Maryland’s Fiscal Year 2026 budget came with a message: everyone’s going to feel it. Whether you’re a high earner, small business owner, or just someone who buys tires or rents a car, there’s a new tax or fee aimed in your direction. These changes, intended to plug a budget shortfall, will start rolling out as early as July 1, 2025—and you’ll want to be prepared.
Let’s break it down in two ways: how these changes impact individuals and how they impact businesses.
For Individuals: Higher Incomes, Higher Taxes
If your income is on the higher end, expect to contribute more to the state coffers:
⦁ New Tax Brackets for the Wealthy: Starting in tax year 2025, Maryland is adding two new tax brackets:
⦁ Income over $500,000 (or $600,000 for joint filers) will now be taxed at 6.25%.
⦁ Income over $1 million (or $1.2 million for joint filers) gets bumped to 6.5%.
This aligns Maryland with a growing national trend to “tax the rich”—so if you’re in this bracket, be sure your tax planning strategies are keeping pace.
⦁ Capital Gains Surcharge: There’s now a 2% surcharge on capital gains if your federal AGI is over $350,000. If you’re regularly realizing investment gains, this will quietly eat into your net gains.
⦁ Itemized Deductions Shrinking: High earners may also lose a portion of their deductions. If your AGI exceeds $200,000 (or $100,000 if you’re married filing separately), your itemized deductions will be reduced by 7.5% of the excess income.
⦁ County Income Tax May Increase: The max rate counties can charge is rising from 3.2% to 3.3%. Your local tax bill could inch up, depending on your county.
Everyday Spending Just Got Pricier
Even if you’re not in the top tax bracket, you’ll feel the pinch:
⦁ Cannabis Purchases: Recreational cannabis is now subject to 12% sales tax, up from 9%.
⦁ Vehicle Excise Tax: Buying a car? That 6% tax is now 6.5%.
⦁ Rental Cars: Add a 3.5% excise tax.
⦁ Tire Fee: There’s now a $5 fee per tire—yes, even if you’re only replacing one.
⦁ Vehicle Emissions Testing: That once-$14 test? It’s now $30.
⦁ Fishing Fees and Vending Machines: Anglers and snack lovers, beware. New and extended sales taxes may hit those, too.
For Businesses: Technology, Betting, and Service Industries, Take Note
The most headline-grabbing change for businesses is the so-called “Tech Tax.”
⦁ 3% Sales Tax on Tech Services: Starting July 1, 2025, if your business provides data processing, web hosting, information services, or computer systems design, you’ll need to collect and remit a 3% sales tax. This is a big shift that could impact pricing, contracts, and compliance.
⦁ Cannabis Retailers: Brace for that higher 12% sales tax—you’ll need to adjust your pricing, reporting, and customer communications.
⦁ Sports Betting Operations: Tax jumps from 15% to 20%. If you’re in this space, margins just got tighter.
⦁ Pass-Through Entities (PTEs): Maryland is clarifying how taxes are calculated. Resident members are taxed on their full distributive share; nonresidents only on income derived from Maryland. Good bookkeeping and clear entity agreements are more important than ever.
What Does This All Mean?
Maryland isn’t alone—states across the country are tightening tax policies to balance budgets, and this budget shows that no stone was left unturned. Whether you’re investing, operating a business, or simply buying tires, the cost of living—and working—in Maryland is going up.
But these changes also create opportunities for proactive tax planning. High earners may benefit from exploring charitable giving strategies or capital gains timing. Business owners may want to evaluate tech service delivery models and review pass-through structures.
If you’re feeling overwhelmed by the sheer number of changes, now is the time to connect with a tax professional who knows the local landscape. Small tweaks today could lead to meaningful savings next year.
For personalized advice tailored to your specific situation, contact Saunders Tax & Accounting at http://www.saunderstax.com or call us at 301-714-2071. Open Monday – Thursday 9 am to 5 pm. Awarded the Hagerstown Chamber of Commerce “2023 Small Business of the Year” and Hagerstown Hotlist 2024, we have been providing a Less Taxing Life and More Prosperous Solutions since 1984!
