Businesses that employ persons with disabilities, as determined by the Division of Rehabilitation Services (DORS) in the Maryland State Department of Education and/or by the Maryland Department of Labor, Licensing and Regulation (DLLR) , may be eligible for a tax credit for wages paid to, and for childcare expenses and for transportation expenses paid on behalf of qualified employees.
The credit may be taken against corporate income tax, personal income tax, state and local taxes withheld (for certain tax-exempt organizations only), insurance premiums tax or public service company franchise tax. The same credit may not, however, be applied to more than one tax type.
Sole proprietorships, corporations, tax-exempt nonprofit organizations and pass-through entities, such as partnerships, subchapter S corporations, limited liability companies and business trusts may claim the tax credit.
To qualify for the credit:
The company must hire an individual with a disability and obtain a determination from the Division of Rehabilitation Services (DORS) in the Maryland State Department of Education, or the Maryland Department of Labor, Licensing and Regulation (DLLR) for a disabled veteran, that the individual is a qualified employee with a disability.
A “Qualified Employee” with a disability means an individual who:
- Meets the definition of an individual with a disability as defined by the Americans with Disability Act;
- Has a disability that presently constitutes an impediment to obtaining or maintaining employment or to transitioning from school to work; and,
- Is ready for employment; or,
- Is a veteran who has been discharged or released from active duty by the American Armed Forces for a service-connected disability.
An employee must not have been hired to replace a laid-off employee or to replace an employee who is on strike or for whom the business simultaneously receives federal or state employment training benefits.
Qualifying child care expenses are those expenses incurred by a business to enable a qualified employee with a disability to be gainfully employed.
How the credit is calculated:
The credit is allowed for the first two years of employment of the disabled individual for both the wages paid and the child care or transportation expenses paid on behalf of the employee as follows:
- Wages - 30% of the first $6,000 paid in the first year for a maximum allowable credit of $1,800
- Child care or transportation expenses - up to $600 of expenses paid in the first year.
- Wages - 20% of the first $6,000 of wages paid in the second year for a maximum allowable credit of $1,200.
- Child care or transportation expenses - up to $500 of expenses paid in the second year.
If the credit is more than the tax liability, the unused credit may be carried forward for up to five (5) tax years.
For tax years prior to 2012, the credit may not be claimed if the Maryland Employment Opportunity Tax Credit was claimed for the same employee.
A 501( c)(3) tax-exempt organization may estimate the amount of the tax credit for qualifying employees for the tax year. The total amount of the estimated credit should be divided evenly over the number of periods for filing withholding returns (Form MW506). For example, if quarterly returns are required, then the total estimated credit should be divided by four. Each payment to the Comptroller would be reduced by the pro rata amount of the credit.
Alternatively, the tax-exempt organization could apply the credit against the tax on unrelated business taxable income.
Add Back Provision:
Whenever this credit is claimed against the income tax, an addition modification must be made in the amount of the credit claimed.
For taxable years beginning after December 31, 2012, this credit is available only with an electronically-filed return. A copy of the determination from DORS or DLLR must be included with the electronic return, and the Form 500CR section of the return must be completed.
State and local income taxes withheld:
Form MW508CR must be submitted with Form MW508, the Maryland Annual Employer Withholding Reconciliation Report. A copy of the determination from DORS or DLLR must be included with the MW508CR. If the tax-exempt employer is required to file its MW508 electronically, then the employer should submit Form MW508CR and documentation with a paper Form MW508A after the electronic Form MW508 is transmitted.
Insurance premiums 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 State Department of Education
Division of Rehabilitation Services
2301 Argonne Drive
Baltimore, MD 21218
Phone: 1-888-554-0334 or 410-554-9442
Department of Labor, Licensing and Regulation
Division of Employment and Training
1100 N. Eutaw Street, Room 201
Baltimore, MD 21201