If you’ve lived in the Old Line State for a while, you’re probably used to the "Maryland tax surprise" come April. Honestly, it’s rarely a fun one. Maryland is one of those states where the tax code feels like a moving target, especially lately. Between the state brackets, the unique county-level "piggyback" taxes, and a massive round of legislative changes that just kicked in for 2026, it’s a lot to keep track of.
Maryland isn't like Florida or Texas—there is no 0% rate here. But it’s also not quite like Pennsylvania, which just hits everyone with a flat rate and calls it a day. Maryland uses a graduated system. Basically, the more you make, the higher the percentage the state takes.
But here’s the kicker: your "state" tax is only about half the story.
Maryland State Income Tax: The 2026 Bracket Reality
Starting in 2026, the state has significantly shifted how it treats high earners. If you're a "normal" earner, things haven't changed much on the surface, but if you're pulling in high six figures, the 2025 Budget Reconciliation and Financing Act (HB 352) just made your life a bit more expensive.
For most people, the state rates still start at 2% on your first $1,000 of taxable income and climb up through a series of mid-range brackets. For years, the "top" rate was 5.75%. Well, those days are gone.
The New High-Earner Tiers
If you are filing as a single person, Maryland has added two "super-brackets."
- 6.25% for income between $500,001 and $1,000,000.
- 6.5% for anything over $1,000,000.
If you’re married and filing jointly, the threshold for that 6.25% rate kicks in at $600,001. It’s a classic progressive tax. You don’t pay 6.5% on all your money; you only pay it on the dollars that fall into that specific bucket. Still, it’s a hefty jump from the old 5.75% cap.
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The "Local" Tax: Maryland’s Secret Weapon
You've probably noticed that your Maryland tax return has a section for "Local Tax." This is where things get really localized—sorta like how the weather changes when you cross the Bay Bridge.
Every single county in Maryland (plus Baltimore City) charges its own income tax. They "piggyback" on the state’s work. You calculate your Maryland taxable income once, and then the county takes a slice. For 2026, the state actually raised the "ceiling" on how much counties can charge.
The cap used to be 3.20%. Now, counties are allowed to go up to 3.30%.
Who charges what?
Honestly, most of the "Big Five" (Montgomery, Prince George’s, Baltimore County, Howard, and Anne Arundel) are already at or near the max. If you live in Montgomery County or Baltimore City, you’re almost certainly paying that 3.20% or 3.30% rate.
On the flip side, if you live in Worcester County (Ocean City area), you’re looking at one of the lowest rates in the state, usually around 2.25%. It’s a huge disparity. Living in Bethesda vs. living in O.C. could mean a 1% difference in your total tax bill. When you add the state’s top rate of 6.5% to a local rate of 3.3%, some Marylanders are staring down a marginal rate of nearly 10%. That’s California territory.
The 2% Capital Gains Surtax
This is the part that’s catching a lot of people off guard in 2026. Maryland decided to follow the lead of states like Washington and Minnesota by adding a specific surtax on capital gains.
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If your Federal Adjusted Gross Income (AGI) is over $350,000, you might owe an extra 2% on your net capital gains.
There are some exceptions—like selling your primary home (as long as it’s under $1 million) or selling assets from a retirement account. But if you’re trading stocks in a brokerage account or selling a rental property, the state wants a bigger piece of the profit. It’s a separate calculation from your regular income tax, which makes the forms even more of a headache than usual.
Deductions: The Good and the Bad
The state did throw a small bone to taxpayers regarding the standard deduction. For 2026, the standard deduction has been bumped up to $3,350 for individuals and $6,700 for joint filers. It's not a massive amount, especially compared to the federal standard deduction, but it's better than nothing.
However, if you're someone who likes to itemize, Maryland is getting stingier. If your AGI is over $200,000 (or $100,000 if you're married but filing separately), your itemized deductions get "haircut." Basically, you have to reduce them by 7.5% of the amount your income exceeds that threshold.
What about Retirees?
Maryland is famously "sorta okay" for retirees, but not great. Social Security is generally not taxed by the state, which is a huge relief. There’s also a Pension Exclusion that allows people 65 or older (or those who are totally disabled) to exclude a certain amount of their pension or 401(k) withdrawals from their taxable income.
For the 2025/2026 tax years, that exclusion amount is around $41,200.
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But wait—there’s a catch. You have to subtract any Social Security or Railroad Retirement benefits you received from that $41,200 limit. If you get $30,000 in Social Security, you can only exclude $11,200 of your pension. It’s a "use it or lose it" math problem that often frustrates new retirees who moved here thinking their whole pension would be tax-free.
The 3% "Tech Tax" on Services
While this isn't strictly "income" tax, it affects how you spend your income. Maryland recently expanded its sales tax to cover digital services at a 3% rate. This includes things like:
- Cloud computing and web hosting.
- Data processing services.
- Digital marketing and SEO (yep, the services used to write this article).
- Custom software design.
If you run a small business in Maryland, you've likely seen your software subscriptions or IT consulting bills go up by 3% recently. It’s the state’s way of capturing revenue from the "digital economy" that used to fly under the radar.
Mistakes to Avoid This Year
Don't assume your software handles everything perfectly. If you moved between counties during the year, you need to be careful. Maryland taxes you based on where you lived on December 31st. If you moved from a low-tax county to a high-tax one on December 30th, you’re paying the high rate for the whole year.
Also, watch out for the "Nonresident" tax. If you work in Maryland but live in a state that doesn't have a "reciprocity" agreement (like Delaware or New York), Maryland will still take a cut. If you live in DC, Virginia, West Virginia, or Pennsylvania, you're usually in the clear thanks to reciprocity, meaning you only pay taxes to your home state.
Actionable Steps for Your 2026 Taxes
- Check Your Local Rate: Look up the 2026 rate for your specific county. Don't just assume it's the same as last year; several counties have bumped their rates toward that new 3.3% cap.
- Adjust Your Withholding: If you’re a high earner or have significant capital gains, use the Maryland Form MW507 to adjust your withholding. The new 6.25% and 6.5% brackets mean your old withholding might leave you with a big bill in April.
- Document Your Pension: If you're over 65, make sure you're actually taking the Pension Exclusion. It’s one of the most commonly missed deductions on DIY tax software.
- Track Your "Tech" Spend: If you’re a business owner, separate your IT service costs. The 3% tax is often line-itemed, and you’ll want to ensure you aren't being double-taxed if those services are actually for out-of-state use.
Maryland's tax landscape is undeniably getting more complex. The shift toward higher brackets for the wealthy and the new capital gains surtax shows a clear legislative intent to lean on higher-income residents to fix budget deficits. Whether you agree with the policy or not, the reality is that your tax planning needs to be sharper this year than ever before.