Maryland Tax Guide 2026

State income tax — 8 brackets compressed at low income

2026 state brackets (Md. Code Tax-Gen §10-105): Single: • 2% — first $1,000 • 3% — to $2,000 • 4% — to $3,000 • 4.75% — to $100,000 • 5% — to $125,000 • 5.25% — to $150,000 • 5.5% — to $250,000 • 5.75% — over $250,000 MFJ: similar progression, top bracket starts at $300,000. For most middle-income filers, the 4.75% bracket dominates ($3,000–$100,000) — meaning the effective marginal state rate sits at 4.75% across most working income. Add 3.20% county (Montgomery/PG/Howard/Baltimore City) = 7.95% effective marginal — competitive with NJ middle brackets, not far from NY upstate. Capital gains: no preferential rate; taxed as ordinary at state+county combined.

Mandatory county/Baltimore City local income tax

Maryland is unique: every county (and Baltimore City) MUST levy a local income tax on residents (Md. Code Tax-Gen §10-103). Statutory cap: 3.20%. As of 2026: • Anne Arundel: 2.81% • Baltimore City: 3.20% (cap) • Baltimore County: 3.20% (raised from 3.20% in 2023) • Howard: 3.20% (cap) • Montgomery: 3.20% (cap) • Prince George's: 3.20% (cap) • Worcester (Ocean City area): 2.25% (lowest) Residency for local income tax: county of residence on the last day of the tax year. Non-residents working in Maryland counties pay the 'special non-resident' rate of 2.25%. The combined state-plus-county top rate (5.75% + 3.20% = 8.95%) makes Montgomery County / Bethesda / Chevy Chase one of the highest combined income tax jurisdictions in the country, comparable to NYC and high-CA-county combinations.

Estate AND inheritance tax — the double

Maryland is one of only 2 US jurisdictions (with DC) levying both an estate tax AND an inheritance tax. Estate tax (Md. Code Tax-Gen §7-301 et seq.): Exemption $5,000,000 (frozen, not inflation-indexed since 2019). Rates graduated 16% maximum. Decoupled from federal estate tax since 2019 — Maryland uses its own exemption and rate schedule. Inheritance tax (Md. Code Tax-Gen §7-201 et seq.): 10% on property passing to anyone OTHER than: • Spouse, child, grandchild, parent, grandparent (lineal) • Sibling (exempt since 2009) • Spouse of a child or step-child • Charitable organization In practice: bequests to nieces, nephews, friends, cousins, and unmarried partners face the 10% inheritance tax with NO exemption — first dollar taxed. Form INH-Form 1 due 9 months from death. Combined effect: a $6,000,000 estate leaving $5M to children + $1M to a niece pays ~$160k estate tax (on $1M over exemption × 16%) PLUS $100k inheritance tax (on $1M to niece × 10%) = $260,000 of MD-level tax on a single death.

Sales and excise tax

State sales tax 6% — NO local add-ons (Maryland is one of the few states with uniform statewide rate). Md. Code Tax-Gen §11-104. Alcohol: 9% rate (special higher rate since 2011). Tobacco: heavy excise. Exemptions: groceries, prescription drugs, most services (legal, accounting). Sales tax holiday: Shop Maryland Tax-Free Week (August) — clothing/footwear under $100/item exempt; Energy Star Tax-Free Weekend (February) on Energy Star appliances under $5,000. Economic nexus (post-Wayfair, Md. Code Tax-Gen §11-701(b)): $100,000 OR 200 transactions. Marketplace facilitator law since October 2019.

