To help close a $3.3 billion budget gap, Maryland Governor Wes Moore has signed off on a new tax plan that raises taxes for high-income residents. The changes include new income tax brackets, a new tax on capital gains, and higher local taxes.
These changes take effect July 1 and will apply to tax filings for the 2025 calendar year.
New Income Tax Brackets
Until now, Maryland’s top income tax rate was 5.75%. Starting next year, high earners will see new tax brackets:
For Single Filers:
- $250,001–$500,000: 5.75% (no change)
- $500,001–$1 million: 6.25%
- Over $1 million: 6.5%
For Joint Filers:
- $300,001–$600,000: 5.75% (no change)
- $600,001–$1.2 million: 6.25%
- Over $1.2 million: 6.5%
New Capital Gains Tax
There will also be a new 2% tax on capital gains for anyone earning more than $350,000.
Exceptions include:
- Gains from selling a primary home (if the sale price is under $1 million)
- Property used in a business
- Retirement accounts like 401(k)s and pensions
✂️ Changes to Deductions
People who itemize their deductions will see a reduction:
- If you’re married filing separately, deductions are reduced by 7.5% of the amount over $100,000.
- For all other filers, the reduction kicks in over $200,000.
📍 Local Tax Increases
Counties will now be allowed to raise their income tax rates up to 3.3% (up from 3.2%).
💡 Bottom Line
When combining the new state tax brackets with the higher local tax limit, the top combined income tax rate in Maryland could rise from 8.95% to 9.8% (excluding the 2.0% capital gain tax) for the highest earners.
These changes will have a significant financial impact on many Maryland residents, especially those with high incomes. Now is a good time to speak with your CBM tax advisor to understand how these updates might affect you and to explore tax-saving strategies.
Maryland Adds 3% Sales Tax to Certain Information Technology Services
Starting July 1, Maryland will begin charging a 3% sales tax on a broad array of technology and data-related services while eliminating the exemption for custom software.
The new tax will apply to several types of IT and data services, including:
- Computing infrastructure providers and data processing
- Web hosting services
- Web search portals and online libraries
- Computer systems design
- Software publishing
The new law does not apply to the sale of cloud computing to a qualified cybersecurity business.
What About the Regular 6% Sales Tax?
Maryland’s sales tax rate remains 6%, but if a product or service falls under both the regular sales tax and the new 3% tech tax, the higher 6% rate will be used.
New Documentation Required
If you buy digital products or services that will be used in more than one location – or resell them within your business group – you’ll need to provide a “multiple points of use” certificate at the time of purchase. This helps ensure the correct tax rate is applied.
No More Exemption for Custom Software
Previously, custom-made software was exempt from sales tax in Maryland. Now businesses will need to charge or pay tax on custom software just like off-the-shelf products.
💡What This Means for You
Some businesses are still exempt, such as those working with the University of Maryland’s Discovery District or the university’s Applied Research Laboratory for Intelligence and Security. Businesses that sell data services or software in Maryland should evaluate how the law changes could impact their sales tax liabilities. Your CBM state and local tax advisors will help you plan ahead. We can determine whether the new sales tax provisions apply to you, answer your questions, and ensure you follow the law. Contact Tom Bailey, CPA, CVA through our contact form for help. Also, be sure to follow us on LinkedIn for the latest developments and law changes impact businesses and individuals.
