Employer Withholding

If the payor of an eligible rollover distribution made to a Maryland resident is required to have federal income tax withheld from that distribution, then Maryland income tax must be withheld from the distribution at a rate of 7.75 percent.

The withholding specifically applies to an eligible rollover distribution within the meaning of §3405(c) of the Internal Revenue Code, subject to mandatory withholding of federal income tax and received by a domiciliary or statutory resident of Maryland.

The 7.75 percent tax must be paid to the Comptroller of Maryland with Form MW506 (Employer's Return of Income Tax Withheld). If the payor of the distribution is not currently registered with the Comptroller and has not established a withholding account, the payor can register online. Payment may also be made online for free through the Maryland Tax Connect Portal.

For more information, see Administrative Release 41 - Withholding on Designated Distributions from Retirement Plans

House Bill 632 (Chapter 352, Acts of 2011), the Earned Income Credit Information Act, requires the Comptroller to publish the maximum eligibility for the State earned income tax credit (EITC) on or before January 1 of each calendar year. This Act also requires the Comptroller to notify all employers in Maryland by mail of the information on the State EITC. The employer then must notify each employee who may be eligible for the federal or State earned income tax credits electronically or in written form by December 31. The Act took effect on January 1, 2012. You may view and download the Tax Alert for this new requirement. You may also read the IRS notice.

Certain employees may be entitled to claim an earned income tax credit on their 2021 federal and Maryland income tax returns if both their federal adjusted gross income and their earned income is less than the following:

• $51,464 ($57,414 married filing jointly) with three or more qualifying children
• $47,915 ($53,865 married filing jointly) with two qualifying children
• $42,158 ($48,108 married filing jointly) with one qualifying child
• $21,430 ($27,380 married filing jointly) with no qualifying children

The notice to employees must include the following statements: (1) the employee may be eligible for the federal and State earned income tax credits; and (2) the employee may be eligible for the State earned income tax credit. We have created a sample employee notice for you to use, however, you may create your own as long as it includes the two statements above.

Taxable wages include all employee compensation, such as salaries, fees, bonuses, commissions, vacation allowances, back pay, and retroactive wage increases.

Wages paid in any form other than money are measured by their fair market value. These include lodging, meals, property, or other considerations for personal services.

Withholding is not required for:

• Domestic service in a private home.
• Services performed by a duly ordained, commissioned or licensed minister of a church or religious order in the exercise of duties.
• Nonresidents (if their income consists entirely of wages or other compensation for personal services performed in Maryland, and their state of residence has a reciprocal agreement with Maryland. All other nonresidents are subject to withholding.)

Military spouses

The wages earned by a spouse of a nonresident U.S. service member may be exempt from Maryland income tax under the Military Spouses Residency Relief Act, when the spouse of the service member is not a legal resident of Maryland. The income tax withholding exemption may be claimed by filing a revised Form MW507 and Form MW507M with their employer. For more information, see Employer Withholding Tax Alert - Important Information for Spouses of U.S. Military Servicemembers issued November 23, 2009.

Lottery and other gambling winnings in excess of $5,000 are subject to withholding at a rate of 8.75% for Maryland residents or 8% for nonresidents. Pari-mutuel (horse racing) winnings in excess of $5,000 and at least 300 times as large as the original wager are subject to the same withholding rates.

If you have an employee who expects to have less than $12,950 in income during 2022, you are not required to withhold Maryland state and local income tax. Students and other part-time workers affected by this situation may claim an exemption from withholding, using Maryland Form MW507, Employee's Maryland Withholding Exemption Certificate. You should keep the completed MW507 certificate with your records.

Many high school and college counselors have partially completed MW507 forms that eligible employees can use to claim the withholding exemption with their employer.

