Payroll tax in Maryland: What employers need to know [Updated 2024]

Employers withhold payroll taxes from their employees’ paychecks and submit that amount to the government on their employees’ behalf. These taxes fund government programs, such as Medicare and Medicaid, social security, safety net programs, and defense programs. However, in addition to taxes paid to the federal government via the Internal Revenue Service (IRS), states have their own payroll tax requirements, adding complexity for employers.

For employers with workers in Maryland, understanding payroll taxes in the state is crucial. Maryland has a progressive tax system, which creates a more complex tax structure. This means that the more your employees earn, the higher taxes they’ll pay. As your business grows and you hire more Maryland employees, your employer tax contributions will increase, as will the amounts you need to withhold.

This guide will cover tax responsibilities, due dates, and submission methods related to Maryland’s payroll taxes so that you can navigate this landscape with confidence and ensure full legal compliance. Whether your employees are based in Baltimore, Annapolis, or elsewhere, read on to learn more about payroll taxes in the Old Line State. 

The 3 Maryland payroll taxes

In the state of Maryland, payroll taxes are administered by The Maryland Department of Labor, Licensing and Regulation. All Maryland employers paying any kind of wage, salary, or other compensation must withhold Maryland state tax from these payments. 

Employers are responsible for withholding and remitting income taxes, unemployment insurance taxes, and local jurisdiction taxes. The tax obligation begins as soon as you hire your first employee, and it's important to be compliant from day one.

Unemployment insurance tax

Unemployment insurance provides financial assistance to eligible workers seeking employment after losing jobs through no fault of their own. Maryland’s state unemployment insurance (UI) is administered as part of the US Department of Labor’s program under the Social Security Act. In addition to the Federal Unemployment Tax Act (FUTA) which employers must pay on the federal level, they must also pay State Unemployment Insurance (SUI or SUTA) tax. Employers must pay this tax, rather than it being withheld from employee pay.

As of 2024, Maryland’s unemployment insurance tax rates range from 0.3% to 7.5% with a wage base of $8,500 annually. New employers typically begin at 2.6%. Employers who have paid wages for at least two years get an experience rate, also known as an earned rate, which is assigned based on their employer’s benefits charges and taxable wages. The Department of Unemployment Insurance sends employers Experience Rate Notices at the start of each calendar year, letting them know their rate.

Employers may choose to be contributory or reimbursable, depending on their status:

• Contributory employers pay quarterly UI taxes based on their experience rate.
• Reimbursable employers, including nonprofits and government entities, can opt out of paying UI taxes by reimbursing the state dollar-for-dollar benefits charged against their accounts.

State income tax

Income tax gets withheld from employees’ paychecks to fund public goods and services. Both federal income tax (FICA) and state income tax must be withheld. The Maryland income tax rate ranges from 2% to 5.75% of taxable income, as determined by the employee's wages and filing status on their W-4 form.

Local income tax

Each of Maryland’s 23 counties, as well as the city of Baltimore, levy a local income tax, calculated as a percentage of taxable income. Rates are set by local officials, and taxes are paid based on where employees live, not where they work.

Here’s the breakdown of the local income tax rates per area:

Navigating payroll taxes can be stressful, especially in Maryland, which has a progressive tax structure as well as various local income taxes. Fortunately, Rippling’s payroll software simplifies the process. Rippling automatically calculates your taxes and submits your tax forms and payments on your behalf—in total compliance with all federal, Maryland state, and local taxes. In addition, Rippling’s PEO can register and maintain all of your state tax accounts, further automating the payroll tax process.

Payroll tax due dates in Maryland

Knowing when your payroll taxes are due is essential to avoid penalties and maintain a smooth operation. Unemployment insurance tax is due quarterly.

In Maryland, employers fall into five categories for when they must remit payroll withholding taxes, depending on the size of their payroll. Here's a breakdown:

• Accelerated: Employers who withheld $15,000 or more for the prior calendar year and have $700+ of accumulated withholdings are required to remit the withholding payment within three business days of payday. 
• Quarterly: Employers with less than $700 of withholdings per quarter remit withheld tax on a quarterly basis.
• Monthly: Employers with more than $700 of withholdings in any one-quarter remit withheld tax on a monthly basis.
• Seasonally: Employers who only operate during certain months can get approval to file seasonally.
• Annually: Employers with less than $250 of withholdings per calendar year remit withheld tax on an annual basis. 

