Software Withholding Tax

[Rode Neagle]

For help with your withholding, you may use the Tax Withholding Estimator. You can use the Tax Withholding Estimator to estimate your income tax for next year. The Tax Withholding Estimator compares that estimate to your current tax withholding and can help you decide if you need to change your withholding with your employer.

Most types of U.S. source income received by a foreign person are subject to U.S. tax of 30 percent. The tax is generally withheld (Non-Resident Alien withholding) from the payment made to the foreign person.

The withholding of Maryland income tax is a part of the state's "pay-as-you-go" plan of income tax collection adopted by the 1955 session of the Maryland General Assembly. The provisions are set forth in the Tax-General Article of the Annotated Code of Maryland. The law aids in the proper collection of taxes required to be reported by individuals with taxable income. Generally speaking, the state's system resembles the federal withholding plans.

Withholding tax is not an additional tax, but merely a collection device. Its purpose is to collect tax at the source, as the wages are earned, instead of collecting the tax a year after the wages were earned. Please see the Maryland Withholding Guide and the links at the bottom of the page for more information.

As an employer, you must record sums that are withheld from employee wages in a ledger account to clearly indicate the amount of state tax withheld. These funds must be submitted to the state on the due date assigned to you.

You may use our withholding tables to determine the correct amount of state and local income tax that must be withheld from employee wages. To determine a precise amount to be withheld, use our percentage method tables.

The wages earned by a spouse of a nonresident U.S. servicemember may be exempt from Maryland income tax under the Military Spouses Residency Relief Act, when the spouse of the servicemember is not a legal resident of Maryland. The income tax withholding exemption may be claimed by filing a revised Form MW507 with their employer. For more information, see Employer Withholding Tax Alert- Important Information for Spouses of U.S. Military Servicemembers

If the payor of an eligible rollover distribution made to a Maryland resident is required to have federal income tax withheld from that distribution, then Maryland income tax must be withheld from the distribution at a rate of 7.75 percent.

The withholding specifically applies to an eligible rollover distribution within the meaning of 3405(c) of the Internal Revenue Code, subject to mandatory withholding of federal income tax and received by a domiciliary or statutory resident of Maryland.

The 7.75 percent tax must be paid to the Comptroller of Maryland with Form MW506 (Employer's Return of Income Tax Withheld). If the payor of the distribution is not currently registered with the Comptroller and has not established a withholding account, the payor can register online. Payment may also be made online for free through the Maryland Tax Connect Portal.

House Bill 632 (Chapter 352, Acts of 2011), the Earned Income Credit Information Act, requires the Comptroller to publish the maximum eligibility for the State earned income tax credit (EITC) on or before January 1 of each calendar year. This Act also requires the Comptroller to notify all employers in Maryland by mail of the information on the State EITC. The employer then must notify each employee who may be eligible for the federal or State earned income tax credits electronically or in written form by December 31. The Act took effect on January 1, 2012. You may view and download the Tax Alert for this new requirement. You may also read the IRS notice.

Certain employees may be entitled to claim an earned income tax credit on their 2021 federal and Maryland income tax returns if both their federal adjusted gross income and their earned income is less than the following:

The notice to employees must include the following statements: (1) the employee may be eligible for the federal and State earned income tax credits; and (2) the employee may be eligible for the State earned income tax credit. We have created a sample employee notice for you to use, however, you may create your own as long as it includes the two statements above.

The wages earned by a spouse of a nonresident U.S. service member may be exempt from Maryland income tax under the Military Spouses Residency Relief Act, when the spouse of the service member is not a legal resident of Maryland. The income tax withholding exemption may be claimed by filing a revised Form MW507 and Form MW507M with their employer. For more information, see Employer Withholding Tax Alert - Important Information for Spouses of U.S. Military Servicemembers issued November 23, 2009.

