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% for tax year 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 7.5% (1.75% 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.