The Comptroller of Maryland has updated its income tax withholding formula to reflect recently-enacted H.B. 352 which, retroactive to January 1, 2025, adds two new tax brackets, increases the standard deduction and allows for a higher maximum county tax rate.

Employers should implement the updated withholding formula as soon as possible.

Income tax rates

Under prior law, the highest marginal tax rate was 5.75% on wages up to $250,000 for taxpayers filing single or married filing separately, and up to $300,000 for married taxpayers filing jointly, head of household or qualifying widows/widowers.

Effective retroactive to January 1, 2025, H.B. 352 raises the top tax rate from 5.75% to 6.50%, creating two new tax brackets as follows:

Single, married filing separately

Married filing jointly, head of household, or for qualifying surviving spouse

The wage range for other tax brackets was also modified.

Supplemental wages. For lump sum distributions of annual bonuses, the withholding amount should be calculated at the highest state tax rate (6.50%), and the highest local tax rate for the county of residence. (Maryland Employer Withholding Guide, p. 9.)

Standard deduction

Effective retroactive to January 1, 2025, the standard deduction for a single taxpayer cannot be less than $1,500, and cannot exceed $3,350 (previously, $2,250). For a head of household, surviving spouse, or spouses filing a joint return, the standard deduction cannot be less than $3,000, and cannot exceed $6,700 (previously, $4,500).

County income tax rates

Effective July 1, 2025, each county in Maryland may establish, through ordinance or resolution, a county income tax rate ranging from a minimum of 2.25% to a maximum of 3.30% (previously 3.20%) of an individual's Maryland taxable income for a given tax year. For the tax year beginning after December 31, 2024, and before January 1, 2026, counties may adjust their income tax rate in accordance with this revised provision. To implement the change, counties were required to submit written notification of the new rate to the state comptroller by May 15, 2025, and could not request additional rate or bracket modifications for 2025.

Ernst & Young LLP insights

Employers should consider notifying their Maryland employees about the 2025 income tax changes and suggest that they review their Form MW507, Employee's Maryland Withholding Exemption Certificate, to determine if adjustments are needed to their Maryland income tax withholding.