You are responsible for sending a copy of an MW507 certificate to the Compliance Division under the following circumstances:

• You have any reason to believe the certificate is incorrect.
• The employee claims more than 10 exemptions.
• The employee claims "exempt" as a result of having no tax liability for the preceding tax year, expects to incur no liability this year, and the wages are expected to exceed $200 a week (a new exemption certificate must be re-filed each year by the 15th day of February for employees whose income tax liability is determined on a calendar basis or by the 15th day of the second month following the last day of the employee's tax year).
• The employee claims exemptions from withholding on the basis of residence in a reciprocal state.

Mail completed forms to:

Comptroller of Maryland
Compliance Division, Compliance Programs Section
7 St. Paul Street
Baltimore, MD 21202

Nonresidents who work in Maryland or derive income from a Maryland source are subject to the appropriate Maryland income tax rate for their income level, as well as a special nonresident tax rate. The special nonresident tax rate has increased from 1.25% to 1.75% in 2016.

By law, the nonresident tax rate must equal the lowest local income tax rate paid by Maryland residents (currently 1.75%) combined with the top state tax rate.

Employers must withhold Maryland income tax for nonresidents using the 1.75% rate. See Withholding Tables for regular and percentage method withholding amounts.

Washington, D.C., Pennsylvania and Virginia residents

Residents of the District of Columbia, Pennsylvania and Virginia who did not maintain a place of abode in Maryland for more than six months (183 days or more), are exempt from withholding of Maryland tax on Maryland wages and salary by the authority of a reciprocity agreement between Maryland and these jurisdictions.

West Virginia residents

Wage and salary income for residents of West Virginia is not taxable to Maryland, regardless of the amount of time spent in Maryland, and they are exempt from withholding of Maryland tax on Maryland wages and salary by the authority of a reciprocity agreement between Maryland and West Virginia.

Local tax for certain nonresidents

The local income tax is imposed on nonresidents employed in Maryland, who reside in local jurisdictions that impose a local income or earnings tax on Maryland residents.

During 2012, the following states had local jurisdictions which impose local earnings taxes on Maryland residents: Alabama, Delaware, Indiana, Iowa, Kentucky, Michigan, Missouri, New York, and Ohio.

Both state and local income tax withholding is required on wages of residents of local jurisdictions in the states above which impose an income or earnings tax of Maryland residents, if they work in Maryland. Since Maryland shares a state tax reciprocity agreement with Pennsylvania, only the local tax should be withheld for Pennsylvania residents working in Maryland and living in a jurisdiction that taxes Maryland residents. The local tax is computed at the rate of the local Maryland jurisdiction where the taxpayer is employed.

Nonresident tax on sale of Maryland property

A nonresident tax on the sale of Maryland property is withheld at the rate of 8% (2.25% plus the top state tax rate of 5.75%) for individuals and 8.25% on nonresident entities. For more information, see Withholding Requirements for Sales of Real Property by Nonresidents.

Nonresident pass-through entity tax rate

The tax rate for pass-through entities is 7.5% on nonresident individual members (including nonresident fiduciary members) and 8.25% on nonresident entity members. For more information, see Pass-Through Entities.

You are not required by law to withhold Maryland income taxes from the wages paid to a domestic employee in a private residence. However, you may do so as a courtesy to the employee.

If you wish, you can register your withholding account online and use the Maryland Tax Connect Portal to file your withholding returns electronically for free.

You can also refer to our Employer Withholding Guide or Withholding Tables to determine the correct amount of state and local income tax that must be withheld from employee wages. The total income tax required to be withheld on wages for the purposes of the withholding tables is calculated without regard to the marginal state income tax rates of less than 4.75 percent. The local income tax, which is calculated as a percentage of taxable income, is included in the amount shown in the withholding tables.

If taxes are not withheld, then the employee will need to make estimated tax payments.

If you are a nonresident who owns and is selling or transferring real property and associated tangible personal property in Maryland, you must make a tax withholding payment to the local Clerk of the Circuit Court or the State Department of Assessments and Taxation (SDAT). The payment must be made before the deed or other instrument of transfer is recorded with the court clerk or filed with SDAT.

