If you’re moving to the Old Line State or just trying to figure out why your paycheck looks a little light, you’ve probably realized that Maryland’s tax system is... a lot. Most states just pick a number and stick with it. Maryland doesn't do that. It’s one of the few places where you don't just pay the state; you pay your county too, and those local rates can hit just as hard as the state ones.
Basically, when people ask what is maryland state tax, they're usually looking for a single percentage. But in Maryland, "the" tax rate is actually two different math problems added together. Honestly, it’s a bit of a headache if you aren't prepared for it.
The State vs. Local Double Whammy
In most of the country, local income taxes are rare. In Maryland, they’re mandatory. Every single one of the 23 counties (plus Baltimore City) piles its own tax on top of the state’s progressive rates.
Maryland uses a graduated system for the state portion. This means your first few thousand dollars are taxed at a tiny 2%, but as you earn more, the rate climbs. For most middle-class folks, the state sits at around 4.75%. But if you're a high earner, recent 2025 and 2026 legislative shifts have pushed those top brackets higher. We're talking 6.25% for income over $500,000 and 6.5% if you're clearing a million.
Then comes the local part.
Most counties, like Montgomery, Prince George’s, and Baltimore City, charge a flat 3.20%. Some are cheaper—Talbot County usually sits way lower at around 2.40%—but generally, you should expect to lose about 8% of your taxable income to the combined state and local authorities.
The 2026 Shift: What’s Actually Changing?
Things got interesting recently. For a while, Maryland was pretty static, but new laws have shaken up the "taxable income" definition.
✨ Don't miss: McHenry County IL Tax Bill: What Most People Get Wrong
One of the biggest changes involves the estate tax. For anyone who passed away before 2026, there was a $5 million exemption. If you died starting January 1, 2026, that threshold actually dropped significantly to $2 million. That’s a massive cliff. It means a lot of families with a modest house and a decent retirement account might suddenly find themselves owing the state a "death tax" they didn't plan for.
Also, if you're a business owner, you've likely heard of the Pass-Through Entity (PTE) tax. This is basically a workaround for the federal SALT cap. Starting in 2026, the way Maryland calculates this has shifted to include all entity income for resident members, no matter where that money was earned. It sounds like a "inside baseball" accounting rule, but it can save (or cost) you thousands depending on how your LLC is set up.
Retirees Get a Rare Break
Maryland isn't known for being tax-friendly, but if you’re over 65, it’s surprisingly decent.
Social Security? Completely exempt. The state doesn't touch a dime of it.
There’s also a "Pension Exclusion." If you’re 65 or older (or totally disabled), you can subtract a big chunk of your pension or 401(k) withdrawals from your taxable income. For the 2026 tax year, this exclusion is linked to the maximum Social Security benefit, which usually hovers around $39,500.
Wait, it gets better for some. If you’re a retired forest ranger, park ranger, or work in public safety (police, fire, EMS), there are even deeper subtractions. For example, public safety retirees over age 55 can often subtract up to $15,000 of their retirement income.
Sales Tax: The Simple Part (Sorta)
Thankfully, sales tax is the one area where Maryland keeps it simple. It’s 6% across the state. No local add-ons. If you buy a shirt in Annapolis or a mower in Hagerstown, it’s 6%.
But there are a few "gotchas":
- Alcohol: That’s 9%.
- Short-term rentals: If you're renting a car or a passenger vehicle, expect an 11.5% hit.
- Digital Products: Yes, Maryland taxes your Netflix subscription and those eBooks you bought. They were one of the first states to get aggressive about taxing "digital goods."
- Tax-Free Week: Every August (usually the second full week), clothing and footwear under $100 are tax-free. It’s the one time of year the malls in Bethesda and Towson are actually a nightmare.
Property Taxes and the "Assessment Phase-In"
Property tax in Maryland is handled by the state but set by the counties.
One thing Maryland does that’s actually pretty fair is the "phase-in." Let’s say the state decides your house value shot up by $30,000. They don't tax you on that full $30k increase immediately. Instead, they add $10,000 to your assessed value each year over three years. It prevents your mortgage payment from skyrocketing overnight just because the neighborhood got trendy.
Actionable Steps for Tax Season
Don't just hand your W-2 to a pro and hope for the best.
- Check your withholding: Because of those local county taxes, it is incredibly easy to under-withhold. If you live in a 3.2% county but your employer thinks you live in a 2.25% county (or doesn't account for it at all), you’ll owe a big check in April.
- Look at the 529 Plan: Maryland offers one of the best 529 tax deductions in the country. You can subtract up to $2,500 per beneficiary from your adjusted gross income. If you have two kids, that’s $5,000 off your taxable income.
- The "Senior Credit": If you’re 65+ and your income is under $100k (single) or $150k (joint), don't miss the $1,000 to $1,750 tax credit. It’s a direct "dollar-for-dollar" reduction of your tax bill, not just a deduction.
- Estate Planning: If your net worth is over $2 million, 2026 is the year to call a lawyer. The new $2 million exemption is a huge change from the previous $5 million mark.
The reality of what is maryland state tax is that it's a "choose your own adventure" based on where you live and how you earn. Stay on top of the county-level shifts, because that’s usually where the surprises hide.