Maryland Tax Changes Coming in 2025: What You Need to Know
Maryland is rolling out some important tax changes for 2025 that could affect how much you pay and how you structure your finances. Whether you’re an individual taxpayer or a business owner, it’s a good idea to get familiar with what’s coming. From new income tax brackets to updates on sales and excise taxes, here’s an overview of some of the key changes that you’ll need to know about:
1. New Personal Income Tax Brackets
Maryland is introducing two new high-income tax brackets for the 2025 tax year:
- 6.25% on taxable income between $500,000 and $1,000,000
- 6.5% on taxable income over $1,000,000
Additionally, local tax rates are now capped at a maximum of 3.3%, a slight increase from the previous 3.2% cap. To ease with this transition, Maryland will waive interest penalties for underpayment of estimated tax if the underpayment resulted solely from these rate increases.
2. Capital Gains Surcharge for High Earners
A new 2% surcharge will also be added on capital gains income for households with more than $350,000 federal adjusted gross income in the 2025 tax year, regardless of filing status.
3. Phase-Out for Itemized Deductions
Also new for the 2025 tax year taxpayers with federal adjusted gross income above $200,000 will begin to see a phase-out of their itemized deductions. Specifically, itemized deductions will be reduced by 7.5% of the amount of income that exceeds the $200,000 limit.
4. Increased Standard Deduction
For all taxpayers that do not itemize their deductions, the maximum standard deductions have increased for the 2025 tax year from $2,700 to $3,350 for single taxpayers and from $5,450 to $6,700 for married taxpayers filing jointly.
5. Sales Tax on Digital & IT Services
Effective 7/1/2025 – Maryland will be expanding its 6% sales tax to include certain digital and IT services, but at a reduced rate of 3%. These digital and IT services include cloud storage, application hosting, and data processing services.
The Maryland Comptroller’s Office has issued formal guidance on these changes, including a Q&A document to help businesses better understand the new rules, as well as a list of specific NAICS codes for businesses that are likely to be affected. The full bulletin is available here: https://www.marylandcomptroller.gov/content/dam/mdcomp/tax/legal-publications/technical-bulletins/tb-56.pdf
6. Excise & Sales Tax Adjustments
Various excise and sales tax rates will also be adjusted effective 7/1/2025:
- Cannabis sales tax raised from 9% to 12%
- Excise tax of 3.5% will be applied to short-term rental vehicles
- Sports betting tax raised from 15% to 20%
- 6% sales tax will be applied to vending machine sales
- Vehicle excise tax increased from 6% to 6.5%
Maryland’s 2025 tax changes bring significant updates that could impact both individuals and businesses. Staying informed and planning ahead is key to minimizing surprises and optimizing your tax strategy. If you have questions or need assistance navigating these changes, don’t hesitate to contact us at FLS—we’re here to help.
