Audience: Businesses, Tax Professionals
The withholding of Maryland income tax is a part of the state's "pay-as-you-go" plan of income tax collection adopted by the 1955 session of the Maryland General Assembly. The provisions are set forth in the Tax-General Article of the Annotated Code of Maryland. The law aids in the proper collection of taxes required to be reported by individuals with taxable income. Generally speaking, the state's system resembles the federal withholding plans.
Withholding tax is not an additional tax, but merely a collection device. Its purpose is to collect tax at the source, as the wages are earned, instead of collecting the tax a year after the wages were earned. Please see the Maryland Withholding Guide (PDF) and the links at the bottom of the page for more information.
As an employer, you must record sums that are withheld from employee wages in a ledger account to clearly indicate the amount of state tax withheld. These funds must be submitted to the state on the due date assigned to you.
You may use our withholding tables to determine the correct amount of state and local income tax that must be withheld from employee wages. To determine a precise amount to be withheld, use our percentage method tables.
The total income tax required to be withheld on wages for the purposes of the withholding tables and schedules is calculated without regard to the marginal state income tax rates of less than 4.75%.
The wages earned by a spouse of a nonresident U.S. servicemember may be exempt from Maryland income tax under the Military Spouses Residency Relief Act, when the spouse of the servicemember is not a legal resident of Maryland. The income tax withholding exemption may be claimed by filing a revised Form MW507 with their employer. For more information, see Employer Withholding Tax Alert- Important Information for Spouses of U.S. Military Servicemembers
If the payor of an eligible rollover distribution made to a Maryland resident is required to have federal income tax withheld from that distribution, then Maryland income tax must be withheld from the distribution at a rate of 7.75 percent.
The withholding specifically applies to an eligible rollover distribution within the meaning of §3405(c) of the Internal Revenue Code, subject to mandatory withholding of federal income tax and received by a domiciliary or statutory resident of Maryland.
The 7.75 percent tax must be paid to the Comptroller of Maryland with Form MW506 (Employer's Return of Income Tax Withheld). If the payor of the distribution is not currently registered with the Comptroller and has not established a withholding account, the payor can register online. Payment may also be made online for free through the Maryland Tax Connect Portal.
For more information, see Administrative Release 41 - Withholding on Designated Distributions from Retirement Plans (PDF).
House Bill 632 (Chapter 352, Acts of 2011), the Earned Income Credit Information Act, requires the Comptroller to publish the maximum eligibility for the State earned income tax credit (EITC) on or before January 1 of each calendar year. This Act also requires the Comptroller to notify all employers in Maryland by mail of the information on the State EITC. The employer then must notify each employee who may be eligible for the federal or State earned income tax credits electronically or in written form by December 31. The Act took effect on January 1, 2012. You may view and download the Tax Alert (PDF) for this new requirement. You may also read the IRS notice (PDF).
Certain employees may be entitled to claim an earned income tax credit on their 2025 federal and Maryland income tax returns if both their federal adjusted gross income and their earned income is less than the following:
The notice to employees must include the following statements: (1) the employee may be eligible for the federal and State earned income tax credits; and (2) the employee may be eligible for the State earned income tax credit. We have created a sample employee notice (PDF) for you to use, however, you may create your own as long as it includes the two statements above.
Taxable wages include all employee compensation, such as salaries, fees, bonuses, commissions, vacation allowances, back pay, and retroactive wage increases.
Wages paid in any form other than money are measured by their fair market value. These include lodging, meals, property, or other considerations for personal services.
Withholding is not required for:
The wages earned by a spouse of a nonresident U.S. service member may be exempt from Maryland income tax under the Military Spouses Residency Relief Act, when the spouse of the service member is not a legal resident of Maryland. The income tax withholding exemption may be claimed by filing a revised Form MW507 and Form MW507M with their employer. For more information, see Employer Withholding Tax Alert - Important Information for Spouses of U.S. Military Servicemembers (PDF) issued November 23, 2009.