Quarterly due dates:
Quarterly returns and withheld income tax are due on the last day of the next month after the end of the quarter. If that date is on a holiday or weekend, the due date is the next business day:

• First quarter (January-March): Due April 30
• Second quarter (April-June): Due July 31
• Third quarter (July-September): Due October 31
• Fourth quarter (October-December): Due January 31

Other payment due dates:
Accelerated payments are due within three business days of payday. Monthly payments are due on the 15th day of the month following the month in which the tax was withheld. Annual payments are due by the last day of January.

If employers fail to withhold or pay income tax, they could face penalties and their business license could be suspended or revoked by the Comptroller.

How to submit payroll taxes in Maryland

Now that we've covered the basics of Maryland payroll taxes and when they’re due, here’s how to actually submit them. First, employers must register with the state to get a unique tax ID number, which can be used when corresponding with the Maryland Department of Labor, Licensing and Regulation (DLLR). Registration can be done online or via mail. Employers must do this even if they don’t have any employees at the time.

Each year, employers must submit an Employer's Annual Income Tax Withholding Reconciliation Return (Form MW507). All returns, extension requests, amended returns, or wage reports must be filed online through Maryland Business Express (MBE), the Comptroller of Maryland, or the Maryland Revenue Administration Division. 

The Maryland Comptroller Online System

The Maryland Comptroller's office offers Maryland Taxes Online Services, a platform where employers can file their withholding tax returns and make payments electronically. This secure and convenient method streamlines the process and helps ensure accurate and timely submissions.

To get started, employers need to register with the Comptroller's office and obtain the necessary credentials for accessing the online system. Once registered, employers can easily calculate the appropriate taxes, fill out the required forms, and make payments electronically.

bFile
Employers can pay withholding taxes as well as other taxes—such as sales and use taxes—online via bFile. This free-to-use system allows employers to pay through direct debit payments, and payments can also be scheduled in advance.

Electronic funds transfer (EFT)
Employers can use Maryland’s EFT program to file tax reports and make electronic payments. Using this system requires filling out a Form EFT-1 to authorize the transfers.

Bill Pay Business Online

Employers can pay withholding taxes, as well as other taxes, through the Maryland Comptroller’s Bill Pay Business Online portal. This system accepts electronic funds from US banks and other financial institutions.

Check or money order

Employers can send checks or money orders payable to the Comptroller of Maryland inside envelopes included with their preprinted payment vouchers. Their Federal Employer Identification Number (FEIN) should be included on the check or money order. Cash is not accepted. Payments should be sent to:

Comptroller of Maryland

Remittance Processing Center

Annapolis, Maryland 21411-0002

Rippling’s full-service payroll software

Rippling’s payroll software offers an even easier option, with a service so powerful, it practically runs itself. Rippling automates all your compliance work, files your federal and California state and local payroll taxes, and makes payments on your behalf. Everything is done at the right time, with the right agencies.

FAQs about Maryland payroll taxes

Are there local tax laws in Maryland?

Yes, Maryland’s 23 counties and Baltimore City all impose a local income tax.

Can your tax returns be audited in Maryland?

Yes, according to Maryland income tax law, the Comptroller can independently audit Maryland income tax returns. In that case, individuals will receive an income tax notice from the Comptroller of Maryland. Businesses can also be audited based on information from tax returns. Audits may be performed because of certain information on tax filings or may be performed at random.

Are nonprofit organizations subject to payroll taxes in Maryland?

Yes, nonprofits are subject to payroll taxes in Maryland even if they are otherwise federally tax-exempt.

What is the Maryland Withholding Exemption Certificate?

The Maryland Withholding Exemption Certificate (Maryland Form MW507) is a form that determines how much income tax should be deducted from paychecks. Employees fill out the form with their name, social security number, address (including county of residence), filing status, and any exemption information. 

Does Maryland have a state disability insurance tax?

No, Maryland does not have a separate state disability insurance (SDI) tax. The state disability insurance program is funded through the unemployment insurance tax.

Are there certain employees who do not require withholding in Maryland?

Yes, there are exemptions to withholdings. Withholding is not required for domestic servants working in private homes; services from ordained/licensed ministers of a church or religious order; single or student employees making less than the minimum filing requirement; or nonresidents, if their income consists solely of compensation for personal services performed in Maryland and their state has a reciprocal agreement with Maryland. Some spouses of military members are also exempt.

Do spouses of military members owe taxes in Maryland?

Not always. Some spouses of US service members may be exempt from income tax in Maryland through the Military Spouses Residency Relief Act.

Is workers’ compensation insurance required in Maryland?

Yes, all employers with at least one Maryland employee are required to provide workers’ compensation coverage. Non-exempt employers who fail to obtain this coverage from a licensed company could face fines of up to $10,000. (As a note, individuals do not owe taxes on any workers’ compensation awards from a work-related injury or illness.)

Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.