Lottery and other gambling winnings in excess of $5,000 are subject to withholding at a rate of 8.75% for Maryland residents or 8% for nonresidents. Pari-mutuel (horse racing) winnings in excess of $5,000 and at least 300 times as large as the original wager are subject to the same withholding rates.

If you have an employee who expects to have less than $12,950 in income during 2022, you are not required to withhold Maryland state and local income tax. Students and other part-time workers affected by this situation may claim an exemption from withholding, using Maryland Form MW507, Employee's Maryland Withholding Exemption Certificate. You should keep the completed MW507 certificate with your records.

Nonresidents who work in Maryland or derive income from a Maryland source are subject to the appropriate Maryland income tax rate for their income level, as well as a special nonresident tax rate. The special nonresident tax rate has increased from 1.25% to 1.75% in 2016.

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 by the authority of a reciprocity agreement between Maryland and these jurisdictions.

Wage and salary income for residents of West Virginia is not taxable to Maryland, regardless of the amount of time spent in Maryland, and they are exempt from withholding of Maryland tax on Maryland wages and salary by the authority of a reciprocity agreement between Maryland and West Virginia.

Both state and local income tax withholding is required on wages of residents of local jurisdictions in the states above which impose an income or earnings tax of Maryland residents, if they work in Maryland. Since Maryland shares a state tax reciprocity agreement with Pennsylvania, only the local tax should be withheld for Pennsylvania residents working in Maryland and living in a jurisdiction that taxes Maryland residents. The local tax is computed at the rate of the local Maryland jurisdiction where the taxpayer is employed.

A nonresident tax on the sale of Maryland property is withheld at the rate of 8% (2.25% plus the top state tax rate of 5.75%) for individuals and 8.25% on nonresident entities. For more information, see Withholding Requirements for Sales of Real Property by Nonresidents.

The tax rate for pass-through entities is 7.5% on nonresident individual members (including nonresident fiduciary members) and 8.25% on nonresident entity members. For more information, see Pass-Through Entities.

You can also refer to our Employer Withholding Guide or Withholding Tables to determine the correct amount of state and local income tax that must be withheld from employee wages. The total income tax required to be withheld on wages for the purposes of the withholding tables is calculated without regard to the marginal state income tax rates of less than 4.75 percent. The local income tax, which is calculated as a percentage of taxable income, is included in the amount shown in the withholding tables.

If you are a nonresident who owns and is selling or transferring real property and associated tangible personal property in Maryland, you must make a tax withholding payment to the local Clerk of the Circuit Court or the State Department of Assessments and Taxation (SDAT). The payment must be made before the deed or other instrument of transfer is recorded with the court clerk or filed with SDAT.

Generally, the person responsible for your closing, a title company for example, is responsible for ensuring that sufficient funds are withheld at settlement and for paying the amount of withholding tax due to the Clerk or SDAT when the deed or other instrument of transfer is presented for recordation.

In the case of a nonresident individual, the payment is 8% of the total property sale payment made to the individual. A nonresident entity must make an 8.25% payment. See Withholding Requirements for Sales of Real Property by Nonresidents.

At settlement, you must complete Form MW506NRS - Return of Income Tax Withholding for Nonresident Sale of Real Property. The settlement agent must then present Copies A and B of Form MW506NRS to the clerk or SDAT, along with payment.

You have two options to file your employer withholding reports: you can file electronically, or you can file using pre-printed coupons in a coupon book that we send to you, which contains your Employer's Return of Income Tax Withheld (Form MW506). If you use the preprinted MW506 coupons to file, please return your reports in the window envelope that we send to you. Be sure that our mailing address is showing through the window.

You must file your withholding reports according to the schedule dictated for your business by our filing categories. If you have a new account, you must file reports no less frequently than quarterly. Your account will be reviewed at the end of the year to determine if your filing requirement needs to be changed.

The due dates for income tax withholding reports vary for employers filing monthly, quarterly, accelerated and annual reports. If the due date falls on a Saturday, Sunday or state holiday, the report is due on the next business day.

c80f0f1006