Maryland Comptroller’s Office Announces Important Information for 2023 Income Tax Returns

By Saleem A. Shareef

The Maryland Comptroller’s Office has announced important information for individual and business taxpayers regarding their 2023 income tax returns. The information relates to: filing deadlines; local tax rates; exemptions and deductions; pension exclusions; subtraction modifications; individual taxpayer changes; and business taxpayer changes. (What’s New for the 2024 Tax Filing Season (2023 Tax Year), Maryland Comptroller’s Office, 02/01/2024.)

Filing deadlines.

Acceptance of Maryland business income tax returns began January 16, 2024, and individual income tax returns began January 29, 2024. The 2023 individual income tax return filing deadline is April 15, 2024. Corporation income tax returns are due by the 15th day of the fourth month following the close of the taxable year, or by the original due date required for filing the federal return.

Local tax rates.

For tax year 2023, local income tax rates have not changed from tax year 2022, except Allegany County’s rate decreased from 3.05% to 3.03%; Cecil County from 3% to 2.8%; St. Mary’s County from 3.1% to 3%; and Washington County from 3% to 2.95%. For nonresident tax withholding purposes, the lowest county income tax rate remains at 2.25% for both 2023 and 2024 tax years.

Exemptions and deductions.

Personal exemptions: For tax year 2023, there have been no changes affecting personal exemptions on Maryland returns. The exemption amount of $3,200 begins to be phased out if the federal adjusted gross income (AGI) is more than $100,000 ($150,000 for joint taxpayers). The $3,200 exemption is phased out entirely when the income exceeds $150,000 ($200,000 for joint taxpayers). The additional exemption of $1,000 remains the same for age and blindness. Form 502B must be attached to Forms 502, 505, and 515 in order to determine the exemptions that can be claimed.

Deductions: The tax year 2023 standard deduction is a maximum value of $2,550 for single taxpayers and $5,150 for head of household, a surviving spouse, and taxpayers filing jointly. Maryland follows the federal tax law treatment to suspend the itemized deduction limitation threshold (Pease Limitation). High-income taxpayers are not required to reduce their itemized deductions using the itemized deduction worksheet used in prior years.

Under current Maryland law, if the federal standard deduction is taken, Maryland taxpayers cannot itemize on their Maryland returns. The comptroller alerts Maryland taxpayers that taking the federal standard deduction may reduce their federal tax liability, but doing so may result in an increase to their Maryland income tax liability. Taxpayers are encouraged to run their income tax returns under both deduction methods, and to compare the results of taking the standard deduction versus itemizing deductions, to see which method causes the lowest overall tax liability.

For federal income tax purposes, taxpayers cannot claim more than $10,000 ($5,000 for married filing separately) for state and local taxes paid. The federal limitation impacts Maryland returns because the amount of state income taxes claimed as federal itemized deductions must be added back. The addback is limited to $10,000 ($5,000 for married filing separately) and is reported on Line 17b of Maryland Form 502. Maryland will accept any reasonable interpretation of the limitation reported on Line 17b. A reasonable interpretation of the law includes the following example: a single filer paid $8,000 in real property taxes and $4,000 in Maryland state income taxes. Maryland will accept an addback of state income tax of $2,000 on Line 17b. In this example, the real estate taxes make up $8,000 of the $10,000 limitation and only $2,000 are required to be added back as state income taxes.

Pension exclusions.

Maryland’s maximum pension exclusion, which is available to qualifying taxpayers 65 years of age or older, are totally and permanently disabled, or have a spouse who is totally and permanently disabled, increases from the 2022 tax year amount of $34,300 to the 2023 tax year amount of $36,200. Up to a $15,000 subtraction is available to retired forest, park, and wildlife rangers who: (1) are age 55 or older; (2) are not age 65 or older, are not totally disabled, or do not have a spouse who is totally disabled; and (3) have included on their federal return taxable income received as a pension, annuity, or endowment from an employee retirement system qualified under IRC § 401(a), IRC § 403, or IRC § 457(b). An individual cannot claim both this subtraction and the standard pension exclusion. Worksheet 13E should be used for the calculation. The pension exclusion for other public safety personnel is still available, but is now calculated as a separate subtraction.

Subtraction modifications.

A new subtraction modification for tax year 2023 is available for union dues: Code Letter yc—paid union dues included in federal AGI that would have been deductible as an unreimbursed employee expense prior to tax year 2018. However, certain amounts are excluded, and the subtraction cannot be claimed if self-employed and the dues are claimed as a business expense on the federal return.

The following are existing subtraction modifications updated for tax year 2023: (1) Code Letter k—up to $12,000 in expenses incurred by parents to adopt a child with special needs through a public or nonprofit adoption agency, and up to $10,000 for a child without special needs; (2) Code Letter u—up to $12,500 of military retirement income, including death benefits, received by a qualifying individual during the tax year if the taxpayer has not yet attained the age of 55, or up to $20,000 if the taxpayer is age 55 or over; (3) Code Letter yb—an amount of ordinary and necessary expenses, including a reasonable allowance for salaries or compensation, paid or incurred during the taxable year in carrying on a trade or business as a Maryland state licensed medical cannabis grower, processor, dispensary, or any other cannabis establishment licensed by the state, if the deduction for ordinary and necessary expenses is disallowed under IRC § 280E; and (4) the mileage rate for certain qualifying charitable use of a car on Form 502V has increased from 62.5¢ per mile to 65.5¢ per mile for the period January 1, 2023 through December 31, 2023.

Individual taxpayer changes.

The following are individual taxpayer changes: (1) interest is due at the rate of 10.0075% annually or 0.8339% per month for any month or part of a month that a tax is paid after the original due date of the 2023 return but before January 1, 2025; (2) a new addition modification for resident members of a pass-through entity (PTE) that is taxed at the entity level in another state; and (3) Form 502CR has been updated for the credit for child and dependent care expenses.

Business taxpayer changes.

The following have been updated concerning business taxpayers: Federal Security Clearance Costs tax credit, Food Donations by Qualified Farms tax credit, automated external defibrillator tax credit, and dividend addback.