Maryland Bureau of Revenue Estimates has released its analysis of tax changes proposed in SB 321 / HB 352, part of Gov. Wes Moore’s Fiscal Year 2026 Budget Reconciliation and Financing Act (BRFA). These changes would adjust personal income tax rates, deductions, and capital gains taxation, impacting both taxpayers and state revenue.

Proposed tax changes in the BRFA include the following:

Income tax adjustments

• The proposal would eliminate itemized deductions and double the standard deduction.
• Approximately 60% of taxpayers would see an average tax reduction of $173, while 20% would see an average increase of $1,458. High-income taxpayers would see the largest increases, with some paying over $20,800 more.
• The changes would generally lower taxes for some taxpayers while increasing liabilities for others, particularly those with higher incomes who currently itemize deductions.

Capital gains surcharge

• A 1% tax on capital gains income would apply to taxpayers with federal adjusted gross income (FAGI) over $350,000.
• Based on prior tax data, 55,200 taxpayers would have been subject to this tax in 2020, with an average increase of $2,442 per filer.
• The highest-income taxpayers (FAGI over $1 million) would have seen an average increase of $10,393.

Child Tax Credit expansion

• The proposal would eligibility to 15,600 additional taxpayers, with an average credit of $363 per filer.
• The fiscal impact of this expansion is projected to be relatively modest.

Revenue impact

• As a result of these proposed changes, state revenue would increase by a projected $600 million (+5.4%) in tax year 2023.
• Breakdown:
  1. $478 million from rate and deduction changes
  2. $125 million from the capital gains surcharge

Considerations for CPAs

• The elimination of itemized deductions would decouple Maryland’s tax code from federal changes that may occur with the expiration of the Tax Cuts and Jobs Act (TCJA) in 2025.
• The impact on taxpayers will vary, with changes in tax liabilities depending on income level, deduction status, and capital gains exposure.
• Local income tax revenues may be affected, though the extent depends on future legislative and economic factors.

Next Steps

As Maryland policymakers review these proposals, CPAs should assess how the changes may impact clients and tax planning strategies for 2025 and beyond.

Read the Bureau of Revenue Estimates' analysis in its entirety.