One of the expected consequences of The Tax Cuts and Jobs Act enacted by the Federal government at the end of 2017 is that residents of higher-tax states, including Maryland, may see higher state tax bills.
Maryland’s governor and legislature are examining ways to shield Maryland taxpayers from tax bill increases. The Maryland tax attorneys at Rosenberg Martin Greenberg have analyzed the Tax Cuts and Jobs Act in the context of current MD state tax law, and are prepared to advise our clients on how this new legislation will change their tax planning for 2018 and beyond.
How Changes to the Federal Tax Code Affect State Taxes
As in many other states, Maryland’s tax code tracks the Federal code. A taxpayer that is able to claim a deduction at the Federal level had generally been able to see the benefits of that deduction at the state level also. The Tax Cuts and Jobs Act upends this lockstep federal-state coordination in a handful of different ways.
- The standard deduction for federal taxes has almost doubled for all filing categories. As a result, fewer taxpayers will need to file Schedule A to itemize deductions, because the standard deduction will be higher. Many state tax deductions in Maryland, however, are available only if they are claimed on a federal tax return. The loss of those state deductions may mean higher state taxes for some Maryland residents.
- High-income residents in upscale communities, including Howard and Montgomery counties, will not be able to deduct more than $10,000 of the combined property and Maryland state income taxes that they pay from the Federal adjusted gross incomes. This limitation translates into higher adjusted gross incomes that form the basis of Maryland state income taxes.
- The Federal home mortgage interest deduction has been further limited for larger, more expensive residences. Previously, taxpayers filing jointly could deduct the full amount of interest on mortgages up to $1 million. The new Federal Tax law reduces this to $750,000. Again, this reduction will lead to higher adjusted gross incomes and higher state income tax impositions.
- The interplay between Federal and State business taxes may be even more significant. The Federal business tax law, for example, enacted numerous changes to business expenses, accounting methodology, depreciation, credits, and taxation of foreign income.
What Can the Governor and the Maryland Legislature Do?
Maryland’s current administration has acknowledged that if the State does nothing to change its current tax code, it may realize millions in additional tax revenues as a result of Federal tax reform. Accordingly, the Governor and Legislature are considering whether and to what extent the State can or should return any windfall to Maryland taxpayers. Those considerations need to account for the impact that any State tax law changes will have on delivering affordable health care to all residents of Maryland, and on providing quality public education. Debates over any amendments to Maryland’s tax code will continue through much of 2018.
Contact the Baltimore Tax Lawyers at Rosenberg Martin Greenberg Today
The tax attorneys at Rosenberg Martin Greenberg will continue to monitor proposals to amend Maryland’s tax code, and to advise our clients throughout the mid-Atlantic region on how to structure their income and assets to take full advantage of all Federal and State tax code amendments. If you have questions or would like more information about the Federal Government’s 2017 Tax Cuts and Jobs Act, or about any pending tax proposals in the Maryland legislature, please contact us to speak with one of our tax attorneys.
Additional Resources on How the Federal Tax Act Will Affect Maryland State Taxes:
- Baltimore Sun, Gov. Larry Hogan says he will submit legislation to protect Maryland taxpayers from federal overhaul, http://www.baltimoresun.com/news/maryland/politics/bs-md-hogan-taxes-20171220-story.html
- Washington Post, Hogan pledges to protect Md. residents from higher state taxes due to GOP tax bill, https://www.washingtonpost.com/local/md-politics/hogan-promises-plan-to-protect-marylanders-from-higher-taxes-under-congressional-measure/2017/12/20/7ac2a548-e59c-11e7-833f-155031558ff4_story.html?utm_term=.0bf64c549c69