A measure to increase standard tax deductions in Maryland passed the Senate on Wednesday as part of the state's response to the federal tax overhaul.
The 46-0 vote sends the bill to the House.
The measure increases the standard tax deduction by $500 for individuals and $1,000 for couples for three years. The deduction will go from $2,000 to $2,500 for individuals and $4,000 to $5,000 for joint filers.
Lawmakers say it aims to bring some relief to residents who will face higher state taxes due to changes in the federal tax overhaul. For example, the federal law eliminates some miscellaneous deductions, and limits the value of state and local tax deductions.
The tax overhaul law also increases the value of the federal standard deduction, meaning that more people may claim it instead of itemizing. That could spill over to the state level, because the new law only allows those who itemize on their federal tax returns to itemize on their state returns. The comptroller's office has estimated that up to 700,000 Maryland taxpayers who would have itemized deductions will now claim the state standard deduction.
The comptroller's office has estimated the change to the state personal income tax in fiscal year 2019 will result in an additional $361.1 million in state tax revenue.
Lawmakers also decided to retain some of the extra tax money the state will gain to create a $200 million fund to pay for future education costs that are expected to be recommended by the Kirwan Commission, which has been studying state school-funding formulas. The provision creating the fund is in the state's budget bill.
“We carefully evaluated the federal tax changes and anticipated the additional revenues and provided over $100 million in tax relief for our citizens while maintaining the state's commitment to public schools by dedicating $200 million to support the future costs of implementing the recommendations of the Kirwan commission,” Sen. Edward Kasemeyer said Wednesday as the Senate took up the state's budget legislation.
The comptroller's office has estimated that the federal legislation will not affect the state and local income taxes paid by 71 percent of the state's taxpayers. About 6 percent will pay less, and about 23 percent will pay additional state and local income taxes. The comptroller's office estimates that 9 percent of all taxpayers will have a net increase in federal, state and local tax liabilities, and the remaining 91 percent will have no change or a net decrease in federal, state and local taxes.