Maryland RELIEF Act of 2021: What Taxpayers Need to Know Now

Governor Larry Hogan signed the Maryland RELIEF Act of 2021 on February 15, 2021. This Act whisked through the Maryland legislature after being submitted by the Governor less than 3 weeks ago. Both chambers of the Maryland legislature made and retracted changes to the original bill, but it is clearly a bipartisan attempt to get $1 billion of relief out to Maryland taxpayers, businesses, and nonprofit organizations in an expedient manner.

  SC&H’s Key Takeaways

  • Certain federal, state, and local Covid-19 aid will not be taxable in Maryland.
  • The Act exempts 2020 state unemployment benefits from taxation for certain taxpayers
  • Unemployment tax relief is provided to businesses.
  • The legislation includes several technical corrections to the 2020 Pass Through Entity (PTE) election—for more information on the important changes, read this.
  • Small businesses may keep some of their sales tax collections for March through April.
  • The law provides for immediate stimulus payments to lower income taxpayers, as well as enhancements to Maryland’s earned income tax credit.

Coronavirus Relief Payments

The Act creates a subtraction for yet unnamed federal, state, and local grants or forgiven loans to the extent this income was included in federal adjusted gross income. At first blush, this might give one hope that Maryland will not be taxing Paycheck Protection Programs (PPP) loan forgiveness income and Economic Injury Disaster Loan (EIDL) grants. But since PPP loan forgiveness income is not included in federal income, it will likely mean that this simply provides that certain state and local relief payments will not be taxed in Maryland. The Comptroller is tasked with including a list of grants and loans that are eligible for this treatment. In an upcoming piece we’ll share more on this section of the Act.

Unemployment Compensation Tax Break

For the 2020 tax year, individuals who received unemployment income can subtract the benefits from Maryland taxable income. The subtraction is allowed for individuals whose federal adjusted gross income is $75,000 or less, or for married taxpayers and head of household whose federal adjusted gross income is $100,000 or less. This applies to Maryland unemployment benefits and states with which Maryland has a reciprocal tax agreement.

Maryland Pass-Through Entity (PTE) Tax Election Technical Correction

Just in time for the filing season, this law corrects several issues in the 2020 legislation that allows pass through entities to elect to pay tax at the entity level. Nonresidents may now join in the election and review other changes made, which we’ve addressed in our Maryland PTE blog. An added provision requires the recipient of a PTE credit to add this credit into their Maryland income to avoid receiving a double benefit.

Sales Tax Payment Holiday

Smaller retail businesses will not be required to pay their March, April, or May 2021 sales tax collections to Maryland—assuming their monthly sales tax collections do not exceed $6,000 in the month. The business can retain the lesser of $3,000 or the amount of their sales tax collections for the month.

State Economic Impact Payments

Similar to the federal “stimulus payments” created in recent federal legislation and being discussed again in Congress, Maryland will issue payments to those who received a Maryland earned income credit with their 2019 Maryland individual tax return—$300 to individuals and $500 to married couples. No action will need to be taken and the Comptroller has said this will be their first order of business under this law.

Other Provisions

  • Enhancements in Maryland’s earned income tax credit benefits for 2020 through 2022.
  • Various funds set aside for grants to aid in Maryland’s economic recovery.
  • Unemployment ratings will not be adjusted due to layoffs that occurred during the pandemic-caused state of emergency.
  • Certain smaller nonprofits may defer unemployment tax payments.
  • Grant payments to individuals whose unemployment claims have been in process for more than 30 days.

Stay tuned and bookmark our Coronavirus Resource Center for more important updates from the Comptroller as we navigate evolving issues such as PPP loan treatment in Maryland and the new Maryland PTE election.