The recently-unveiled federal tax plan promises to lower the taxes of most Americans, but a significant portion of Marylanders do not fall within that group. Instead, state legislators estimate that 92 percent of Maryland residents will pay more in taxes because of the change, amounting to as much as $1 billion in additional federal taxes paid by Marylanders. To offset the tax increase, the state legislature is unveiling three bills in the works that are designed to provide relief.
Maryland among hard-hit states in tax plan
Legislators in a number of states are at work drafting plans to offset the increased tax burden facing their constituents. A key component of the new federal plan is the cap on deductions for payment of state and local taxes (SALT).
In the past, there was no cap on how much a taxpayer could deduct in SALT. Under the recently-enacted federal legislation, that deduction is capped at $10,000. For the states with the highest SALT deductions, the average taxable income will increase by thousands of dollars. In Maryland, the average SALT payment is close to $13,000, while in California it is more than $18,000, and in New York it is more than $22,000. The change could lead to billions of dollars in additional revenue for the federal government.
Maryland 2018 state tax proposals
The Maryland legislature’s proposals each have a different effect, but work together toward the goal of alleviating state taxpayer burden.
One proposal would permit Maryland taxpayers to claim a personal exemption on their state taxes to mirror the exemption that was eliminated from federal taxes. This would reduce the amount paid in state taxes, but not affect residents’ federal tax bill.
Another proposal, a variation of which has been proposed in several other states, attempts to neutralize the new $10,000 limit on deductions for payment of SALT. Under the proposal, the state would create a state-run charity to benefit the public schools, with the understanding that Maryland taxpayers who donate to the charity could then deduct the amount from their federal taxable income.
The third of the proposed bills would recoup many of the taxes lost by opting the state out of the federal law for inheritance taxes. Under the federal tax code, in 2019 the threshold for the state to tax an inheritance will increase to $11.2 million. Maryland’s plan could lower that to $5 million, allowing the state to recoup as much as $60 million.
Speak with a Baltimore tax lawyer at Rosenberg Martin Greenberg
Rosenberg Martin Greenberg’s team of Maryland tax lawyers is prepared to counsel clients on current and evolving tax laws. We understand the implications that both state and federal tax changes may have on personal and corporate financial situations, and what strategic moves to make to plan for the future. Contact us with your tax questions, and to find out about the latest tax law developments.
Additional 2018 Maryland Tax Changes Resources:
- WTOP, Md. Legislators announce bills aimed at tax relief for residents, https://wtop.com/maryland/2018/01/maryland-legislators-announce-bills-aimed-tax-relief/
- Washington Post, Maryland Democrats unveil bills to offset changes in federal tax law, https://www.washingtonpost.com/local/md-politics/maryland-democrats-unveil-bills-to-offset-changes-in-federal-tax-law/2018/01/16/aa6dc38a-fabf-11e7-a46b-a3614530bd87_story.html?utm_term=.8c08aef1b61b
- Washington Post, Will your taxes go up or down in 2018 under the new tax bill?, https://www.washingtonpost.com/graphics/2017/business/tax-bill-calculator/