State, Local Tax Effects – Conduit Street


This week, Governor Larry Hogan announced sweeping tax cut proposals for retirees, low-income earners and businesses. According to the governor, the “largest tax relief package in state history” will provide $4.6 billion in tax relief to Maryland residents and businesses.

While details of the proposals are not yet available, here Conduit Street references official state budget documents and analyzes in an attempt to quantify state and local tax impact for three important elements of the state’s tax relief program. governor.

100% elimination of taxes on state pensions

The Retirement Tax Reduction Act would eliminate 100% of state retirement taxes. Although the text of the bill is not available, the governor’s proposal would expand the existing pension exclusion by exempting 100% of retirement income, spread over multiple tax years, beginning in the tax year 2022, according to a press release.

Current law

The current law provides for a pension exclusion (in the form of an opt-out modification) for those age 65 and over. Under this subtraction amendment, up to a specified maximum amount of taxable pension income ($34,300 for 2021) may be exempt from tax. The maximum allowable exclusion is indexed to the maximum annual benefit payable under the Social Security Act and reduced by any social security payments received (social security compensation).

State/local tax impact

For context, HB 166 (2021) proposed exempting 100% of qualifying pension income, spread over three tax years, and allowing additional plans or sources of retirement income to qualify for the modification of the subtraction.

From the Department of Legislative Services tax memo for HB 166 (2021):

Permanently expanding and increasing the value of the Maryland Working Income Tax Credit

The Working Marylanders Tax Relief Act would make permanent the Enhanced Working Income Tax Credit (EITC) in the RELIEF Act of 2021, which temporarily increased the refundable EITC to 100% for workers without eligible children and to 45% for other workers. The EITC refunds tax money to low-income earners.

Current law

For the 2020 through 2022 tax years, the refund value for qualified individuals increases from 28% to 45% of the federal earned income tax credit, less any state income tax before the credit. The value of the credit increases to 100% of the federal credit for eligible individuals without children, subject to a maximum of $530.

State tax impact

For context, according to the Department of Legislative Services, the temporary increase and expansion in the value of the state’s EITC will reduce state general fund revenue by $160.4 million over the course of fiscal 2022 and $162.3 million in fiscal 2023.

Nixing Business Filing Fees

The Governor will propose legislation to eliminate filing fees for companies that submit their annual report online with the Maryland State Department of Assessments and Taxation (SDAT), including the $300 annual filing fee. $ for corporations, LLCs and other legal entities (and $100 for family farms).

Current law

Under current legislation, business application fees are paid into the general state fund.

State tax impact

For context, according to the Maryland Board of Revenue Estimates, the state’s general fund forecast for fiscal year 2022 includes $103 million in business filing fee revenue.

Learn more about Governor Hogan’s tax relief proposals.

Image of the state budget

As previously reported on Conduit Street, the Board of Revenue Estimates voted last month to raise revenue projections for fiscal year 2022 to $21.6 billion, representing a $495 million increase from estimates. of September. Additionally, the Council has adjusted the official revenue forecast for fiscal year 2023 upward from $543 million to $22.8 billion.

This latest revision follows the Board’s actions in September, writing out fiscal year 2022 revenue of $995 million and forecasting an additional $1.37 billion in fiscal year 2023 revenue. This came days after Maryland closed the books for fiscal 2021 with a general fund balance of $2.5 billion.

In total, state budget writers and policymakers have about $6 billion in unanticipated revenue at their disposal as they craft the state budget for fiscal year 2023.

Expenditure Affordability Committee Recommendations

Maryland’s Expenditure Affordability Committee approved several recommendations to help guide the state’s budget decisions in the coming months, including increasing the state’s Rainy Day Fund to 9% of revenue, reimbursing unfunded debt and prioritizing one-time construction costs.

After assuming a 5% balance in the Rainy Day Fund, estimated cash balances will total $4.3 billion at the end of fiscal 2022.

Recognizing that the fund balance is one-time in nature, the committee recommends against making ongoing investments with excess cash. Instead, ongoing needs can be met within the large structural surplus projected for fiscal year 2023 and beyond.

Recommendations include addressing long-standing deferred maintenance and facility renewal needs at Department of General Services (DGS)-operated facilities and state parks and allocating $200 million four-year public higher education institutions and regional higher education centers for deferred maintenance and facilities. renewal.

In addition, the committee recommends investing in pay-as-you-go capital (PAYGO) to fund past commitments and achieve one-time goals such as improving cybersecurity and accelerating the replacement of outdated IT systems.

Stay tuned to Conduit Street for more information.

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