Maryland vs. Pennsylvania Taxes: A Comparative Analysis

Maryland and Pennsylvania, while geographic neighbors, possess distinctly different tax systems that create varied financial landscapes for their residents. The approach each state takes toward taxing income, property, and transactions can lead to different outcomes for individuals and families. Understanding these nuances is important for anyone living, working, or considering a move across the state line. This guide serves to illuminate the key tax differences and how each state’s policies may affect personal finances.

Comparing Income Taxes

Maryland’s income tax structure is a graduated-rate system, where tax rates increase as income rises. State-level tax rates begin at 2% and climb through eight brackets, reaching 5.75% for income over $250,000 for single filers or $300,000 for those married filing jointly. A unique feature is the mandatory local income tax levied by all 23 counties and Baltimore City. These local taxes are calculated as a percentage of taxable income and paid in addition to the state tax, with rates generally ranging from 2.25% to 3.30%.

For example, an individual with a taxable income of $85,000 living in a county with a 3.20% tax rate would first calculate their state tax liability using the graduated brackets. They would then calculate their county tax by multiplying their income by the local rate ($85,000 x 0.032 = $2,720). The sum of the state and local amounts constitutes their total Maryland income tax burden.

In contrast, Pennsylvania employs a flat-rate income tax system. The state imposes a single rate of 3.07% on taxable income, regardless of the total amount earned, an approach that provides predictability. Most municipalities and school districts in Pennsylvania levy an Earned Income Tax (EIT) on wages and net profits, with rates commonly falling between 1% and 2%. Additionally, many localities impose a Local Services Tax (LST), a flat annual fee of typically $52, levied on individuals working within the jurisdiction.

Using the same $85,000 income example, a Pennsylvania resident in a 1.5% EIT jurisdiction would pay $2,609.50 in state tax ($85,000 x 0.0307) and $1,275 in local EIT ($85,000 x 0.015), plus the flat LST if applicable.

Contrasting Property Taxes

Property taxes in both Maryland and Pennsylvania are administered at the local level, so the financial impact on a homeowner is determined by their county, municipality, and school district. Both states rely on these taxes to fund local services, but their calculation methods are different, making direct rate comparisons misleading without understanding the underlying assessments.

Maryland’s system assesses property at 100% of its full market value, with the State Department of Assessments and Taxation (SDAT) responsible for valuations. Local jurisdictions then set a tax rate, expressed as an amount per $100 of assessed value, to determine the annual tax bill. For instance, a tax rate of $1.10 per $100 of value on a home assessed at $400,000 would result in a $4,400 property tax bill. To protect homeowners from sharp increases in tax bills, Maryland offers the Homestead Tax Credit, which limits the annual increase in a property’s taxable assessment to 10% or less, shielding owners from the full impact of large valuation spikes.

Pennsylvania utilizes a system of millage rates to calculate property taxes. A “mill” is $1 of tax for every $1,000 of a property’s assessed value. Unlike Maryland, the assessed value in Pennsylvania is often a fraction of the property’s actual market value, determined by a county-specific “common level ratio.” Each taxing body—county, municipality, and school district—sets its own millage rate, and the total is applied to the assessed value. For example, a total millage rate of 30 mills on a property assessed at $150,000 would generate a tax bill of $4,500.

Sales and Use Tax Differences

Maryland and Pennsylvania both levy a statewide sales tax of 6%. In Maryland, this is a single, uniform rate, while Pennsylvania allows two localities to add their own tax: Allegheny County (for a 7% total) and Philadelphia (for an 8% total).

The most significant differences appear in what each state taxes, particularly clothing and food. Pennsylvania offers a broad sales tax exemption for most clothing, with exceptions for formal wear, athletic apparel, and fur products. Maryland generally taxes clothing sales but holds an annual tax-free week, typically in August, when qualifying apparel and footwear priced at $100 or less per item are exempt.

Both states exempt most unprepared food items and prescription drugs. However, Pennsylvania’s tax applies to a wider range of consumables, including soft drinks and ready-to-eat foods.

Inheritance and Estate Taxes

The transfer of wealth after death is treated very differently in Maryland and Pennsylvania. The distinction lies in the types of taxes each state imposes: an inheritance tax, paid by the person receiving the property, and an estate tax, paid by the deceased person’s estate before assets are distributed. Pennsylvania is one of a handful of states that imposes an inheritance tax but has no separate state estate tax. The tax rate a beneficiary pays is determined by their relationship to the decedent.

• Transfers to a surviving spouse or to a parent from a child aged 21 or younger are taxed at 0%.
• Direct descendants and other lineal heirs, such as children and grandchildren, pay a 4.5% tax on their inheritance.
• Siblings are taxed at a 12% rate.
• All other heirs, including nieces, nephews, and friends, pay the highest rate of 15%.

Maryland is the only state in the nation that levies both an inheritance tax and an estate tax. The Maryland estate tax applies to estates that exceed a $5 million exemption for 2025. If the net estate is valued above this threshold, a tax is imposed on the amount exceeding the exemption. Maryland also imposes an inheritance tax at a flat rate of 10%, but this tax has significant exemptions. It does not apply to assets passed to a spouse, children, grandchildren, parents, or siblings, so this dual system means a large estate left to a nephew in Maryland could be subject to both estate and inheritance taxes.

Tax Rules for Cross-Border Living and Working

For individuals who live in one state and work in the other, Maryland and Pennsylvania have a tax reciprocity agreement that simplifies income tax filing. This agreement prevents income from being taxed by both states. Under this arrangement, commuters pay state and local income taxes only to their state of residence, not their state of employment.

To prevent an employer from withholding taxes for the work state, the employee must submit a specific exemption certificate. A Pennsylvania resident who works in Maryland must give their employer Maryland’s Form MW507, the “Exemption from Withholding Certificate,” which instructs the employer not to withhold Maryland income taxes.

Conversely, a Maryland resident who commutes to a job in Pennsylvania needs to file Form REV-419, the “Employee’s Nonwithholding Application Certificate,” with their employer. This ensures the employer will not withhold Pennsylvania taxes and will instead withhold Maryland state and county income taxes as required.