Generally, the person responsible for your closing, a title company for example, is responsible for ensuring that sufficient funds are withheld at settlement and for paying the amount of withholding tax due to the Clerk or SDAT when the deed or other instrument of transfer is presented for recordation.

In the case of a nonresident individual, the payment is 8% of the total property sale payment made to the individual. A nonresident entity must make an 8.25% payment. See Withholding Requirements for Sales of Real Property by Nonresidents.

Under this provision, a nonresident entity is an entity that is:

• not formed under the laws of Maryland more than 90 days before the date of the sale of the property, and
• not qualified by or registered with SDAT to do business in Maryland more than 90 days before the date of the sale of the property.

In the case of multiple owners, withholding is required from each of the nonresident owners based on the percentage of the total payment that represents each nonresident's ownership percentage.

At settlement, you must complete Form MW506NRS - Return of Income Tax Withholding for Nonresident Sale of Real Property. The settlement agent must then present Copies A and B of Form MW506NRS to the clerk or SDAT, along with payment.

In addition to filing Form MW506NRS with a tax withholding payment, you are still required to file an end-of-the-year income tax return with Maryland for the year in which the sale occurred.

The due dates for income tax withholding reports vary for employers filing monthly, quarterly, accelerated and annual reports. If the due date falls on a Saturday, Sunday or state holiday, the report is due on the next business day.

Monthly reports

Monthly income tax withholding reports are due on the 15th day of the month following the month in which the income tax was withheld.

If you are required to file monthly withholding reports you must continue to file reports until you give written notice to the Comptroller of Maryland indicating that you no longer have employees or are no longer liable to file the return.

Quarterly reports

Quarterly income tax withholding returns are due on the 15th day of the month that follows a calendar quarter in which income tax was withheld.

If you are required to file quarterly, you must continue to file reports until you give written notice to the Comptroller of Maryland indicating that you no longer have employees or are no longer liable to file the return.

Accelerated reports

Employers filing accelerated withholding reports must file within three business days following the payroll (pay date).

The accelerated filing category applies to employers who withheld $15,000 or more for the preceding calendar year and currently have accumulated in any pay period $700 or more in withholding tax.

Annual reports

Employers filing annual reports must file on or before January 31 in the year that follows the year in which the income tax was withheld.

No tax due

If you do not owe tax, you are still required to file a return. In this case, you can file a zero report electronically by using the Maryland Tax Connect Portal, or over the telephone by calling 410-260-7225.

Generally, all new accounts are placed on a quarterly filing frequency. However, when completing our Central Registration Application electronically, you can choose a quarterly or monthly filing frequency. All accounts are reviewed once a year to determine if a filing category needs to be changed.

Businesses must file withholding reports according to the following categories:

• Accelerated: Employers who were required to withhold $15,000 or more for the preceding calendar year and also have accumulated $700 of withholding tax, in any pay period.
• Quarterly: Employers with less than $700 of withholding per quarter.
• Monthly: Employers with more than $700 of withholding in any one quarter.
• Seasonally: Employers who operate only during certain months. Employers must obtain prior approval to file seasonally.
• Annually: Employers with less than $250 withholding per calendar year are required to remit the tax withheld on an annual basis.

Employers must submit their required annual withholding statements in machine readable or electronic format if the total number of required statements equals or exceeds 25. The electronic format is also required if a lower threshold applies for federal income tax purposes.

We urge all employers to file electronically since it saves time and processing costs. However, filing electronically with the U.S. Social Security Administration does not satisfy your Maryland filing obligation. You must submit a separate filing to the Comptroller of Maryland in compliance with Maryland's filing requirements, on diskette, CD or online through the Maryland Tax Connect Portal.

