Maryland made several changes in its law for 1990 returns. The more significant changes are:
A new and simple Form 123 has been introduced for those single and dependent taxpayers from whom Maryland taxes have been withheld, but who are not otherwise required to file.
The personal exemption has increased from $1,100 to $1,200.
The maximum pension exclusion has increased from $10,100 to $10,800.
The minimum filing requirements have been raised and now conform with the federal levels. But remember to use Maryland, and not federal, gross income for this purpose.
A child's investment income reported on your federal return by filing Form 8814, may be subtracted on your Maryland return.
Certain retired military enlisted personnel may now exclude up to $2,500 of their military retirement income.
Income levels for the poverty income subtraction have been increased. A new line 28 is found on Page 2 of the return for this subtraction.
Your Maryland filing status will follow your federal status with two exceptions. Married taxpayers who filed joint federal returns may file either a joint or combined separate return for Maryland. A taxpayer that can be claimed as a dependent on someone else's return, must file as a dependent taxpayer.
You are entitled to one full Maryland exemption for each personal and dependent exemption claimed on the federal return. You and your spouse are each permitted to claim additional $1,000 exemptions for being age 65 or over or blind. You also get an extra full exemption for each dependent age 65 or older.
Each exemption claimed on a full-year return is worth $1,200, and must be prorated on a part-year return.
Federal Return Income and Adjustments
On lines 1 through 17 transfer the amounts directly from your federal return. Do not make changes to the federal figures here; any modifications for Maryland income will be addressed on the bottom half of page two.
Married taxpayers filing combined separate returns should use all three columns. The "all taxpayers" column must reflect the numbers from the joint federal return. Amounts in columns A and B are used to allocate income between husband and wife as if separate federal returns had been filed.
Additions to Income
Several modifications of federal income are required to arrive at Maryland income. They include:
State or local bond interest: You must add back municipal interest, exempt from federal tax, on non-Maryland obligations. Washington Metro and Washington Suburban Sanitary Commission bonds are not subject to Maryland tax.
Tax Preference Items. Regardless of whether or not you are subject to federal alternative minimum tax, if you have tax preference items, as listed on Maryland Form 502TP, totaling near or above $10,000 -- $20,000 for joint returns -- you should complete Form 502TP to see if you have Maryland tax preference income.
The preference items are carried forward from federal Form 6251, but note that tax exempt interest from private activity bonds from outside Maryland is not to be included -- this interest is added back elsewhere. And there is an adjustment for the federal depletion amount, described in the instructions.
Lump sum distributions: If you used federal Form 4972 for 5- or 10-year averaging of a lump sum retirement distribution, for Maryland you must add a part of that distribution back. Use the work sheet on page 4 of the instruction booklet for your calculations. Other additions: Nine other additions to income are identified in the instructions on pages 4 and 5.
Subtractions from income: Here you should subtract from income: any state income tax refunds included as income on your federal return, federally taxable Social Security or Railroad Retirement benefits, nonresident income, and those items mentioned below:
Child care expenses: Maryland allows a subtraction of up to $2,400 -- $4,800 for two or more dependents -- from income for dependent care expenses. You must have claimed a credit on your federal return and attach a copy of your federal Form 2441 to your Maryland return. Be sure to use the expense amount (and not the smaller credit) from the form.
Interest from U.S. obligations: Subtract interest on U.S. savings bonds and other U.S. obligations. This includes dividends from mutual funds investing in U.S. government obligations if at least 50 percent of the interest received by the fund is from U.S. government obligations, but subtract only that portion attributable to interest from U.S. obligations.
Interest on GNMA and FNMA securities is taxable on your Maryland return and may not be subtracted.
Pension exclusion: If you were age 65 or over or totally disabled, or your spouse was totally disabled, on December 31, you may exclude federally taxable employee pension income -- but not income from an IRA, Keogh or deferred compensation plan -- up to a maximum of $10,800 less Social Security or Railroad Retirement benefits received: Compute the exclusion -- separately for husband and wife if both qualify -- in the "Pension Exclusion" section at the bottom of page 2 of Form 502.
Poverty-level income: Income levels have increased for 1990. The new levels can be found in the poverty level income work sheet on page 5.
Capital gains: The federal exclusion for capital gains described in the instructions to Maryland Form 502CG was not enacted, so calculation of the subtraction has not changed from 1989. In lieu of listing all your individual transactions on the Maryland form, you may attach a copy of federal Schedule D and simply carry the required totals from Schedule D to Form 502 CG.
Other subtractions: Other subtractions are listed on page 6 of the instructions, and include, but are not limited to, an additional 14 cents per mile for charitable use of your car -- or if you use the standard federal deduction, a full 26 cents per mile; a subtraction of up to $15,000 of military pay you received as a member of the armed forces while serving on active duty outside of the United States; and, new in 1990, certain military retirees may deduct up to $2,500 of military retirement income.
Deductions If you itemize deductions on your federal return you may itemize deductions for Maryland or use the standard deduction. If you use the standard deduction on your federal return you must use the standard deduction on your Maryland return as well.
On a combined separate filing, itemized or standard deductions are calculated separately for each spouse, and both must use the same method. If you are unable to determine the division of itemized deductions between spouses, the total must be divided based on the ratio of each spouse's income to total income.
Tax Computation Follow the front of the form for step-by-step instructions. After finding your Maryland state tax liability from either the tax tables or the work sheets, you must add the local "piggyback" assessment to determine the total tax due.
The local rate is 50 percent of the Maryland tax for every county and Baltimore City -- except Worcester county, which has a 20 percent rate, and Talbot county, which has a 45 percent rate).
After entering your total Maryland tax, you are ready to claim your credits. This includes the Maryland tax withheld from your pay, and total estimated tax payments made during the year.
If you paid nonresident income tax to any number of certain other states on Maryland income, you may be eligible to claim a credit against your Maryland tax; see Form 502 CR for instructions. Attach a copy of Form 502 CR and a copy of the other state's return to your Maryland return.