Certain businesses that create new qualified positions in Maryland before January 1, 2020 may be eligible for tax credits based on the number of qualified positions created or wages paid for these positions.
The credit may be taken against corporate income tax, personal income tax, insurance premium tax or public service company franchise tax. The same credit may not, however, be applied to more than one tax type. Sole proprietorships, corporations and pass-through entities, such as partnerships, subchapter S corporations, limited liability companies and business trusts may claim the tax credit.
The income tax credit is not refundable and is applied only against the Maryland State income tax.
To qualify for the credit:
The business facility must be certified as having created at least 60 qualified positions, 30 high-paying qualified positions, or 25 qualified positions if the business facility established or expanded is in a Maryland Priority Funding Area.
A qualified position is a full-time position which pays at least 150% of the federal minimum wage, is located in Maryland, is newly created as a result of the establishment or expansion of a business facility in a single location in the state and is filled.
Qualified business entities are those that are certified as such by the Maryland Department of Business and Economic Development. A qualified employee is an employee filling a qualified position.
Before filling these new positions, the company must notify the Department of Business and Economic Development to seek certification.
How the credit is calculated:
The credit allowed depends on where in Maryland the facility is located:
- If the facility is located in a revitalization area, as defined in the statute, the credit is the lesser of $1,500 multiplied by the number of employees hired to fill the new positions, or 5% of the wages paid to those employees.
- If the facility is not located in a revitalization area, the credit is reduced to the lesser of $1,000 multiplied by the number of employees hired to fill the new positions, or 2.5% of the wages paid to those employees.
Half of the allowable credit is claimed in the first year and the remaining half in the following taxable year. The total credit earned by any one company may not exceed $1 million for any credit year. If the credit is more than the State portion of the income tax liability, the unused credit may be carried forward for the next five (5) tax years, or until it is fully used, whichever comes first.
If, at any time during the three tax years after the year the credit was earned, the average number of qualified positions falls more than 5% below the average number of qualified positions during the year in which the credit was earned, a portion of the credit will be recaptured for the tax year in which this occurs.
The amount to be recaptured is the amount originally claimed as a tax credit multiplied by the percentage reduction in the number of qualified employees. The income tax credit to be recaptured is reported on the line specified for recaptures in the Business Tax Credit Summary of Form 500CR.
For taxable years beginning after December 31, 2012, the income tax credit is available only with an electronically-filed return. A copy of the certification issued by DBED must be included with the electronic return, and the Form 500CR section of the return must be completed.
Insurance premium tax:
Documentation of the credit shall be maintained by the taxpayer in their files and be made available to the Insurance Commissioner, on request, in accordance with COMAR 31.06.04.03. The documentation should include documents from the agency granting the credit and a list of the names and telephone numbers for the taxpayer's staff who are directly involved in granting the credits. All information shall be retained for a minimum of three years from the date of the filing of the final tax return on which the credit is taken.
Public service company franchise tax:
Form AT3-74 must be submitted with the franchise tax return (SDAT forms 11 or 11T).
Maryland Department of Business and Economic Development
Office of Finance Programs, Tax Incentives Group
401 E. Pratt Street
Baltimore, MD 21202
Phone: 410-767-6438 or 410-767-4980