Year End Reconciliation Booklet and Forms

• 2023 Maryland Employer Instructions and Specifications for Reporting W-2s
• 2023 Maryland Employer Instructions and Specifications for Reporting 1099s
• 2023 Social Security Administration Publication No.42-007 EFW2
• 2023 Form MW508, Annual Year End Reconciliation for wage data filed with a paper return

Common Errors to Avoid

Avoid making the following errors when filing your magnetic media:

• Failure to include RA record results in improper reading of file.
• Failure to modify RS Record to include the Federal Employer Identification Number (FEIN) positions 328-336.
• Failure to include the RV containing the MW508 information.
• Failure to provide the 6 digit North American Industry Classification System (NAICS) in positions 333-337 of RV record. The NAICS is the standard used by federal statistical agencies in classifying business establishments for the purpose of collecting, analyzing, and publishing statistical data related to the U.S. business economy. If you do not know your NAICS code, please contact the census bureau or reference www.census.gov
• Using the FEIN instead of the Maryland Central Registration number.
• Using an incorrect format for the FEIN - nine positions, all numeric and no hyphen.
• Omitting the FEIN, or using an invalid FEIN.
• Incorrect record length. Record lengths must be 512 for W-2s and 750 for 1099s.
• Failure to modify "B" Record to include the Maryland Central Registration Number (CR) positions 715-722 for 1099s.

Filing Requirements for W-2 Wage Data

Employers must submit their required annual withholding statements in machine readable or electronic format if the total number of required statements equals or exceeds 25. The electronic format is also required if a lower threshold applies for federal income tax purposes.

We urge all employers to file electronically since it saves time and processing costs. However, filing electronically with the U.S. Social Security Administration does not satisfy your Maryland filing obligation. You must submit a separate filing to the Comptroller of Maryland in compliance with Maryland's filing requirements online through our bFile service. For detailed information, the following publications are available here:

• 2023 Maryland Employer Instructions and Specifications for Reporting W-2s
• Social Security Administration Publication No. 42-007 EFW2 Tax Year 2023

Employers who fail to comply may incur a penalty of $100 for each violation. Each W-2 submitted that is not properly filed is a separate violation subject to the $50 penalty. Failure to comply with Section 13-706 of the Tax General Article, Annotated code of Maryland, may result in the assessment of additional penalties.

The required records are:
RA-Submitter Record (Same as SSA)
RE-Employer Record (Modified)
RW- Employee Record (Same as SSA)
RS-State Record (Modified)
RV- Total Record (Modified)

The specification document link above will provide details related to this electronic W-2 file.

Filing Requirements for 1099 Reporting

Filers having 25 or more information returns must file magnetic media in the IRS format detailed in IRS Publication 1220.

If you are not able to file your W2s via bFile web application "W2 bulk upload" or by "key in of your data" for Tax Year 2020 and back, you may request approval to file via the Comptroller of Maryland secure server by either of two SFTP (Secure File Transfer Protocol) methods;

• W2/1099 Option A: Manually upload a text file to Comptroller of Maryland SFTP website
• W2/1099 Option B: SFTP automated server to server transmission in which an IP address will be required to be whitelisted with Comptroller, State of Maryland

You can email SecureTransmission@marylandtaxes.gov to request approval to obtain an SFTP Account info along with instructions for setup. Note: All electronic filing of 1099 data must be filed via SFTP. In the email, please provide the following:

• Point of Contact Email address
• Business Name
• Point of Contact Name
• Point of Contact Number
• Reason why you are not able to W2 Bulk Upload or Key in your W2/MW508 info
• Business choice of (SFTP) either W2 Option A or W2 Option B or both
• No more than two IP Addresses if choosing Option B

Specifications for Filing Forms 1098, 1099, 5498 and W-2G

Employers must submit their required annual withholding statements in machine readable or electronic format if the total number of required statements equals or exceeds 25 for the current tax year. The electronic format is also required if a lower threshold applies for federal income tax purposes.

