If you’re a nonresident who works in Maryland or earns income from a Maryland source, you need to be aware of the employer withholding requirements and tax rates. In this article, we’ll break down the important details to help you navigate through the complexities of Maryland income tax regulations.
Maryland Income Tax Rates for Nonresidents
Nonresidents who work in Maryland or earn income from a Maryland source are subject to both the appropriate Maryland income tax rate for their income level and a special nonresident tax rate. As of 2016, the special nonresident tax rate has increased from 1.25% to 1.75%.
By law, the nonresident tax rate must be equal to the lowest local income tax rate paid by Maryland residents (currently 1.75%) combined with the top state tax rate.
Withholding Requirements for Employers
Employers are responsible for withholding Maryland income tax for nonresidents using the 1.75% special nonresident tax rate. To determine the withholding amounts, employers can refer to the Withholding Tables for regular and percentage method calculations.
Reciprocity Agreements for Residents of Certain States
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. This exemption is authorized by a reciprocity agreement between Maryland and these jurisdictions.
Similarly, residents of West Virginia are exempt from withholding of Maryland tax on Maryland wages and salary due to a reciprocity agreement between Maryland and West Virginia.
Local Tax for Certain Nonresidents
Nonresidents employed in Maryland who reside in local jurisdictions that impose a local income or earnings tax on Maryland residents may also be subject to local income tax. In 2012, the following states had local jurisdictions that imposed local earnings taxes on Maryland residents: Alabama, Delaware, Indiana, Iowa, Kentucky, Michigan, Missouri, New York, and Ohio.
If you reside in one of these states and work in Maryland, both state and local income tax withholding may be required. However, if you’re a Pennsylvania resident working in Maryland and living in a jurisdiction that taxes Maryland residents, only the local tax should be withheld. The local tax is calculated based on the rate of the local Maryland jurisdiction where the taxpayer is employed.
Nonresident Tax on Sale of Maryland Property
Nonresidents who sell Maryland property are subject to a nonresident tax withholding at a rate of 8% (2.25% plus the top state tax rate of 5.75%) for individuals and 8.25% for nonresident entities. This withholding requirement applies to both nonresident individuals and nonresident entities. For more information, refer to the Withholding Requirements for Sales of Real Property by Nonresidents.
Nonresident Pass-Through Entity Tax Rate
For pass-through entities, the tax rate is 7.5% for nonresident individual members, including nonresident fiduciary members. Nonresident entity members are subject to a tax rate of 8.25%. To understand the specific provisions and requirements for pass-through entities, please consult the official guidelines in the Pass-Through Entities section.
FAQs
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Do I need to pay Maryland income tax as a nonresident?
Yes, nonresidents who work in Maryland or earn income from a Maryland source are subject to Maryland income tax. -
How does the special nonresident tax rate work?
The special nonresident tax rate is calculated by combining the lowest local income tax rate paid by Maryland residents (currently 1.75%) with the top state tax rate. -
Are there any exemptions for nonresidents from certain states?
Yes, residents of the District of Columbia, Pennsylvania, Virginia, and West Virginia may be exempt from withholding of Maryland tax on Maryland wages and salary due to reciprocity agreements with these states. -
What is the local tax for certain nonresidents?
Nonresidents employed in Maryland who reside in local jurisdictions that impose a local income or earnings tax on Maryland residents may be subject to local income tax.
Conclusion
Understanding the employer withholding requirements and tax rates for nonresidents in Maryland is crucial for both employees and employers. By following the regulations, you can ensure compliance and avoid any tax-related issues. If you have further questions or need more specific information, it’s always recommended to consult with a tax professional or the official guidelines provided by the Maryland tax authorities. Remember, staying informed and proactive will help you navigate the complexities of the tax system and ensure your financial well-being.