Do I Have to Pay Maryland State Taxes if I Live in Another State?
Understand your tax obligations in Maryland as a nonresident, including income subject to tax and potential penalties for nonpayment.
Understanding whether you need to pay Maryland state taxes while residing in another state is crucial for complying with tax laws and avoiding penalties. This can arise from factors such as employment in Maryland or income sources tied to the state.
Taxpayers must carefully navigate these rules to meet their obligations without overpaying. This article explores key considerations in determining your tax responsibilities to Maryland while living elsewhere.
Residency Criteria
Determining residency status is the first step in understanding Maryland tax obligations. Under Maryland law, a resident is someone who maintains a permanent home in the state or spends more than 183 days of the taxable year there. Residency status impacts whether your income is subject to Maryland taxes.
If you maintain a domicile in Maryland, the state considers you a resident regardless of where you physically reside during the year. Domicile refers to the place you intend to return to after any temporary absence. Even if you live in another state for much of the year, Maryland may still consider you a resident if your permanent home is there. Residents are taxed on all income, regardless of its source.
Non-domiciliary individuals may also be classified as statutory residents if they spend substantial time in Maryland. The 183-day rule is a critical threshold; exceeding it can trigger residency status and subject you to Maryland’s tax system. This is especially relevant for individuals with work or family ties in the state that require extended stays.
Income Subject to Tax
Maryland residents are taxed on their worldwide income, including wages, dividends, interest, and other earnings, regardless of the source. For nonresidents, only income derived from Maryland sources is taxable. This includes wages from Maryland employment, rental income from Maryland properties, and business income generated in the state.
For example, if you work in Maryland but live elsewhere, your wages from that employment are taxable by the state. Similarly, rental income from Maryland properties or profits from Maryland-based business operations are subject to taxation. Accurately reporting these earnings on your Maryland tax return is essential to avoid discrepancies or audits.
Reciprocal Agreements
Reciprocal agreements simplify tax obligations for individuals who work in Maryland but live in neighboring states. These agreements allow residents of certain states to pay income taxes only in their state of residence. Maryland has reciprocal tax agreements with Pennsylvania, Virginia, West Virginia, and the District of Columbia.
Employees residing in reciprocal states can submit a non-residency certificate, such as Maryland Form MW507, to their employer. This form ensures the employer withholds income tax for the employee’s state of residence instead of Maryland.
Employers must understand these agreements to comply with withholding requirements. Failure to follow the correct protocols can result in penalties and interest charges. Regular consultation with the Maryland Comptroller’s office or equivalent authorities in neighboring states helps ensure compliance with any updates to reciprocal agreements.
Withholding Obligations
Employers operating in Maryland are required to withhold state income tax from employee wages if the income is subject to Maryland tax. This applies to both resident and nonresident employees.
Employers must register for a withholding account with the Comptroller of Maryland and determine the correct tax amounts using the Maryland Employer Withholding Guide. Staying updated on changes to tax rates or withholding tables is essential for accurate payroll calculations.
Nonresident Filing
Nonresidents earning income from Maryland sources must file Form 505, the Nonresident Income Tax Return, to report and pay taxes on Maryland-based income. This includes wages from Maryland employers, rental income from Maryland properties, or profits from businesses operating in the state. Nonresidents must also complete Form 505NR, the Nonresident Income Tax Calculation, to determine the tax owed.
Nonresidents are taxed only on Maryland-sourced income, not their total income. Maryland’s tax rates for nonresidents range from 2% to 5.75% based on income brackets, plus a special nonresident tax of 1.75%.
Filing deadlines align with federal tax deadlines, typically April 15, unless an extension is granted. Supporting documents, such as W-2s or 1099s, must accompany the return to substantiate Maryland-sourced income. Failure to file or accurately report income can lead to penalties, interest, or audits. Nonresidents may also qualify for tax credits in their state of residence to offset taxes paid to Maryland.
Potential Penalties for Nonpayment
Failing to meet Maryland tax obligations can result in significant penalties and interest. The state imposes a 10% penalty on unpaid taxes, and interest accrues at an annual rate of 11%, calculated daily. These charges are outlined in the Maryland Tax-General Article Sections 13-602 and 13-604.
The Maryland Comptroller’s office may enforce collection actions, including wage garnishments, property liens, and bank account seizures, to recover unpaid taxes. Repeated noncompliance or intentional tax evasion can lead to criminal charges, including fines or imprisonment, under Maryland Tax-General Article Section 13-703.
To avoid these consequences, taxpayers should maintain accurate records of Maryland-sourced income, ensure proper withholding, and file returns on time. For those unable to pay in full, Maryland offers payment plans through the Comptroller’s office. Consulting a tax professional can help individuals and businesses navigate complex tax scenarios.