Maryland 2025 Tax Overhaul: New Brackets, Surtaxes, and Local Caps

(MARYLAND) Maryland residents will feel a new tax reality on their 2025 returns, and immigrants—especially new arrivals choosing between the D.C. job market and lower-tax states—are often the first to notice the change in take-home pay. The state’s Budget Reconciliation and Financing Act of 2025 (Chapter 604), signed by Governor Wes Moore on May 20, 2025, rewrote Maryland’s income tax rates, added a new capital gains surtax, and gave counties room to raise local “piggyback” taxes up to a higher cap.

Lawmakers tied the package to a budget crisis and said it is built to raise $1.6 billion for fiscal year 2026, while still offering some relief at lower income levels. All of the income tax changes apply to taxable years after December 31, 2024—meaning they show up on 2025 tax returns filed in 2026—while several sales and excise tax items start July 1, 2025.

For visa holders and green card applicants, these rules don’t change federal immigration paperwork, but they can change day-to-day decisions: whether to sell stock, when to move, and how much cash to set aside during a status change or job switch.

What Chapter 604 changed for 2025 filers

Maryland moved from eight state income tax brackets to 10, creating two new top brackets and lifting the top marginal rate from 5.75% to 6.5%. At the same time, the law created a 2% capital gains surtax for higher-income households based on federal adjusted gross income (AGI), and it changed deductions in ways that can raise taxable income for higher earners even when their gross pay stays the same.

Counties gained authority to increase local income taxes to a new 3.3% cap (up from 3.2%) and, if revenue-neutral, to use progressive local rates instead of a flat rate.

Key point: These changes apply to taxable years after December 31, 2024, so their practical impact appears on 2025 returns filed in 2026.

Income tax brackets for 2025 filers

Maryland’s income tax remains marginal—each slice of income is taxed at the rate for that bracket. The new structure matters most for people whose income crosses into the newly created high-end ranges.

New top brackets (2025 taxable year)

For single / married filing separately / dependent filers:
– 6.25% on $500,001–$1,000,000
– 6.50% on over $1,000,000

For married filing jointly / head of household / qualifying surviving spouse filers:
– 6.25% on $600,001–$1,200,000
– 6.50% on over $1,200,000

The brackets below those ranges still start at 2.00% and step up through 3.00%, 4.00%, 4.75%, 5.00%, 5.25%, 5.50%, and 5.75% as income rises. The practical effect is that high earners pay more on the portion of income above the new thresholds, not on every dollar earned.

Payroll and withholding schedules needed updates during the year, with many employers rolling changes out by pay period 17, 2025.

County “piggyback” taxes — local impact and early examples

County income tax can materially affect take-home pay and the affordability of a move. Two counties set early markers under the new rules:

• Dorchester County raised its local rate to the new 3.3% cap, applied retroactively for tax year 2025, based on Comptroller guidance dated December 19, 2025.
• Anne Arundel County adopted progressive local brackets, reaching 2.94% on middle-bracket income (listed as $50,001–$400,000 single and $75,001–$480,000 joint), effective for taxable years after December 31, 2024.

Other counties cited in the source stayed lower:
– Calvert and St. Mary’s: 3.2% (flat)
– Cecil: 2.74%

Because local rates can shift with county budgets, immigrants comparing job offers should confirm the current county rate before signing a lease. The Maryland Comptroller posts local tax tables and updates on its official site: The Maryland Comptroller.

The 2% capital gains surtax — who it affects and exceptions

The law adds a 2% capital gains surtax for individuals with federal AGI over $350,000. It applies to net capital gains and sits on top of regular state and local income taxes. The surtax has no sunset listed in the source.

Important exclusions that matter for immigrants or anyone selling assets:
– Primary home sales up to $1.5 million are excluded.
– Gains inside retirement accounts (for example, 401(k) arrangements) are excluded.
– Certain business assets tied to IRC §179 are excluded.

Example from the source:
– A joint filer with $400,000 AGI that includes $50,000 in gains would owe an extra $1,000 under the surtax (2% × $50,000).

For H‑1B workers and other professionals paid partly in stock, the timing of a sale can now change the state tax bill in ways that may feel sudden.

Deduction changes: higher standard deduction, tighter itemized write-offs

Maryland raised the standard deduction, which benefits many modest-income households, including new permanent residents without mortgages or large itemized expenses.

New standard deduction amounts:
– $3,350 — single / dependent / married filing separately
– $6,700 — married filing jointly / head of household / qualifying surviving spouse

Itemized deduction phaseout for higher earners:
– Itemized deductions are reduced by 7.5% of AGI over $200,000 (or $100,000 for married filing separately).

Illustration from the source:
– A joint filer with $500,000 AGI is $300,000 over the $200,000 threshold; 7.5% × $300,000 = $22,500, which cuts itemized deductions by that amount.

For immigrants who itemize because of high state-and-local taxes, charitable giving, or mortgage interest, this phaseout can increase taxable income even when spending does not change.

Sales and excise tax increases that often hit newcomers first

Beyond income taxes, several sales and excise increases can quickly raise the cost of moving and setting up life in Maryland:

• 3% sales tax on IT/digital services, starting July 1, 2025
• Vehicle excise tax rising to 6.5%, plus a $5 per tire fee
• Cannabis tax rising to 12%
• Sports betting tax rising to 20%
• Rental car tax at 3.5%

Practical example from the source:
– A $20,000 used car purchase could mean $300+ more in tax under the higher vehicle excise rate, on top of typically higher insurance and registration costs for newcomers.

Who will feel these changes most

The law is designed to target higher earners, but households that appear “middle class” in D.C.-area terms can land in higher brackets on paper. The source points to combined state-local rates that could push over 9.8% for top earners, depending on county choices.

Groups particularly affected:
– High-skilled H‑1B and similar visa holders in tech, health care, and finance, especially those near the new top brackets
– Investors and founders, including employment-based immigrants planning to sell stock or a business during long green card waits
– Families moving to Maryland from no-income-tax states, where the added tax burden can change labor and housing decisions

VisaVerge.com notes that making the surtax permanent and expanding county flexibility suggests the state will rely more on higher earners for steady revenue, even as it increases standard deductions to soften impacts for others.

Withholding note:
– Form MW507 did not change, but workers may need to adjust what they report to employers. The form is available at Form MW507.
– Immigrants changing jobs during an extension or green card process should monitor withholding to avoid unexpected tax bills when cash may be tight.

For federal immigration filing consistency (names, addresses, dates), the most reliable starting point is the USCIS official site: USCIS official site. Remember: Chapter 604 is a state tax law and does not change immigration rules, but tax filings can intersect with immigration processes.

Important takeaway: These are state tax changes with immediate financial effects—plan around filing year cutoffs, withholding, and the timing of stock or property sales.

Quick reference — key dates and figures

• Income tax changes apply to taxable years after December 31, 2024 (appear on 2025 returns filed in 2026).
• 3% IT/digital services sales tax effective July 1, 2025.
• Dorchester’s move to 3.3% tied to Comptroller guidance dated December 19, 2025.
• 2025 returns are due April 15, 2026, along with Q1 estimates, per the source.

If you want help applying these changes to a specific scenario (withholding adjustments, timing a stock sale, or county comparisons), provide your filing status, expected AGI, county of residence, and any planned asset sales, and I can walk through the likely impacts.