On April 1st, Governor Larry Hogan signed three new tax legislations into law, enacting the largest tax cut package in Maryland’s history. The first, the Retirement Tax Elimination Act of 2022, reduces taxes for many retirees over the age of 65. The second, the Work Opportunity Tax Credit, incentivizes employers and businesses to hire and retain workers from underserved communities; and the third, the Sales Relief Tax, will eliminate the sales tax on several childcare items and health products.
Retirement Tax Elimination Act
This law creates a nonrefundable tax credit that offsets Maryland state income tax for a resident who is 65 years of age or older and whose federal adjusted gross income (AGI) does not exceed $150,000 for a joint filer, or $100,000 for a single filer.
- The credit amount is $1,000 for an individual filer or for a couple where only one person is 65 or older.
- If the taxpayer is filing a joint return and both parties are 65 or older, the credit amount is $1,750.
The law is effective for the 2022 tax year and the credit amount can be decreased if Maryland’s revenues do not hit specified targets in the future. Total tax relief from this Act is estimated to be $1.55 billion over the next five years.
If you’re looking to balance this potential tax benefit with your financial goals, get in touch with your financial advisor or contact our Wealth Management team. They can make informed recommendations to help you effectively manage your wealth, liquidity, and diversification goals with tax-smart investment strategies.
Work Opportunity Tax Credit
This law creates a non-refundable tax credit against state income tax or up to 50% of the federal Work Opportunity Tax Credit that an employer claims for a qualified employee who works in Maryland.
This new credit becomes effective July 1, 2022, and applies to tax years 2022 through 2028. Federal tax law requires that you cannot deduct wages that are utilized to generate a federal tax credit. Maryland currently has a subtraction modification in place for this wage deduction adjustment when an employer receives a federal Work Opportunity Tax Credit. This subtraction will not apply to the new Maryland credit.
Employers will receive federal and Maryland credits for hiring veterans, ex-felons, summer youth, and certain other target groups. The IRS provides additional details on target groups on their website.
Sales Tax Relief
Effective July 1, 2022, various childcare items and certain health products will no longer be subject to Maryland’s sales tax. This includes, but is not limited to:
- Car seats
- Baby Bottles
- Diabetic care items
- Medical devices
- Dental hygiene products
“Our state is in a stronger fiscal position today than it has ever been before, and because of that, we are able to keep our commitment to Maryland’s retirees,” said Governor Hogan. “Many said this could never be done in Maryland, but together we did it. I want to sincerely thank the legislative leaders on both sides of the aisle and in both houses for coming together to help more Marylanders keep more of their hard-earned tax dollars in their own pockets, particularly our seniors on fixed incomes.”
As always, if you have any questions about the following tax relief legislation or would like to explore tax opportunities, please contact our SC&H Tax team.