Does Maryland Tax Interest Income?
Interest income is a common source of additional revenue for many individuals and investors. However, it is essential to understand how different states tax this type of income. In this article, we will focus on whether Maryland taxes interest income and how it is treated under state tax laws.
Maryland does tax interest income, but the way it is taxed may vary depending on the source of the income. According to the Maryland Comptroller of Maryland, the state levies a tax on interest income derived from various sources, including savings accounts, certificates of deposit (CDs), and bonds. The tax rate on interest income is 5.75%, which is the same as the state’s general sales tax rate.
For individuals, interest income is included in their Maryland taxable income. This means that when filing their state tax returns, Maryland residents must report all interest income they received during the tax year. The income is then subject to the 5.75% tax rate, and the amount owed can be calculated by multiplying the total interest income by the tax rate.
It is important to note that the federal government also taxes interest income, and residents of Maryland must pay both federal and state taxes on this type of income. However, there are some exceptions to the general rule of taxing interest income. For example, interest earned on municipal bonds issued by the state of Maryland or any of its political subdivisions is exempt from state income tax.
In addition to the standard 5.75% tax rate, Maryland also imposes a tax on interest income derived from certain types of savings accounts, such as money market accounts and savings and checking accounts. This tax is known as the “Interest Income Tax” and is calculated at a rate of 8.25% for these accounts. The interest income tax is in addition to the standard 5.75% tax rate, so the total tax rate on interest income from these accounts can be as high as 13%.
To summarize, Maryland does tax interest income, and residents must report and pay taxes on this type of income when filing their state tax returns. The tax rate is 5.75% for most interest income sources, but it can be higher for certain types of savings accounts. It is crucial for Maryland residents to understand the tax implications of their interest income and to consult with a tax professional if they have any questions or concerns regarding their state tax obligations.
