Two Income Marriage Deduction in Maryland: Eligibility and Filing Steps

Understanding the nuances of tax deductions is critical for maximizing savings, especially in a two-income household. Maryland offers a specific deduction aimed at reducing the tax burden on married couples who both earn income. This deduction is a key consideration for taxpayers seeking to optimize financial planning and avoid overpaying taxes.

Eligibility Criteria

To qualify for Maryland’s two-income marriage deduction, both spouses must have taxable income, targeting dual-income households. The deduction is calculated based on the lesser-earning spouse’s income, reflecting the state’s intent to balance the tax burden between partners.

This deduction is exclusively available to couples who file jointly, as Maryland aims to encourage joint financial responsibility. Filing jointly often results in a lower tax bracket and allows couples to maximize deductions and credits. The benefit is phased out for couples with a combined adjusted gross income exceeding $150,000 and is entirely eliminated at $200,000 for the 2024 tax year, focusing the relief on middle-income families.

Filing Status Requirements

To claim the two-income marriage deduction, couples must file a joint tax return. Joint filing often reduces overall tax liability, particularly for couples with significant income disparities, as it allows for income averaging. The deduction is calculated based on the income of the lesser-earning spouse, further helping to reduce taxable income for dual-income households.

Calculating the Deduction

The deduction is determined using the adjusted gross income (AGI) of both spouses, with the focus on the income of the lesser-earning partner. For accurate calculation, taxpayers must first establish each spouse’s AGI. Maryland provides worksheets in its tax instructions to guide taxpayers through the process, ensuring the deduction is correctly computed.

Non-Eligible Components

Certain types of income and scenarios are excluded from Maryland’s two-income marriage deduction. Income not subject to Maryland state tax, such as specific federal bond interest, is ineligible. Similarly, income from non-resident spouses, unless properly allocated to Maryland, and income from partnerships or S corporations that elect to be taxed at the entity level are excluded. Additionally, income exempted under Maryland law, such as certain retirement income exemptions, cannot be factored into the deduction.

Required Documents and Submission Steps

To claim the deduction, taxpayers must gather key documentation, including W-2 and 1099 forms for both spouses, and any records related to adjustments to income, such as contributions to health savings accounts (HSAs) or deductible IRA contributions. Retaining a copy of the prior year’s Maryland state tax return is also important for referencing carryover adjustments or discrepancies. If either spouse earns income from out of state, relevant supporting documents, such as allocation schedules or non-resident tax returns, may be required.

Taxpayers should use Maryland’s Form 502 and follow the instructions provided. The deduction is calculated using a worksheet included in the form instructions. While the worksheet itself is not submitted, the final deduction amount should be entered directly on the tax return. For those filing electronically, Maryland’s eFile system incorporates the deduction calculation. Taxpayers should carefully review their entries, particularly when using third-party tax software, to ensure accuracy.