Maryland Payroll Tax: Rates, Withholding, and Deadlines

If you run payroll in Maryland, you are handling three separate obligations: state income tax withholding, a local (county) income tax collected through the same withholding, and unemployment insurance paid entirely by the employer. State income tax runs from 2% to 6.50% on a progressive bracket schedule, local rates run from 2.25% to 3.30% depending on where the employee lives, and unemployment insurance for established employers falls between 0.30% and 7.50% on the first $8,500 of each worker’s annual wages. Everything else in Maryland payroll tax, from filing frequency to penalties, flows from those three numbers.

State Income Tax Withholding

Maryland’s state income tax is progressive. Under Tax-General § 10-105, the rates for individual filers are:

2% on the first $1,000 of taxable income
3% on $1,001 through $2,000
4% on $2,001 through $3,000
4.75% on $3,001 through $100,000
5% on $100,001 through $125,000
5.25% on $125,001 through $150,000
5.5% on $150,001 through $250,000
5.75% on $250,001 through $500,000
6.25% on $500,001 through $1,000,000
6.50% on income above $1,000,000

Joint filers and heads of household get wider brackets at the top: the 4.75% bracket extends to $150,000, and the 6.50% rate starts above $1,200,000.¹

Local Income Tax by County of Residence

On top of the state tax, every Maryland employee owes a local income tax set by the county where they live, not where they work. The Comptroller collects the state and local pieces together through a single withholding, which is why a Maryland pay stub usually shows one combined “state tax” line.²

For 2026, local rates range from 2.25% (Frederick and Worcester counties) to 3.30% (Dorchester and Kent counties). Most counties sit near 3.20%, which is the general statutory ceiling under Tax-General § 10-106, though a few counties have legislative authority to go higher.² The employee’s county of residence as reported on Form MW507 drives the rate. If a MW507 is missing or doesn’t identify a county, withhold at the 3.30% “unknown Maryland county” rate until you have the correct form.

Unemployment Insurance

Any employer with at least one employee in Maryland must pay into the state unemployment insurance system. Unemployment insurance is an employer-only cost. Nothing comes out of the employee’s paycheck for it.³

Rates for experienced employers run from 0.30% to 7.50% based on claims history. New employers without an experience record are assigned a rate between 1.0% and 2.6%.³ The tax applies only to the first $8,500 of each employee’s wages per calendar year. Once a worker crosses $8,500, unemployment contributions stop for that person until January 1.

Returns and payments are quarterly. Due dates are April 30, July 31, October 31, and January 31.⁴ Filing goes through BEACON, the Division of Unemployment Insurance’s online portal.⁵

How Often You File Withholding

Maryland sorts employers into one of four withholding filing categories based on how much they withhold:

Annual filer: less than $250 withheld in a calendar year. File and pay once a year.
Quarterly filer: less than $700 withheld in a quarter. Payment is due by the 15th of the month after each quarter ends.
Monthly filer: $700 or more withheld in any quarter. Payment is due by the 15th of the following month.
Accelerated filer: $15,000 or more withheld in the prior year and $700 or more accumulated in a single pay period. Remit within three business days of each payroll date.

When a due date falls on a weekend or state holiday, it moves to the next business day.⁶ The accelerated category is the one that trips employers up most often. Three business days leaves no margin.

Withholding returns and payments now file through the Maryland Tax Connect Portal, which has replaced bFile for these functions. Electronic submission of W-2s and the MW508 reconciliation is moving to Tax Connect as well.⁷

Annual Reconciliation on Form MW508

By January 31 each year, every Maryland employer files Form MW508, the Annual Employer Withholding Reconciliation Return, together with the state copies of all W-2s and 1099s for the prior year. If you issued 25 or more W-2s, electronic filing is mandatory.⁸

The MW508 reconciles total wages, total tax withheld, and total tax remitted during the year. Mismatches between your periodic filings and the reconciliation generate balance-due or penalty notices, so the figures have to tie out. If you file electronically through Maryland Tax Connect, do not also mail a paper MW508. Duplicate filings produce false balance-due notices.

Setting Up as a Maryland Employer

Before you can run payroll, get a Federal Employer Identification Number from the IRS. Maryland’s Combined Registration Application (CRA) will not process without one, except for sole proprietors applying only for a sales and use tax license.⁹

The CRA is a single online form on the Comptroller’s site that registers you for income tax withholding, unemployment insurance, and other tax types at the same time.¹⁰ You supply your business name, Maryland address, the date you first paid wages in Maryland, and estimated gross wages for the first quarter.¹¹ You receive a central registration number for withholding and a separate unemployment insurance account number. Both go on every filing after that.

