2025 Maryland Tax Law Changes: What You Need to Know

The Maryland General Assembly passed a sweeping package of tax changes during the 2025 legislative session, impacting individuals and businesses across the state. These changes aim to address a projected budget shortfall of over $3 billion and will take effect as early as July 1, 2025. Below is a summary of the key tax updates and how they may affect you or your business.

Expansion of Sales Tax on Data and IT Services

Effective July 1, 2025, Maryland will impose a new 3% sales tax on information technology and data services, defined by certain NAICS codes, including:

• Data processing and hosting (NAICS Code 518)
• Information services (NAICS Code 519)
• Computer systems design (NAICS Code 5415)
• Software publishing (NAICS Code 5132)

There are certain exceptions, such as qualified cybersecurity businesses. Additional guidance is expected from the Comptroller of Maryland soon on these changes.

Personal Income Tax Changes

Currently, the maximum marginal individual state income tax rate in the state of Maryland is 5.75%. For tax years beginning after December 31, 2024, the following individual income tax changes will take effect:

Capital Gains Surcharge

• A new 2% surcharge on capital gains for filers with incomes exceeding $350,000

New High-Income Tax Brackets

• 6.25% on taxable income over $500,000 ($600,000 for joint filers)
• 6.50% on income over $1,000,000 ($1,200,000 for joint filers)

Itemized Deduction Cap

For filers with federal Adjusted Gross Income (AGI) over $200,000, Maryland itemized deductions will be reduced using the following phase-out formula:

Phase-out amount = 7.5% × (AGI − $200,000) 

Example:

If you claimed $60,000 in deductions, your new limit is 30,000.  

Excise Tax and Fee Increases

The following excise tax and fee increases go into effect on July 1, 2025:

• Vehicle excise tax: Increased from 6% to 6.5%
• Rental vehicle tax: New 3.5% tax
• Cannabis sales tax: Increased from 9% to 12%
• Sports betting tax: Increased from 15% to 20%
• New tire fee: $1 per tire
• Vehicle emissions inspection fee: Increased from $14 to $30
• Sales tax expansion: The 6% sales tax is extended to include vending machine sales

We will continue to monitor these changes and the additional guidance expected soon from the Maryland Comptroller’s Office. If you have any questions, please feel free to reach out to us.