By: Charles Jones & Derek Lee*
Maryland Governor Wes Moore is expected to sign (if he has not by the date of this publication) House Bill 0350 in the coming weeks. The final version of the bill includes several major tax increases to address budget shortfalls and to fund key initiatives such as transportation infrastructure and education. The tax impact of this legislation could have a significantly negative impact on your net worth.
The Table Limits Have Increased – New Top Rates for Top Earners
The legislation increases the individual state income tax rates on Maryland’s top earners.
The top income tax rate in 2025 is 5.75%. But this will change in 2026.
For 2026, Maryland has increased the table limits and added new, higher rates. Those with an adjusted gross income exceeding $500,000 and up to $1,000,000 (over $600,000 and up to $1,200,000 for joint filing) can now expect to pay an extra 0.5% as the rate increases to 6.25%.
But wait, there’s more.
Those with an adjusted gross income exceeding $1,000,000 ($1,200,000 for joint filing) can now expect to pay an extra 0.75% as the rate increases from 5.75% to 6.5%.
Doubling Down: The New Capital Gains Tax Surcharge
The legislation doubles down on taxing the state’s top earners by imposing a new 2% state capital gains tax on individuals with federal adjusted gross income exceeding $350,000, with some exceptions.
You read that correctly, a new capital gains surcharge tax on our top earners. Maryland joins Minnesota and Washington state as the only states in the nation with this type of surtax.
Local Governments Want a Place at the Table Too
The newly passed legislation increases the maximum income tax rate permissible for local governments from 3.2% to 3.3%. In simple terms, every county in Maryland plus Baltimore City can (and may very well) charge its residents the new maximum rate.
Parlay an Increase to Standard Deductions, a Sure Winner
Now, the good news is the Maryland standard deduction will increase from $2,250 to $3,350 for most individual filers and from $4,500 to $6,700 for joint filers.
However, our top earners and their less affluent cousins (those whose federal adjusted gross income exceeds $100,000 ($200,000 for joint filing) must reduce their Maryland itemized deductions by 7.5% of the excess of their federal gross income over that amount.
The Bottom Line: Is Maryland Rolling the Dice?
We have clients who continually ask, “Is it worth it to stay?” Governor Moore has stated a policy to attract more high-net-worth individuals. However, the current legislation may cement Maryland among the highest state tax rates in the region, at only 0.05 percentage points lower than D.C., more than 4 percentage points higher than Virginia, Pennsylvania, and West Virginia, and more than 3 percentage points higher than Delaware (which has no sales tax and lower property taxes). The District of Columbia is prohibited from taxing non-resident income, which has made it attractive for many D.C. workers to live in Maryland or Virginia. With Maryland’s income tax rates running parallel to D.C.’s, any advantage is sure to disappear like nickels in a slot machine.
Leaving nothing on the table, Governor Moore’s 2025 proposition to eliminate itemized deductions (which did not pass) and the now annual proposal by lawmakers to reduce the current $5 million per person estate tax exemption to $2 million per person should be taken as an indicator that Maryland has not dealt its last hand.
What You Can Do
It is critical that you consult a professional to develop and adjust your tax strategy to ensure (i) that your wealth is preserved in the face of these changes, and (ii) that you have not developed a gambling addiction. Don’t let Maryland’s new tax laws leave you with a bad hand.
*Law Clerk, 2025