The start of a new year also marks the start of a new tax season. Even when there aren’t any major tax overhauls at the federal or state level, there are inevitably some adjustments made that, while seemingly small, are important to note. This is once again the case in the state of Maryland for individuals and businesses.
Individual Income Tax Changes
Most of the notable modifications for individuals are related to Form 502, the Resident Return form. There is a new section regarding Maryland Health Care Coverage that allows filers to express interest in acquiring minimum essential health coverage. Additionally, Form 502B, the Dependents’ Information form, now includes a date of birth field as well as a checkbox to signify whether the dependent has health care coverage or not. Another addition to Form 502 is a new checkbox to indicate that an individual is claiming the Maryland Earned Income Credit but does not qualify for the federal Earned Income Credit. This allows certain people without a qualifying child to still claim the Maryland credit regardless of the minimum age set by the IRS.
There have also been updates made to Form 502CR, the Tax Credits form. Part CC now reflects potential eligibility for a refundable tax credit to cover Child and Dependent Care expenses. There is a new part to the form, Part L, regarding Endowments of Maryland Historically Black Colleges and Universities. Individuals who donated to a Maryland HBCU’s permanent endowment fund may be eligible for a credit of up to 25% of the amount of their donation. Qualified donations would be made to Bowie State University, Coppin State University, Morgan State University, or University of Maryland Eastern Shore.
In a move on-trend with numerous other states, Maryland is now requesting additional identifying information in an effort to curb tax fraud related to stolen-identity. If you have a driver’s license or other state-issued ID, you will be asked to provide information from it. This is optional; your return won’t be rejected if you fail to include said information, but it can help verify your identity.
Business Taxpayer Changes
There have been some small changes made to business tax credits. With notable programs such as House of Cards, VEEP, and the Wire filming in the state, attention has been drawn to Maryland’s film tax credit program. In an attempt to entice small independent production companies, the time a company is required to be organized in Maryland before applying for a Maryland Film Production Activity Tax Credit has decreased from 1 year to 3 months. If there are any excess credits, a production entity may claim the amount of excess via a refund. The aforementioned Endowments of Maryland Historically Black Colleges and Universities credit is also available for businesses. If the credit received exceeds the income tax amount for the taxable year, the excess amount of credit is non-refundable but may be carried over and applied to subsequent tax years until fully used.
The single sales factor apportionment formula for multi-state C corporations has been updated in accordance with the phase-in schedule laid out in 2018. In tax years beginning in 2019, when apportioning income for state corporate income tax purposes, the sales factor is weighted four times. For tax years beginning in 2020, the sales factor will be weighted five times.
There are seven local tax rate changes for tax year 2020 and are as follows: 2.81% for Anne Arundel County; 3.2% for Baltimore, Dorchester, Kent, and Washington Counties; 3.17% for St. Mary’s County; and 2.25% for Worcester County. The special nonresident income tax increased to 2.25%. There have been no changes related to personal exemptions.
As always, the deadline for filing personal federal and Maryland income tax returns for tax year 2019 is April 15, 2020. The rule for corporations is that Form 500, the Corporate Income form, must be filed either by the 15th day of the fourth month after the end of the taxable period or year or by the federal return filing due date. For calendar year filers, this is April 15. Form 500E allows for filing extension requests. Pass-through entities must file Form 510, the Pass-Through Entity Income form, regardless of whether it is inactive or generated no income (unless it’s a multi-state entity not subject to Maryland income tax).
It’s never too early to start thinking about filing; April 15 will be here before you know it! When you procrastinate filing, the eventual amount of work and stress you face only increases. Don’t risk overlooking a requirement, making an error, or incurring penalties for filing late. The CPAs and tax professionals at MKS&H are ready to handle all your tax needs, be they personal, business, or both. For more information about Maryland tax code and related policies, consult the Office of the Comptroller.
About MKS&H: McLean, Koehler, Sparks & Hammond (MKS&H) is a professional service firm with offices in Hunt Valley and Frederick. MKS&H helps owners and organizational leaders become more successful by putting complex financial data into a truly meaningful context. But deeper than dollars and data, our focus is on developing an understanding of you, your culture, and your business goals. This approach enables our clients to achieve their greatest potential.