Every new hire fills out Form MW507, Maryland’s version of the federal W-4. The form captures how many personal exemptions the employee claims and the county they live in. Exemptions set the state withholding; the county sets the local rate.¹² Keep every MW507 in your records. The Comptroller can request them in an audit. If a MW507 looks wrong, employers are required to send a copy to the Comptroller’s Compliance Division.

Separate from any tax filing, federal and Maryland law require you to report each new or rehired employee within 20 days of their start date. Reports go to the Maryland State Directory of New Hires at mdnewhire.com.¹³ The data supports child support enforcement and unemployment insurance fraud detection.¹⁴

Employees Who Live Out of State

Maryland has reciprocal income tax agreements with Pennsylvania, Virginia, West Virginia, and the District of Columbia.¹⁵ An employee who lives in one of those jurisdictions and works in Maryland can claim exemption from Maryland withholding on Form MW507.

Residents of D.C., Virginia, or West Virginia use Line 4 to exempt themselves from Maryland withholding entirely, provided they do not maintain a place in Maryland for 183 days or more during the year. Pennsylvania residents use Line 5 to exempt the state portion but still owe Maryland local income tax unless their home county also qualifies them for exemption on Line 6 or Line 7.¹²

One trap: if a D.C., Pennsylvania, or Virginia resident keeps a place to live in Maryland for 183 days or more, they become a Maryland statutory resident and the reciprocal exemption no longer applies. West Virginia residents are not subject to the 183-day rule.¹²

FAMLI Contributions Begin in 2027

Maryland’s Family and Medical Leave Insurance (FAMLI) program does not require payroll contributions in 2026. Contributions start in January 2027, and the Maryland Department of Labor must announce the final contribution rate by May 1, 2026.¹⁶

The initial rate announced in 2023 was 0.9% of wages, split evenly at 0.45% employer and 0.45% employee. By statute the total rate cannot exceed 1.2% of wages up to the Social Security wage cap.¹⁶ Employers with fewer than 15 total employees are exempt from the employer share and only withhold and remit the employee’s half.¹⁷

Penalties for Late or Missed Payments

Late withholding payments can draw penalties of up to 25% of the tax owed, with interest accruing from the original return due date. The Comptroller sets an annual interest rate; it was 11.4825% for calendar year 2025.¹⁸

If the Comptroller issues a formal assessment notice, you have 30 days to appeal and request a hearing. Miss that window and the assessment becomes final. Willful failure to withhold or remit can bring criminal consequences under Tax-General § 13-1007 on top of the civil charges.

Unemployment insurance delinquencies run through a separate enforcement track at the Maryland Department of Labor, but the shape is the same: interest on the balance plus penalties that grow the longer the account sits open.⁴ The surest way to turn a small payroll tax problem into a large one is to ignore the first notice.

1
Maryland General Assembly. Maryland Code Tax-General 10-105
2
Comptroller of Maryland. 2026 Maryland State and Local Income Tax Withholding Information
3
Maryland Department of Labor. Tax Rates and Quarterly Reporting
4
Maryland Department of Labor. Delinquency Notice and Assessment Notice and Pending Civil Action Letter
5
Maryland Department of Labor. Employers: Instructions for Using the Maryland Unemployment Insurance Portal (BEACON)
6
Comptroller of Maryland. Tax Guidance – Filing Deadlines and Due Dates
7
Comptroller of Maryland. bFile – Select Application
8
Comptroller of Maryland. Maryland Form MW508 Annual Employer Withholding Reconciliation Return
9
Comptroller of Maryland. Maryland Combined Registration Online Application
10
Maryland Business Express. Apply for Maryland Tax Accounts and Insurance
11
Comptroller of Maryland. Maryland Form CRA Combined Registration Application
12
Comptroller of Maryland. Maryland Form MW507 – Employee’s Maryland Withholding Exemption Certificate
13
Maryland State Directory of New Hires. Employer Services Portal
14
Maryland Department of Human Services. Employers
15
Comptroller of Maryland. Maryland Income Tax Administrative Release No. 3
16
Maryland FAMLI. Contributions
17
Maryland FAMLI. FAMLI Frequently Asked Questions October 2025
18
Comptroller of Maryland. Tax Guidance – Penalty and Interest Charges