Dependent Care Tax Credit

Maryland provides a Child and Dependent Care Tax Credit to help families offset the costs of childcare and dependent care expenses. This credit is available to taxpayers who incur expenses for the care of a child under the age of 13 or a disabled dependent while they work or look for work. The amount of the credit is based on a percentage of the federal Child and Dependent Care Credit, adjusted for Maryland’s income levels. This credit is especially valuable for working parents, as it helps reduce the financial burden of childcare.

Long-Term Care Insurance Credit

The Long-Term Care Insurance Credit is available to Maryland residents who purchase long-term care insurance for themselves, their spouse, parent, stepparent, child, or stepchild. The credit is designed to encourage individuals to plan for their future healthcare needs by making long-term care insurance more affordable. The credit amount is up to $500 per insured person, and it can be claimed in the tax year the insurance is purchased. This credit is non-refundable, meaning it can reduce your tax liability to zero, but any excess cannot be refunded.

Maryland Heritage Structure Rehabilitation Tax Credit

The Maryland Heritage Structure Rehabilitation Tax Credit is aimed at preserving the state’s historic structures. This credit is available to individuals and businesses that undertake substantial rehabilitation of properties certified as historic by the Maryland Historical Trust. The credit is a percentage of the qualified rehabilitation expenditures and can significantly reduce the cost of restoring and preserving historic buildings. This credit is part of Maryland’s broader effort to protect its architectural heritage while promoting economic development through revitalization projects.

Business Tax Credits

Maryland offers several business tax credits to encourage economic development and job creation within the state. Some of the key business tax credits include:

• Job Creation Tax Credit: This credit is available to businesses that create new jobs in Maryland. The credit amount depends on the number of jobs created and the wages paid to the new employees.
• One Maryland Tax Credit: This credit is designed to encourage businesses to locate or expand in economically distressed areas of the state. The credit can be applied to state income taxes and is based on the number of jobs created and capital investments made in the qualifying area.
• Research and Development (R&D) Tax Credit: Businesses that increase their R&D expenditures in Maryland can claim this credit, which is a percentage of the federal R&D credit. This credit encourages innovation and helps Maryland businesses remain competitive in a global market.

Solar and Energy Storage Tax Credits

Maryland is committed to promoting renewable energy and energy efficiency. The Solar Energy Grant Program and the Residential Clean Energy Grant Program provide financial incentives to homeowners and businesses that invest in solar energy systems, energy storage, and other renewable energy technologies. These credits help offset the cost of installing solar panels and energy storage systems, reducing reliance on fossil fuels and supporting Maryland’s environmental goals.

Maryland Tax Deductions

Maryland Standard Deduction

The Maryland Standard Deduction is available to taxpayers who do not itemize their deductions. The amount of the standard deduction varies depending on your filing status and is adjusted annually for inflation. It provides a straightforward way to reduce taxable income, simplifying the tax filing process for many Maryland residents.

Itemized Deductions

Maryland allows taxpayers to itemize their deductions if the total amount of their qualifying expenses exceeds the standard deduction. Some of the most common itemized deductions include:

• Mortgage Interest: Deducting mortgage interest can significantly reduce your taxable income, especially for homeowners with large mortgage balances.
• Charitable Contributions: Donations to qualified charitable organizations can be deducted, providing a tax incentive for philanthropic activities.
• Medical and Dental Expenses: Out-of-pocket medical and dental expenses that exceed a certain percentage of your adjusted gross income (AGI) can be deducted, offering relief for those with significant healthcare costs.
• State and Local Taxes (SALT): You can deduct state and local income taxes, real estate taxes, and personal property taxes paid during the year. However, there are limits on the amount that can be deducted.

Retirement Income Subtraction

Maryland offers a Retirement Income Subtraction that allows residents to exclude a portion of their retirement income from state taxes. This subtraction is available to taxpayers who receive income from qualified retirement plans, including pensions, 401(k)s, IRAs, and Social Security. The amount of the subtraction varies depending on the taxpayer’s age and the source of the retirement income. This deduction provides significant tax relief for retirees, helping them manage their living expenses on a fixed income.

College Savings Plan Contributions

Contributions to Maryland’s 529 college savings plan, known as the Maryland Prepaid College Trust and the Maryland College Investment Plan, are deductible from state income tax. This deduction encourages families to save for higher education expenses by providing immediate tax benefits, making it easier to afford the cost of college tuition and other educational expenses.

Health Savings Account (HSA) Contributions

Maryland allows taxpayers to deduct contributions to a Health Savings Account (HSA) from their state income taxes. HSAs are tax-advantaged savings accounts designed to help individuals with high-deductible health plans pay for qualified medical expenses. Contributions to an HSA are tax-deductible, and any unused funds roll over from year to year, providing long-term savings for healthcare costs.