4 Hour Maryland - gstti.com

4 HOUR MARYLAND TAX LAW CONTINUING PROFESSIONAL

EDUCATION COURSE

IRS Provider Number: P619F

Course Number: P619F-M04-18-S

GOLDEN STATE TAX TRAINING INSTITUTE, INC.

P. O. BOX 930

Prospect Heights, IL 60070 Voice: 877-674-9290

Fax: 877-674-3472 www.GSTTI.com

http://www.gstti.com/

EXCLUSIVE PUBLISHERS OF THIS LIMITED EDITION

ALL RIGHTS RESERVED, NO PART OF THIS PUBLICATION MAY BE REPRODUCED, STORED IN A RETRIEVAL SYSTEM, OR TRANSMITTED, IN ANY FORM OR BY ANY MEANS, ELECTRONIC, MECHANICAL, PHOTOCOPYING, RECORDING, OR OTHERWISE, WITHOUT WRITTEN PERMISSION OF THE PUBLISHER. This material is for educational purposes only and specific to the subject matter contained in the Table of Contents, and in no way does it cover all aspects of the tax code. Rather, it is constructed to offer an accurate representation of the subject matter being covered. Purchase of this course or any other course offered by Golden State Tax Training Institute, Inc. comes with the provision that they are not for the purposes of offering legal or other professional services. Additionally, the course contains the current tax law as to date of publication. Any important tax law changes will be sent to students in the form of a supplement. Certified Public Accountants (CPAs) must adhere to the continuing education requirements set forth by the State Board of Accountancy of the state(s) where a CPA license is held. The requirements for continuing professional education vary from state to state. The American Institute of CPAs (AICPA) requires certain CPE for maintaining membership. There are also special CPE requirements for those performing work related to the Government Accountability Office (GAO) and the Employee Retirement Security Act (ERISA). Use the search tool at www.learningmarket.org to learn about the different CPE requirements for each state. ARTICLES AND COMMENTARY INCLUDED HEREIN DO NOT CONSTITUTE AN OPINION AND ARE NOT INTENDED OR WRITTEN TO BE USED, AND THEY CANNOT BE USED, BY ANY TAXPAYER FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON THE TAXPAYER. Copyright is not claimed in any material secured from official U.S. government publications or circulars. © 2018 Golden State Tax Training Institute, Inc. All Rights Reserved.

© 2018 Golden State Tax Training Institute, Inc. i

Table of Contents

Introduction .................................................................................................................................................................... iii Course Description ........................................................................................................................................................ iv Course Learning Objectives .......................................................................................................................................... iv

................................................................................................................................................................................ 1-1 Maryland Tax Law Updates, Personal Income Tax, Residency, Rates, Returns, Exemptions, Credits .................... 1-1 What's New for 2017 .................................................................................................................................................. 1-1 Individual Taxpayer Changes ..................................................................................................................................... 1-1 Business Taxpayer Changes ...................................................................................................................................... 1-3 Fiduciary Tax Changes ............................................................................................................................................... 1-5 Reminders .................................................................................................................................................................. 1-5 Affordable Care Act .................................................................................................................................................... 1-5 Significant Maryland Tax Law Legislation .................................................................................................................. 1-9 Tax Calendar ............................................................................................................................................................ 1-14 Overview of Personal Income Tax ........................................................................................................................... 1-15 Maryland Returns ..................................................................................................................................................... 1-22 Maryland Electronic Filing (i-File) ............................................................................................................................. 1-25 Personal Exemption ................................................................................................................................................. 1-26 Maryland Tax Credits ............................................................................................................................................... 1-27 Individual Tax Credits ............................................................................................................................................... 1-27 Business Tax Credits ................................................................................................................................................ 1-37 Review Feedback ..................................................................................................................................................... 1-42

................................................................................................................................................................................ 2-1 Maryland Income ........................................................................................................................................................ 2-1 Overview of Additions to Federal Adjusted Gross Income ......................................................................................... 2-1 Subtractions to Federal Adjusted Gross Income ........................................................................................................ 2-6 Other Income ............................................................................................................................................................ 2-11 Standard Deduction .................................................................................................................................................. 2-11 Itemized Deductions ................................................................................................................................................. 2-11 Personal Exemptions ................................................................................................................................................ 2-12 Contributions............................................................................................................................................................. 2-13 Payments .................................................................................................................................................................. 2-14 Review Feedback ..................................................................................................................................................... 2-15

