How to Pay Estimated Taxes in Maryland

These payments help taxpayers avoid a large bill at the end of the year and potential penalties. Maryland follows federal guidelines but has its own rules and deadlines.

Who Must Pay

Maryland requires estimated tax payments from individuals who expect to owe at least $500 in state income tax after subtracting withholding and credits. This includes independent contractors, business owners, landlords, and investors with income not subject to automatic withholding. Retirees relying on pensions, Social Security, or investment income may also need to make payments if they meet the threshold.

Nonresidents earning income from Maryland sources must comply as well, including those working in Maryland but living elsewhere and individuals receiving rental income from Maryland properties. The state ensures income generated within its borders is taxed, regardless of residency.

Corporate shareholders and partners in pass-through entities, such as S corporations and partnerships, may also be responsible for estimated tax payments if their share of the business’s income is not subject to withholding. Some entities withhold taxes on behalf of their members, but when they do not, the responsibility falls on the individual taxpayer.

Figuring Payment Amount

Maryland estimated tax payments are based on expected taxable income, deductions, and credits. Taxpayers can use their prior year’s tax liability as a baseline or estimate current-year income. A common method is paying at least 110% of the previous year’s Maryland tax liability if adjusted gross income exceeded $150,000 ($75,000 for married individuals filing separately). This meets safe harbor rules and minimizes underpayment penalties.

For those with fluctuating earnings, estimating based on projected income may be more accurate. This involves calculating taxable income, applying Maryland’s graduated tax rates, and factoring in deductions and credits. Maryland’s 2024 state income tax rates range from 2% on the first $1,000 of taxable income to 5.75% on income over $250,000 for single filers ($300,000 for joint filers). Additionally, local income taxes, which vary by county from 2.25% to 3.20%, must be included. These local taxes significantly impact total liability.

Self-employed individuals and business owners should also consider federal self-employment tax obligations, as they affect adjusted gross income and, in turn, state tax liability. Significant deductions, such as business expenses or retirement contributions, can lower taxable income and reduce estimated payments.

Payment Deadlines

Maryland requires estimated tax payments in four equal installments throughout the year, aligning with IRS deadlines. For tax year 2024, payments are due on April 15, June 17, September 16, and January 15 of the following year. If a due date falls on a weekend or holiday, the deadline moves to the next business day. Missing a payment can result in interest charges.

Unlike federal estimated taxes, which allow for annualized income installment methods, Maryland generally expects taxpayers to divide their estimated liability evenly across the four due dates. This can be challenging for those with irregular earnings, such as real estate agents or contractors who experience income spikes in certain months. If income is concentrated later in the year, taxpayers may need to adjust payments by filing Maryland Form 502UP to avoid penalties for underpayment in earlier quarters.

Payment Methods

Maryland offers multiple ways to submit estimated tax payments. The state’s preferred method is electronic payment through the Maryland Taxpayer Services website, which allows for direct debit transactions. This system enables taxpayers to schedule payments in advance and provides immediate confirmation receipts.

For those who prefer traditional methods, Maryland accepts payments by check or money order, which must be accompanied by Form 502D, the state’s estimated tax payment voucher. Payments should be mailed to the Comptroller of Maryland’s Revenue Administration Division at the address specified on the form. To avoid interest charges, taxpayers should ensure their payment is postmarked by the due date. Since mail processing times vary, sending payments well in advance is advisable.

Penalties for Late or Insufficient Payment

Failing to make estimated tax payments on time or underpaying can lead to penalties. Maryland imposes interest on unpaid amounts, calculated at an annual rate that is adjusted periodically. For 2024, the interest rate on overdue tax payments is 10%, compounded monthly. Even a small underpayment can grow significantly over time if left unresolved.

Taxpayers who fail to pay at least 90% of their current-year tax liability or 110% of the prior year’s tax (if applicable) may face penalties. If payments are late, the state calculates the penalty based on the number of days overdue. Those who can demonstrate reasonable cause for underpayment, such as a sudden loss of income or unexpected financial hardship, may request a waiver by submitting a written explanation to the Comptroller’s Office. Waivers are granted on a case-by-case basis and require sufficient documentation.

Adjusting Payment for Income Changes

Income fluctuations throughout the year can make it difficult to estimate tax liability accurately, requiring adjustments to avoid penalties or overpayments. Maryland allows taxpayers to modify their estimated payments if their earnings increase or decrease significantly. This flexibility is particularly useful for freelancers, commission-based workers, and business owners whose revenue depends on seasonal trends.

To adjust payments, taxpayers can recalculate their estimated liability using updated income figures and submit revised amounts for the remaining quarters. If income decreases, reducing future payments prevents overpaying. If earnings rise, increasing payments ensures compliance and avoids interest charges. Maryland does not require a formal amendment process for estimated taxes, so taxpayers can simply adjust their next installment accordingly. Keeping detailed records of income changes and payment calculations is advisable in case of an audit or dispute.