December 2025 | Highlights from the Maryland Budget Reconciliation and Financing Act of 2025

The Maryland Budget Reconciliation and Financing Act of 2025 (BRFA) is a comprehensive bill that introduced several significant changes to Maryland’s tax laws. The new act will apply to tax years beginning after December 31, 2024. Below are some of the changes that will affect taxpayers:

New Capital Gains Tax Surcharge

An additional capital gains tax of 2% will apply to taxpayers with federal adjusted gross income above $350,000 who have certain capital gains income. Income from the list below (among others) is exempt from this new tax.

·        Gains from the sale of a primary residence if sold for less than $1.5 million

·        Gains from assets held in retirement accounts, deferred compensation, and certain custodial accounts

Itemized/Standard Deduction

Itemized deductions will be reduced by 7.5% of the excess of federal adjusted gross income over $100,000 for married filing separately and $200,000 for all other filing statuses. For taxpayers who do not itemize, the standard deduction will be $3,350 for single, married filing separate, or dependent filers and $6,700 for married filing joint, heads of household, or qualifying surviving spouse filers.

New Tax Rates for High Income Earners

Previously, the highest Maryland state tax rate was 5.75%. Two new tax rates have been introduced:

 ·        6.25% tax bracket is now applicable to taxpayers with Maryland taxable income of $500,001 through $1 million for single filers and $600,001 through $1.2 million for joint, heads of household, and qualified surviving spouse filers.

·         6.50% tax bracket is now applicable to taxpayers with Maryland taxable income over $1 million for single filers and over $1.2 million for joint, heads of household, and qualified surviving spouse filers.

New County Income Tax Cap

Counties are now permitted to set a local income tax rate up to 3.30%.

For more information, please contact one of the experienced tax professionals at Bormel, Grice & Huyett, P.A. at 301-953-3259.