................................................................................................................................................................................ 3-1 Maryland Differences, Business Entities .................................................................................................................... 3-1 Business Entities ........................................................................................................................................................ 3-8 Additions to Federal Taxable Income ....................................................................................................................... 3-13 Subtractions from Federal Taxable Income ............................................................................................................. 3-15 Review Feedback ..................................................................................................................................................... 3-17

http://gstti.com/default.aspx

Table of Contents

© 2018 Golden State Tax Training Institute, Inc. ii

................................................................................................................................................................................ 4-1 Maryland Professional Tax Preparer Requirements, Ethics, Penalties...................................................................... 4-1 Maryland Tax Preparer Responsibilities and Practices .............................................................................................. 4-3 Federal Penalties ........................................................................................................................................................ 4-5 Power of Attorney ....................................................................................................................................................... 4-7 e-File Software Vendors ............................................................................................................................................. 4-7 Review Feedback ....................................................................................................................................................... 4-8 Glossary ...........................................................................................................................................................................I Bibliography ................................................................................................................................................................... II Index ............................................................................................................................................................................. IV Examination Instructions - 4 Hour Maryland Tax Law ............................................................................................. EX-1 Examination Questions - 4 Hour Maryland Tax Law ............................................................................................... EX-2 Lesson 1 .................................................................................................................................................................. EX-2 Lesson 2 .................................................................................................................................................................. EX-3 Lesson 3 .................................................................................................................................................................. EX-4 Lesson 4 .................................................................................................................................................................. EX-5 Course Evaluation ................................................................................................................................................... CE-1


© 2018 Golden State Tax Training Institute, Inc. iii

Introduction

Thank you for choosing Golden State Tax Training Institute, Inc. This intermediate self-study course covers Maryland Tax Law and is eligible for 4 hours of continuing professional education (CPE) credits. We know your time is important to you so we have produced the most comprehensive and innovative tax education products on the market today. We focus on customer service and satisfaction and we strive to look for new and responsive ways to make earning your IRS and Maryland continuing education requirements as convenient as possible. Since this is a self-study course, you can complete it at your own pace and on your own schedule. The minimum passing requirement is 70% on the examination questions at the end of the material. The exam has no time limit and is open book, so you are allowed to look up answers in the text we provide. You do not need to finish the exam in one continuous sitting as all of the answers you enter online are automatically saved. After you submit the exam to us we will grade it and, upon successful completion, email a Certificate of Completion and the Maryland Continuing Education Audit Checklist that you can use to self-report your credits to the Department of Labor, Licensing and Regulation (DLLR). Tax Cuts and Jobs Act Most of the provisions in the Tax Cuts and Jobs Act take effect on January 1, 2018 and are operative for income tax returns filed in 2019. The bill will NOT affect income tax returns prepared in 2018. Since this course covers the 2017 tax year for income tax returns filed in 2018 the new tax laws will not be reflected with the exception of the medical expense deduction that will remain in place with a lower floor of 7.5% for tax years 2017 and 2018. In general, the bill provides new tax brackets, larger standard deduction amounts and adjusted credit amounts. It scales back a popular deduction for state and local taxes, repeals a key tenet of the Affordable Care Act and cuts the corporate tax rate from 35% to 21%. The bill also removed the personal exemption, permanently adjusted the alternative minimum tax (AMT) exemption amounts for inflation and doubled the Child Tax Credit from $1,000 to $2,000 per child, with up to $1,400 available in refunds for families who owe little or no taxes. The bill doubles the standard deduction, to $12,000 ($24,000 for married couples). These tax provisions for individual taxpayers, including the new tax rates, will start January 1, 2018, and will expire at the end of 2025. Annual Filing Season Program (AFSP) Requirements The state of Maryland requires tax practitioners complete 16 hours of continuing professional education (CPE) every 2 years. The CPE must consist of:

1. 4 hours Maryland state tax law 2. 10 hours Federal Tax 3. 2 hours Ethics

If a Maryland tax practitioner is in a year that he or she has a Maryland state requirement, and he or she wants to participate in the IRS AFSP, he or she must also complete the 3-hour Federal Updates course for a total for 15 Hours of Federal CPE credits. A Maryland tax practitioner is exempt from the 6-hour Annual Federal Tax Refresher (AFTR) Course, but if a Maryland tax practitioner wants to earn the AFSP - Record of Completion, he or she must finish 15 hours of Federal CPE credits. The Maryland state requirements only requires a Maryland tax practitioner complete 12 hours of Federal CPE credits. The 4 hours of Maryland state tax law do not qualify as CPE for the AFSP. If a Maryland tax practitioner is in a year that the state of Maryland does not require that he or she complete 16 hours of CPE, and he or she wants to participate in the AFSP, then the tax practitioner needs to complete the Federal 15- hour CPE course. Golden State Tax Training Institute has all of these additional continuing professional education courses approved and available for Maryland tax professionals. Please contact us at 1-800-674-9290 if you have questions and we will walk you through what it takes for a Maryland tax professional to earn the IRS AFSP - Record of Completion.



Introduction

© 2018 Golden State Tax Training Institute, Inc. iv

Please note, the Annual Filing Season Program (AFSP), sponsored by the Internal Revenue Service, is not a substitute for meeting the requirement for passing the Maryland individual tax preparers examination. Similarly, the ASFP should not be confused with the Registered Tax Return Preparer (RTRP) examination that was administered by the IRS, which was discontinued on January 13, 2013. The ASFP is a separate, voluntary program administered by the IRS.

Course Description This course focuses on key Maryland tax law provisions recently enacted or indexed for inflation. The course highlights major tax changes that are of significant importance to a tax practitioner. Among other topics, this course includes information relating to significant Maryland tax law updates, residency requirements, specific return conformity, tax rates, exemptions, credits and deductions. All 2017 legislative amendments and changes received as of press time are reflected, and references to Federal tax laws are up to date as of the publication of this course. The focus is on the law applicable to the filing of income tax returns in 2018 for the 2017 tax year. However, if legislation has made changes effective during 2018, we indicate this along with the effective date so as to avoid confusion. The course includes a table of contents and comprehensive index to help guide your search for specific topics. Additionally, if you are using the electronic version of the course you can use the word search function by pressing “CTRL + F” on your keyboard and entering the word(s) you would like to look up. Along with the extensive course content you will also find a glossary and a bibliography you can use to find additional reference material when searching for particular topics or answers to review and examination questions. The numbers in parentheses at the end of a sentence correspond to the numbers in the bibliography. Completion Deadline & Exam: This course, including the examination, must be completed within one year of the date of purchase. Course Level: This course is appropriate for tax professionals at all knowledge levels. CPE Credits: 4 Hours (Maryland tax law CPE hours do not qualify for IRS Annual Filing Season Program (AFSP)). Category: Taxation Prerequisite: Maryland Board of Individual Tax Preparers Examination (unless exempt) Advanced Preparation: None

Course Learning Objectives The material covers in more detail what are thought to be the most common topics a preparer in Maryland will encounter including income, credits and filing status. Additional Maryland taxes, such as estate and inheritance taxes, are summarized as well. Throughout the material, we point out tax tips to help practitioners avoid pitfalls and use the tax laws to their best advantage. The course is designed as a quick reference work, describing the general provisions of the various tax laws, rules, and administrative practices. It is useful to tax practitioners, businesspersons, and others who prepare or file Maryland returns or who are required to comply with Maryland taxes. This course is intended to provide the following:

1. Develop a familiarity with the changes affected by inflation and recent tax law especially as they relate to Maryland residency requirements, specific return conformity, tax rates, exemptions, credits and deductions.

2. Identify important definitions of Maryland income including interest, dividends, retirement benefits and other major income sources.

3. Review various differences between Maryland and Federal filing requirements. 4. Summarize Maryland professional tax preparer ethics standards and relevant penalties.