Lottery and other gambling winnings in excess of $5,000 are subject to withholding at a rate of 9.50% for Maryland residents or 8.75% for nonresidents. Pari-mutuel (horse racing) winnings in excess of $5,000 and at least 300 times as large as the original wager are subject to the same withholding rates.
If you have an employee who expects to have less than $14,600 in income during 2024, you are not required to withhold Maryland state and local income tax. Students and other part-time workers affected by this situation may claim an exemption from withholding, using Maryland Form MW507, Employee's Maryland Withholding Exemption Certificate. You should keep the completed MW507 certificate with your records.
Many high school and college counselors have partially completed MW507 forms that eligible employees can use to claim the withholding exemption with their employer.
You are responsible for sending a copy of an MW507 certificate to the Compliance Division under the following circumstances:
Mail completed forms to:
Comptroller of Maryland
Compliance Division, Compliance Programs Section
7 St. Paul Street
Baltimore, MD 21202
Nonresidents who work in Maryland or derive income from a Maryland source are subject to the appropriate Maryland income tax rate for their income level, as well as a special nonresident tax rate.
By law, the nonresident tax rate must equal the lowest local income tax rate paid by Maryland residents (currently 2.25%) combined with the top state tax rate.
Employers must withhold Maryland income tax for nonresidents using the 2.25% rate. See Withholding Tables for regular and percentage method withholding amounts.
Residents of the District of Columbia, Pennsylvania and Virginia who did not maintain a place of abode in Maryland for more than six months (183 days or more), are exempt from withholding of Maryland tax on Maryland wages and salary by the authority of a reciprocity agreement between Maryland and these jurisdictions.
Wage and salary income for residents of West Virginia is not taxable to Maryland, regardless of the amount of time spent in Maryland, and they are exempt from withholding of Maryland tax on Maryland wages and salary by the authority of a reciprocity agreement between Maryland and West Virginia.
The local income tax is imposed on nonresidents employed in Maryland, who reside in local jurisdictions that impose a local income or earnings tax on Maryland residents.
During 2012, the following states had local jurisdictions which impose local earnings taxes on Maryland residents: Alabama, Delaware, Indiana, Iowa, Kentucky, Michigan, Missouri, New York, and Ohio.
Both state and local income tax withholding is required on wages of residents of local jurisdictions in the states above which impose an income or earnings tax of Maryland residents, if they work in Maryland. Since Maryland shares a state tax reciprocity agreement with Pennsylvania, only the local tax should be withheld for Pennsylvania residents working in Maryland and living in a jurisdiction that taxes Maryland residents. The local tax is computed at the rate of the local Maryland jurisdiction where the taxpayer is employed.
A nonresident tax on the sale of Maryland property is withheld at the rate of 8.75% (2.25% plus the top state tax rate of 6.50%) for individuals and 8.25% on nonresident entities. For more information, see Withholding Requirements for Sales of Real Property by Nonresidents.
The tax rate for pass-through entities is 7.5% on nonresident individual members (including nonresident fiduciary members) and 8.25% on nonresident entity members. For more information, see Pass-Through Entities.
You are not required by law to withhold Maryland income taxes from the wages paid to a domestic employee in a private residence. However, you may do so as a courtesy to the employee.
If you wish, you can register your withholding account online and use the Maryland Tax Connect Portal to file your withholding returns electronically for free.
You can also refer to our Employer Withholding Guide (PDF) or Withholding Tables to determine the correct amount of state and local income tax that must be withheld from employee wages. The total income tax required to be withheld on wages for the purposes of the withholding tables is calculated without regard to the marginal state income tax rates of less than 4.75 percent. The local income tax, which is calculated as a percentage of taxable income, is included in the amount shown in the withholding tables.
If taxes are not withheld, then the employee will need to make estimated tax payments.
If you are a nonresident who owns and is selling or transferring real property and associated tangible personal property in Maryland, you must make a tax withholding payment to the local Clerk of the Circuit Court or the State Department of Assessments and Taxation (SDAT). The payment must be made before the deed or other instrument of transfer is recorded with the court clerk or filed with SDAT.
