June 14, 2018

Maryland's Response to the TCJA

3 min

On January 26, 2018, the Baltimore Sun in a front-page article reported on the governor's plan to return the unexpected income tax windfall (then projected by the comptroller to be more than $400 million) to be realized by Maryland as a result of the federal Tax Cuts and Jobs Act (TCJA). But during the 2018 Maryland legislative session, the governor's plan fell by the wayside, and most of the windfall has been kept by the state. The Maryland General Assembly has finished its 2018 legislation session, and Governor Hogan has signed into law three bills to implement the Maryland response to the Tax Cuts and Jobs Act that do little to realize the governor's original plan.

First, the maximum amount of the state's standard deduction was increased by $250 to $2250 for individuals and by $500 to $4500 for joint filers. After 2018 the standard deduction amount is revised annually with a cost-of-living adjustment. 2018 Maryland Chapter Law 577.

Second, the state's earned income tax credit is expanded by the extension of eligibility to individuals without a qualifying child and who are between the ages of 18 and 24 years. Under prior law, individuals without a qualifying child are eligible for the credit only if they are between the ages of 25 and 65. The bill expands eligibility by eliminating the age requirement that an individual must be at least 25 years of age. 2018 Maryland Chapter Law 574.

Third, clarification was provided that Maryland's personal exemptions were not eliminated as a result of the TCJA, which reduced federal exemptions to zero. This change in federal law resulted in uncertainty as to whether Maryland's general conformity to federal income tax law meant that personal exemptions were also eliminated for Maryland individual income tax purposes. While the better reading of the Maryland statute is that the federal change had no effect on the Maryland exemption, the clarification avoids any confusion for the comptroller in interpreting the TCJA. 2018 Maryland Chapter Law 611.

The governor's proposal, which was not enacted, would have decoupled Maryland income tax law from many of the changes made by the TCJA to federal income tax law and would have allowed individual Maryland taxpayers to itemize deductions for Maryland state income tax purposes, regardless of whether they itemize for federal income tax purposes. Enabling Maryland taxpayers to itemize deductions for Maryland purposes irrespective of their federal itemizing status would have softened the impact of the limitation resulting from the TCJA on deducting state and local taxes. Without the change, it remains Maryland tax law that individuals can itemize deductions for Maryland purposes only if they have itemized on their federal tax return.