New Tax Laws in Maryland in Response to Federal Tax Reform

By Mary Lundstedt

On May 15, 2018, Maryland enacted laws which are projected to counteract the recent federal tax reform's negative effects on a significant portion of Maryland taxpayers. Recent estimates issued by the Comptroller's office indicated that 23% of Maryland taxpayers would experience an increase in their state and local taxes due to the new federal code unless Maryland laws were changed.

Significantly, Governor Hogan signed House Bill 365/Senate Bill 184, now Chapter 575, effective July 1, 2018, which addresses the status of the personal exemption. For federal income tax purposes, the deduction for personal exemptions is suspended for tax years beginning after Dec. 31, 2017, and before Jan. 1, 2026. According to state estimates, eliminating the personal exemption at state level would result in approximately 92% of all Maryland returns exhibiting an increase in state taxes. The new Maryland law will preserve the Maryland taxpayers' ability to deduct the personal exemptions for state income purposes. Going forward, Chapter 575 also requires the Board of Revenue Estimates to provide an updated report on the federal tax law impact to the governor and General Assembly by December 15, 2018.

The press release issued after the signing states that "The governor and presiding officers signed House Bill 365/Senate Bill 184, which will save Marylanders from nearly $3 billion over the next five years in increased state taxes as a result of the federal tax overhaul by adjusting state law on personal income tax exemptions."

At the same signing ceremony, Governor Hogan signed bills increasing Maryland's standard deduction amounts for the first time in 30 years and expanding Maryland's earned income credit. Specifically, Governor Hogan signed House Bill 1190/Senate Bill 318, now Chapter 577, increasing Maryland's maximum standard deduction amounts to $2,500 for single taxpayers and $5,000 for couples filing jointly. This change is applicable to all tax years beginning after December 31, 2017.

Furthermore, the enactment of House Bill 856/Senate Bill 647, now Chapter 611, means that even Marylanders between the ages of 18 and 24 years old, who do not have qualifying children, may benefit from the earned income credit. The Fiscal and Policy Note accompanying the bill indicates that fiscal year 2019 general fund revenues will decrease by $7.5 million as a result of the credit's expansion. The act is effective July 1, 2018.

If you have questions or concerns about how the new tax laws may affect you, please contact Frost & Associates, LLC at 410-497-5947.