Maryland Tax Law Changes: What You Need to Know for 2025
Maryland residents and business owners are facing significant tax changes in 2025 following the passage of the Budget Reconciliation and Financing Act. Governor Wes Moore signed this comprehensive legislation on May 20, 2025, with most provisions taking effect on July 1, 2025, for tax years beginning after December 31, 2024.
Capital Gains Tax Surcharge
One of the most notable additions is a new 2% surcharge on capital gains income for taxpayers with federal adjusted gross income exceeding $350,000, regardless of filing status. This surcharge applies specifically to investment income and is calculated separately from the standard state income tax. The surtax is designed to target capital gains without affecting sales of business assets or equipment, representing a significant revenue generator for the state.
2. New Tax Brackets for High Earners
Maryland has expanded its income tax structure by adding two new brackets aimed at high-income earners. Previously, the top state income tax rate was 5.75%, which applied to income over $250,000 for single filers and $300,000 for joint filers.
The new structure includes a 6.25% bracket for taxable income exceeding $500,000 for single taxpayers and $600,000 for joint filers, and a 6.5% bracket for income over $1 million for individuals and $1.2 million for joint filers. These brackets apply only to income exceeding the threshold amounts, maintaining the progressive tax structure where only the income within each bracket is taxed at that particular rate.
Additionally, the maximum local income tax rate that counties can impose has increased from 3.2% to 3.3%, giving counties slightly more flexibility in setting their rates.
3. Increased Standard Deduction
In a move to provide some relief to middle-income taxpayers, Maryland has raised the maximum standard deduction to $3,350 for single filers ($6,700 for joint filers, heads of household, and qualified surviving spouses). This increase helps ensure that not all taxpayers are negatively impacted by the new law.
However, high-income taxpayers face a new limitation. Itemized deductions will be reduced by 7.5% of federal adjusted gross income exceeding $200,000 for single, head of household or joint filers ($100,000 for those filing separately). This phase-out provision effectively limits the tax benefits available to high income residents.
4. Tax on Technology Services
Perhaps the most significant change for Maryland businesses is the expansion of the sales tax base. Beginning July 1, 2025, Maryland imposes a 3% sales tax on certain information technology and data services. This includes cloud computing, data processing, web hosting, software publishing services, and IT consulting services, specifically those classified under certain North American Industrial Classification System codes.
This represents a major shift in Maryland's tax policy, as the state historically taxed a limited number of services compared to other states. The 3% rate is preferential compared to Maryland's standard 6% sales tax rate. Certain exemptions exist, including services provided to qualified cybersecurity businesses and specific transactions related to the University of Maryland Discovery District.
Need Help Navigating Maryland's 2025 Tax Changes?
If you're a business owner in Columbia, Maryland, or the greater Howard County area, these tax changes may significantly impact your business planning and compliance obligations. Whether you're concerned about the new technology services tax, capital gains surcharge, or higher tax brackets, working with an experienced Columbia CPA or tax preparer can help you:
Determine if your business needs to register for the new 3% technology services tax
Calculate your estimated tax payments under the new bracket structure
Identify tax planning strategies to minimize your 2025 tax liability
Ensure proper withholding and quarterly payment schedules
Navigate the capital gains surcharge if you're planning asset sales
Maximize deductions while complying with the new phase-out limitations
Don't wait until tax season to address these changes. Local Columbia accounting firms and Maryland tax professionals are already helping businesses adapt their tax strategies for 2025. Schedule a consultation with a qualified CPA in Columbia, Maryland today to review your specific situation and develop a proactive tax plan that protects your bottom line.