Does income from another state contribute to Maryland minimum filing requirement?

Question

Am I required to pay taxes/file a tax return in Maryland if my Maryland income tax is below the federal standard deduction, but my total income tax for the year is above that level? For example, let's say I've made a total of $20,000 in 2022 and $10,000 was while I was a resident of another state and $10,000 was while I was a Maryland resident. The relevant guidance seems to be here, which reads:

Generally, you are required to file a Maryland income tax return if:

• You are or were a Maryland resident;
• You are required to file a federal income tax return; and
• Your Maryland gross income equals or exceeds the level listed below for your filing status. The filing levels also apply to nonresident taxpayers who are required to file a Maryland return.

The "level listed below" is the federal standard deduction. Therefore, if I've made only $10,000 in Maryland gross income, I have not met the third bullet point and do not have to pay Maryland income tax it seems to me. Or am I reading this incorrectly?

Answer 1

The "level listed below" is the federal standard deduction. Therefore, if I've made only $10,000 in Maryland gross income, I have not met the third bullet point and do not have to pay Maryland income tax it seems to me. Or am I reading this incorrectly?

That dollar limit is for people who were a Maryland resident for all 12 months. If it worked the way you propose, then you could make 12 times as much without having to file state income taxes if you moved to a new state each month.

Note: you didn't identify the other state. It is possible if your job and residence aren't in the same state you may have to file in multiple states.

Also if there were any taxes withheld and sent to Maryland, you will need to file to get a refund.

According to the state of Maryland:

If you are not itemizing deductions, you must use the standard deduction. The standard deduction must be prorated using the Maryland income factor. Calculate the standard deduction using a worksheet in Instruction 16. Prorate the standard deduction using the following formula:

  STANDARD DEDUCTION X MARYLAND INCOME FACTOR = PRORATED STANDARD DEDUCTION

Enter the prorated amount on line 17 of Form 502 and check the STANDARD DEDUCTION METHOD box.

Answer 2

After reading through the relevant form, Form 502: Resident Income Tax Form, and associated instructions, I have determined the answer to my question. I am posting it here for clarity.

Using the values provided in my example, I do have to file a Maryland tax return and I do owe Maryland income taxes. My original assessment was based on two misunderstandings which I correct here:

1. The requirement to file a Maryland tax return is separate from the requirement to pay income taxes. You can have a non-zero tax liability, but not have to file a return provided a sufficient amount was withheld from your paychecks and you do not want to receive a refund of excess withholdings.
2. The quantity that determines the requirement to file is the "Maryland gross income", which includes federal gross income and additions to Maryland income, but not subtractions from Maryland income. This is distinct from the "Maryland adjusted gross income", which does include the subtractions and would reflect the fact that some income was earned while not a Maryland resident. As far as I can tell this is the distinction between lines 7 and 16 of Form 502.

Below is a simplified calculation of the taxable net income (for Maryland income tax purposes) using the the values provided in my example. The calculation assumes single filing status and election of standard deduction.

 Federal Adjusted Gross Income (Form 502, Line  1): $20,000
         Maryland Gross Income (Form 502, Line  7): $20,000
           Non-Resident Income (Form 502, Line 12): $10,000
Maryland Adjusted Gross Income (Form 502, Line 16): $10,000
            Maryland Income Factor (For Proration): 0.5
 (Prorated) Standard Deduction (Form 502, Line 17): $   775
          (Prorated) Exemption (Form 502, Line 19): $ 1,600
            Taxable Net Income (Form 502, Line 20): $ 7,625

Note: This is all based upon the 2021 tax year for which complete information was available.