Do you feel like you’ve been paying too much in income tax? Maybe you have! On May 18, 2015 the US Supreme Court ruled, in the Wynne Case (Comptroller v. Wynne), that a portion of Maryland’s income tax law was unconstitutional. The state will be required to issue refunds to some taxpayers.
The issue the court addressed was how Maryland gives credit to residents for taxes paid to other states on income earned outside of Maryland. In general, you’re allowed to take a credit against your Maryland income tax for tax paid to other states. This credit is limited to the amount of state income tax that would have been due on the same amount of income in Maryland. However, the way in which Maryland calculates the tax is a bit tricky and according to the Supreme Court, it was short changing taxpayers.
Maryland’s income tax is broken up into two parts:
1. State Income Tax: The state portion tops out at 5.75%
2. County Income Tax: The county tax rate can be as much as 3.2% (depending on where you live).
In determining the amount of credit that was allowed for taxes paid to other states, Maryland was only allowing a credit related to the state portion (up to 5.75%). This meant that taxpayers, like the Wynnes, who had income in other high-tax states, would have to pay the full tax to the other state as well as the county tax in Maryland.
As a result of the Supreme Court decision in the Wynne Case, the Maryland government will be required to issue a refund if you’re in this multi-state situation and either a protective claim was filed or if you file an amended return. If you are a Maryland resident, and have income from other states, it’s time to call your CPA and find out if Maryland owes you a refund.
Update Provided By: Tim Stolz, CPA MKS&H Tax Manager
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 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.
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