CCPA: Maryland’s New Taxes, a Primer
“Our new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes.” - Benjamin Franklin
2025 has kicked off with an unusually acute sense of uncertainty: between DOGE, government agencies getting the desaparecidos treatment, tariff flip-floppery, and the generally chaotic nature of governance-via-tweet, it’s fair to say we’ve had a wild ride so far. Those of us that prefer thoughtful, steady governance might be forgiven for pining after some fictional halcyon era when change came slowly and we had time to plan and adjust.
Unfortunately, however, for Harmony clients that reside in Maryland, the wish for steady, reliable governance seems to be as unattainable on the state level as it is on the federal level. Turns out for Marylanders, Benjamin Franklin’s evergreen maxim seems to be the only ‘normalcy’ to have emerged this year, as the state government capped off its annual legislative session by delivering a package of new taxes that cements its place as one of the most profligate states in the union.
A quick bit of recent history: After eight years with Governor Larry Hogan, Maryland found itself in excellent fiscal shape as it approached the eve of transition to a new Governor. Despite cutting taxes by billions of dollars for broad swaths of Marylanders, including the largest retiree tax relief plan in state history, by 2022 Maryland had amassed a $5.5 billion general fund surplus, including $3 billion in the rainy-day fund and a $2.5 billion structural surplus. The state was finally on solid financial footing and things were looking good.
Enter, Stage Right: Governor Wes Moore and the Maryland legislature.
The new governor and his allies in the legislature promptly spent the entire surplus, committing to tens of billions of dollars in new spending over the coming decade, and driving Maryland into a massive structural deficit. This year, thanks to these profligate spending decisions, the state faced a historic multi-billion dollar deficit, the largest since the Great Recession. The solution: taxes, taxes, and more taxes.
For those of us counting, the new taxes on Marylanders total nearly $2.3 billion dollars, and they come in dozens of different shapes and sizes. Like to watch Netflix? There’s a new tax for that. Buying something from a vending machine? New tax for that. Smoke weed? Double taxes for that. Enjoy a little online sports gambling? Higher taxes for that. Buying tires? New tax for that. Buying, registering, renting, emissions testing, or putting tires on a car? We’ve got taxes for that. Own a house? Selling real estate? Selling stocks? Sing it with me now: more taxes!
You get the point.
Histrionics aside, the general point is that Maryland just blasted its residents with new taxes and this is likely the first salvo in an ongoing war to offset the effects of fiscal recklessness. Based on the current budget, you should anticipate higher property taxes and higher income taxes at the county level in the coming year or two, but let’s not expect the taxation to end here. Astute observers anticipate that the next budget will include more new taxes, and it’s fairly likely that the newly introduced taxes on digital services will be increased - estate tax increases and taxes on other services barely got cut out of the current budget, so those are predictable for future budgets, too.
So, what’s a Maryland taxpayer to do?
First, let’s arm you with a bit of practical knowledge:
Income Tax Increases
Most of the income tax increases at the state level will appear to be targeted at the highest earners in the state, as Maryland introduced two additional state level income tax brackets that apply to high earners:
6.25% for taxable income between $500,001 and $1,000,000.
6.50% for taxable income exceeding $1,000,000.
While these tax brackets don’t affect most taxpayers, the more pernicious effects will be seen in the much broader changes that were slipped into the bill:
The cap on local income tax rates at the county level was raised, paving the way for increases in all 23 of Maryland’s counties (for some reason Maryland likes to pretend that its income tax rates are only <6%-ish, by splitting it between the state and County taxes, when the combined income tax rate at the state level will now be almost 10%). These taxes are flat, so as they’re raised they’ll take a cut out of all Marylanders, regardless of income levels. Expect increases in the near future.
A new Itemized Deduction Phase-Out was implemented for federal Adjusted Gross Income (AGI) exceeding $200,000. The limitation is calculated as 7.5% of income in excess of $200,000 - so if you have a combined household income of $300,000 you subtract $7,500 from your itemized deductions total, if you have $400,000 you subtract $15,000 from your itemized deductions total, etc. This effectively means that two income households and upper middle class earners will have the value of their itemized deductions cut substantially, a frustrating development for tax planning purposes, as it undercuts the provisions in the One Big Beautiful Bill (currently being negotiated in Congress) that increase the SALT limitation.
Capital Gains Tax Increases
A new 2% capital gains tax is implemented for filers earning over $350,000, effectively increasing state level taxes on Capital Gains for higher income taxpayers by 30%+.
Second, let’s be honest, while there are substantial increases in income taxes via the itemized deductions limitation and the imposition of new capital gains taxes, the majority of the tax increases are sales tax increases and fee increases. There’s nothing we can do about these while living in Maryland, except absorb them.
Finally, even though the only control we have on tax increases is through the indirect method of the ballot box, this is what you have Harmony for. If you’re a client who sees these increases and thinks they will apply to your personal tax situation and you need some planning help, we’re here for tax planning consultations anytime you need. If you’re planning stock or capital gains generative sales (like sales of a business or property) that might push you into the surcharge areas, it's worth doing a quick planning session to make sure you do this efficiently. If you’re considering moving, it’s worth a discussion about whether to choose to live within the Maryland borders or if Northern Virginia might be more attractive (particularly for residents of MoCo and PG). If you’re a retiree or digital nomad, perhaps Maryland shouldn’t be your place of residence or place of work and we should discuss how to establish and maintain domicile in a low tax jurisdiction like Florida, Tennessee, or Texas. If you’re considering selling a property, we should consider whether or not a like-kind exchange would be beneficial to you. Whatever your situation, your team at Harmony is here to help you navigate the tax and financial considerations that are important to help you meet your long term financial goals. As well, we always recommend working with Harmony Wealth to combine your investment and tax opportunities.
TL;DR
Maryland’s government increased taxes substantially on Maryland taxpayers starting this year. Many of these taxes are unavoidable new sales taxes and increases to fees, but high earners should be aware that they’re being targeted with increased income tax rates and new taxes on capital gains and we encourage any Harmony tax client who believes they could benefit from additional tax planning to reach out for a consultation.