PTET (Pass-Through Entity Tax)

Maryland PTET (Md. Code Tax-Gen §10-102.1, enacted 2020, eligible 2020 forward): S-corps and partnerships can elect to pay state + county tax at the entity level (effectively the top combined individual rate, ~8.95%). Owners receive a REFUNDABLE Maryland credit equal to their distributive share. Election mechanic: made on the entity return Form 510. Annual and irrevocable for the year. Importantly, the credit owners receive corresponds to the COUNTY of the owner — so PTET at Montgomery 3.20% is fully creditable to a Montgomery-resident owner, but only partially creditable to a Worcester-resident owner (2.25% county). High-rate-county owners are the natural beneficiaries. Federal benefit: For a Bethesda partner in the 37% federal bracket paying $50k of MD-equivalent tax via PTET: $50,000 × 37% = $18,500 federal tax savings (vs $40k OBBBA-extended SALT cap that otherwise limited the deduction).

Property tax

Statewide average effective ~1.05% — moderate. Montgomery County ~0.98%, PG County ~1.20%, Howard ~1.15%, Baltimore City ~1.65% (Maryland's highest), Anne Arundel ~0.94%, Frederick ~1.10%. State property tax surcharge: 11.2¢ per $100 of assessed value (small — overwhelming bulk is county/city). Homestead Tax Credit: caps annual assessment increases for owner-occupants at 0–10% (county-set). Most counties cap at 5% or 10%. Reassessments triennial (each property revisited every 3 years).

Self-employed considerations

LLC formation: $100 ($150 expedited) via State Department of Assessments and Taxation. Annual Personal Property Return + Form 1 Annual Report: $300 filing fee (one of the higher annual LLC fees in the US). Maryland Family and Medical Leave Insurance (FAMLI, Md. Code Lab. & Empl. §8.3) — contributions begin July 2025; benefits begin July 2026. Combined rate 0.9% (employee 0.45%, employer 0.45%) on wages up to Social Security base ($184,500 in 2026). Unemployment: 0.3%–7.5% on first $9,000 wage base. MD does NOT conform to QBI §199A (federal deduction added back on state return). Combined state + local marginal rate at high income (8.95%) plus FAMLI plus high LLC annual fee makes Maryland one of the more expensive states for high-income self-employed — particularly in Montgomery/Howard/PG counties.

Worked example: James & Aisha Bennett, Bethesda residents (MFJ, 2026)

James is a partner at a DC-based consulting firm, K-1 income $650,000. Aisha is a Maryland W-2 employee ($150,000). They live in Montgomery County (3.20% LIT). James inherits $300,000 from a cousin (no children, no spouse, no parents involved).

Federal: ordinary income ~$800k; 37% bracket; standard SE/SECA + ordinary tax. Maryland personal income tax: Combined MD AGI (James K-1 sourced to MD per partnership apportionment; Aisha all MD): ~$800,000. Less MD standard deduction ($5,150 MFJ): $794,850. Apply 2026 MFJ brackets: ~$45,600 state tax. Montgomery County LIT: 3.20% × $794,850 = $25,435. Total MD personal: ~$71,035. Inheritance tax on $300k from cousin (collateral, no exemption): $300,000 × 10% = $30,000. (One-time, not annual.) PTET election by James's firm: Firm pays MD PTET on James's $650k share at top combined rate (~8.95%): ~$58,175. James gets refundable MD credit ~$58,175 — zeros out his personal MD liability on K-1. Federal benefit: 37% × $58,175 = $21,525 in federal SALT-cap-workaround savings. Net: Aisha's $150k income still generates ~$13,400 MD/local personal tax; James's K-1 is washed via PTET. LLC formation/maintenance for Aisha's side gig (if any): $100 + $300 annual = significant overhead.

Statute references

• State personal income tax brackets — Md. Code Tax-Gen §10-105
• Mandatory county income tax — Md. Code Tax-Gen §10-103
• Pass-Through Entity Tax (PTET) — Md. Code Tax-Gen §10-102.1
• Estate tax — Md. Code Tax-Gen §7-301 et seq.
• Inheritance tax — Md. Code Tax-Gen §7-201 et seq.
• Sales and use tax — Md. Code Tax-Gen §11-101 et seq.
• Family and Medical Leave Insurance — Md. Code Lab. & Empl. §8.3

Related pages

• Estate Tax Calculator →
• PTET Analyzer →
• State Tax Comparison →