Generally, the person responsible for your closing, a title company for example, is responsible for ensuring that sufficient funds are withheld at settlement and for paying the amount of withholding tax due to the Clerk or SDAT when the deed or other instrument of transfer is presented for recordation.
In the case of a nonresident individual, the payment is 8.75% of the total property sale payment made to the individual. A nonresident entity must make an 8.25% payment. See Withholding Requirements for Sales of Real Property by Nonresidents (PDF).
Under this provision, a nonresident entity is an entity that is:
In the case of multiple owners, withholding is required from each of the nonresident owners based on the percentage of the total payment that represents each nonresident's ownership percentage.
At settlement, you must complete Form MW506NRS - Return of Income Tax Withholding for Nonresident Sale of Real Property. The settlement agent must then present Copies A and B of Form MW506NRS to the clerk or SDAT, along with payment.
In addition to filing Form MW506NRS with a tax withholding payment, you are still required to file an end-of-the-year income tax return with Maryland for the year in which the sale occurred.
Your Federal Employer Identification Number is the nine-digit number located in the upper left part of your withholding return, under the label "FEIN."
Your Maryland Central Registration number is the eight-digit number located to the right of your FEIN, under the label "REGISTRATION NBR."
You can close your withholding account by calling 410-260-7980 from Central Maryland, or 1-800-638-2937 from elsewhere, Monday - Friday, 8:30 a.m. - 4:30 p.m.
Please be ready to provide the following information:
You can also close your account by completing and remitting the Final Report Form available in your withholding coupon booklet, or by completing Form MW506FR.
Information about Filing Withholding Reports
You may use the Regular Method Withholding Tables to determine the correct amount of state and local income tax that must be withheld from employee wages. To determine a precise amount to be withheld, use the Percentage Method tables.
The total income tax required to be withheld on wages for the purposes of the withholding tables and schedules is calculated without regard to the marginal state income tax rates of less than 4.75 percent.
Businesses needing to pay employer withholding of Maryland income tax may do so in several ways as follows:
All other correspondence related to employer withholding of Maryland income tax should be sent to:
Comptroller of Maryland
Remittance Processing Center
Annapolis, Maryland 21411-0002
Employers are required to furnish a completed wage and tax statement (Form W-2 or 1099) to each employee by the last day of January each year. If the due date falls on a Saturday, Sunday or a legal holiday, the statements must be filed by the next business day.
Employers are also required to submit a year-end reconciliation to the Comptroller of Maryland by the due date January 31st of each year, showing the prior year's wage and withholding information. If the due date falls on a Saturday, Sunday or legal holiday, the statements must be filed by the next business day..
Maryland law does not allow filing extensions for year-end reconciliations.
See MDTaxconnect.gov to file electronically
Maryland Employer Reporting W2/1099 Instructions and Specifications
Employers who have fewer than 25 W-2 wage and tax statements and/or 1099 forms to report may send a completed Form MW508 with the W-2 wage and tax statements and/or 1099 forms to:
Revenue Administration Division
ATTN: Returns Processing, room 206
110 Carroll Street
Annapolis, MD 21411-0001
Employers must file their wage and tax statements and/or 1099 forms by the filing deadline. Maryland law does not provide for filing extensions for year-end reconciliations.
Failure to comply with the W-2 and 1099 data reporting rules may result in a penalty of $100 for each violation, along with a $50 penalty for each annual W-2 or 1099 report that is not properly filed. Additional penalties may be assessed for failing to comply with Section 13-706 of the Tax-General Article, Annotated Code of Maryland.
For assistance with Maryland employer withholding, call 410-260-7980 in Central Maryland or 1-800-638-2937 from elsewhere, Monday - Friday, 8:30 a.m. - 4:30 p.m.
For assistance e-mail questions concerning electronic filing to efilew21099help@marylandtaxes.gov
For information about with unemployment insurance, visit the Maryland Division of Unemployment Insurance Web site.
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