As Maryland residents gather their W-2s and 1099s to file taxes for the 2025 tax year (filing in early 2026), they will notice some significant changes on their state forms.
The Maryland General Assembly passed the “Budget Reconciliation and Financing Act of 2025” to address budget shortfalls, and the result is a mix of good news for average earners and a “sticker shock” for high-income households.
Whether you are expecting a refund or dreading a bill, here are the three major changes affecting Maryland returns this season.
1. The Standard Deduction Got a Boost (And a Fix)
First, the good news. For years, Maryland’s standard deduction was complicated by a “phase-out” rule that reduced its value as your income went up. That is finally gone.
For the 2025 tax year, the state has eliminated the phase-out and increased the standard deduction amounts.
- Single Filers: Now get a flat $3,350 deduction (up from the old variable calculation).
- Joint Filers: Now get a flat $6,700 deduction.
This simplifies the filing process and means that most working-class and middle-income families will see a slight reduction in their taxable income compared to previous years.
2. New Tax Brackets for High Earners
If your household income is in the upper tier, your tax rate just went up. To close the state’s budget gap, Maryland has added two new top-tier tax brackets for the first time in years.
Previously, the top state tax rate was 5.75%. Now, two new rates apply to income above certain thresholds:
- 6.25% Rate: Applies to income over $500,000 (Single) or $600,000 (Joint).
- 6.5% Rate: Applies to income over $1 million (Single) or $1.2 million (Joint).
This change is retroactive for the full 2025 tax year, meaning high earners who didn’t adjust their estimated tax payments last summer might be looking at a surprise balance due when they file this spring.
3. The New “Capital Gains” Surcharge
In addition to the higher income tax brackets, Maryland investors are facing a new hurdle. The state has introduced a 2% surtax on capital gains for individuals with a federal adjusted gross income over $350,000.
This applies to profits from selling stocks, bonds, and other assets. If you sold a significant amount of stock or an investment property in 2025 and your total income exceeds that $350,000 threshold, you will essentially pay a “tax on top of a tax” for those gains.
Note: There are specific exemptions for this surtax, including the sale of a primary residence (up to certain limits), so check with a CPA if you sold your home last year.
The Bottom Line: If you earn under $200,000, the new Standard Deduction rules likely make this a better tax year for you. If you are a high earner, it’s time to double-check your withholdings.
Are these tax changes affecting your refund this year? Let us know in the comments below.
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