Filers must file electronically via SFTP in the IRS format cited IRS Publication 1220 for filing forms 1098, 1099, 5498 and W-2G.

Maryland requires a 1099G, 1099R, 1099S and W-2G for every Maryland payee who receives a payment of $10 or more during the tax year being reported.

Filers participating in the Combined Fed/State filing program should remember to include the Central registration Number in positions 715-722 of the modified "B" record.

The required records are:
      T Transmitter Record (Same as IRS)
      A Payer Record (Same as IRS)
      B Payee Record (Modified, record description below)
      C End of Payer Record (Same as IRS)
      K Use for combined federal/state filing program (Same as IRS)
      F End of File Record (Same as IRS)

Failure to comply with the 1099 data reporting rules may result in a penalty of $50 for each violation, along with a $100 penalty or each 1099 that is not properly filed. Additional penalties may be assessed for failing to comply with Section 13-706 of the Tax-General Article, Annotated Code of Maryland.

Mailing Instructions

Reminders for the Current Tax Year

Electronic Filing Record Changes

There have been no changes to the MW508 EFW2 record layouts for TY2023. This year 5 record types are required: RA, RE, RW, RS, and RV. Please see the 2023 Maryland Employer Reporting of W-2s Instructions and Specifications Booklet for complete information. MW508 returns and W2s are due on January 31st of each year. If the due date falls on a Saturday, Sunday or a legal holiday, the statements must be filed by the next business day.

The 2023 Maryland record layout is the only acceptable format for both current and back year tax electronic filing submissions. PDF's, Diskettes, Excel spreadsheets, or CD's are not acceptable.

Electronic submissions should be reviewed for accuracy using the Bulk Upload Testing Application. Rejected submissions will render error codes which will be listed in the 2023 Maryland Employer Reporting of W-2s Instructions and Specifications Booklet.

2023 Maryland Employer Reporting of W-2s Instructions and Specifications Booklet - RS and RV record reminders

The RS (W-2) record must include the Employer Identification Number in positions 328-336 and the Maryland Central Registration Number in positions 338-345. Failure to include your Employer Identification Number and Maryland Central Registration Number will result in your data being rejected.

If you are expecting an overpayment, it must be reported in the 'RV' record. Please indicate as to whether you are a requesting a refund or want to apply it as a credit. Refunds will be approved based on the request in the 'RV' record.

Failure to include a date and time stamp in positions 497-512 of the 'RE', 'RS' and 'RV' records will result in the entire file being rejected.

The RV record is an electronic version of the paper form, MW508, Annual Employer Reconciliation Return. The RV record contains all the information from the MW508 and is a required record in the electronic file. Do not send the paper MW508 with your electronic filing submission as the RV record is considered the electronic version. Only send in a paper Form MW508 when the report is for all zeros.

Outsourced Payrolls

If you outsource your payroll, please provide the transmitter/submitter with the Federal Employer Identification Number (FEIN) and the Maryland Central Registration (CR) Number. You can find the account numbers in your pre-printed employer withholding tax returns coupon book and on the Form MW508.

Avoid duplicate filing

Do not report duplicate information. If you file returns electronically, do not file identical paper documents. This may result in erroneous balance due notices and/or penalty notices.

1099s and W2-G

For tax year 2020 and going forward, the IRS has removed reporting for nonemployee compensation from Form 1099-MISC, box 7 to Form 1099-NEC.

Combined Federal/State Filing Program

Although the Comptroller of Maryland is a participant in the IRS Combined Federal/State Filing Program, we are not able to process any 1099's that are submitted via this program.

If you are participating in the Combined Federal/State filing program, Maryland still requires you to submit your 1099 file via SFTP directly to Maryland.

The State of Maryland will follow federal guidelines. Please reference the 2023 Maryland Employer Reporting of 1099s Instruction and Specifications and IRS Publication 1220 for detailed information.