Review Questions and Feedback Throughout the lessons there are several review questions that are designed to help you learn the material you have


Introduction

© 2018 Golden State Tax Training Institute, Inc. v

just studied. Review questions are for instructional use only and you will not be graded on these questions. We provide both the answers to each question and an explanation or feedback as to how we arrived at each answer at the end of the lessons. Review feedback also contains evaluative feedback explaining why incorrect answers are wrong. Best practice suggests that you should try to answer these questions on your own first, and only then refer to the answer key and feedback to see how well you did in terms of learning the material. As with all self-study CPE courses, you can refer back to the course material to locate the answers - the so called 'open book' learning method is permissible. Final Examination The final examination is intended to test your overall comprehension of the course. Each question will relate to topics found throughout the course so all of the answers can be found in the material. Passing the final exam from a self-study course is contingent upon scoring 70% or higher on the exam questions related to the course material. The examination consists of 20 multiple-choice questions, meaning you must correctly answer 14 in order to pass. How To Submit The Online Examination:

Log into www.GSTTI.com. Enter your email address and your password. Click link to take online exam. Answer questions. Submit answers and completed survey. Get certificate and the Maryland Continuing Education Audit Checklist by email within 24 hours.

The exam has no time limit, and is open book, so you are allowed to look up answers in the text we provide. You do not need to finish the exam in one continuous sitting as all of the answers you enter online are automatically saved. After you submit the online exam to us you will receive a pass/fail message. If you should fail the exam on your first attempt, you will have the option to re-take the exam at no additional cost. If you score less than 70%, a message will be displayed at the bottom of the page along with a list of incorrect questions. You have unlimited attempts to pass an exam. Upon successful completion, we will email a Certificate of Completion and the Maryland Continuing Education Audit Checklist that you can use to self-report your credits to the Department of Labor, Licensing and Regulation (DLLR). We wish you every success and thank you for choosing Golden State Tax Training Institute, Inc. Understanding the Icons Used in this Book

Important: Update or change

Tip: Significant information

Note: Additional information

Review Question: Learning opportunity



Introduction

© 2018 Golden State Tax Training Institute, Inc. vi

Golden State Tax Training Institute, Inc. is an approved education provider for the California Tax Education Council (CTEC) and the Internal Revenue Service (IRS). Our CTEC provider number is 2040 and can be verified at www.CTEC.org. Our IRS provider number is P619F and can be verified on the IRS list of Approved Continuing Education Providers.


http://www.ctec.org/

https://www.ceprovider.us/public/default/listing

https://www.ceprovider.us/public/default/listing

© 2018 Golden State Tax Training Institute, Inc. 1-1

Maryland Tax Law Updates, Personal Income Tax, Residency, Rates, Returns, Exemptions, Credits

What's New for 2017

Individual Taxpayer Changes Filing Deadline Personal income tax returns are due by April 17, 2018. Maryland recognizes Emancipation Day as a legal holiday. Returns with a due date of April 15, will be due the next business day. New Tax Rates For tax year 2017, Calvert County has increased its rate to 3.00% and Somerset County has increased its rate to 3.2%. Please note the changes on 2017 Form 502D - Personal Declaration of Estimated Income Tax. For tax year 2018, 2018 Cecil County has increased its rate to 3.00%. Please note the changes on 2018 Form 502D. (1)

Since the Special Nonresident Tax Rate is tied to the lowest local rate, the Special Nonresident Tax Rate remains at 1.75% for 2017.

Personal Exemption Amount The exemption amount of $3,200 begins to be phased out if the taxpayer’s Federal adjusted gross income is more than $100,000 ($150,000 for joint taxpayers). The $3,200 exemption is phased out entirely when the income exceeds $150,000 ($200,000 for joint taxpayers). The additional exemption of $1,000 remains the same for age and blindness. Dependent Form 502B Form 502B - Dependents’ Information will be required to be attached to Form 502, Form 505 and Form 515 to determine what exemptions the taxpayer is entitled to claim. Itemized Deduction Limitation The State of Maryland continues to recognize the Federal itemized deduction limitation threshold (Pease Limitation). This means that a taxpayer will reduce the Federal itemized deductions used on the Maryland return only when the Federal adjusted gross income is high enough for the Federal itemized deductions to be reduced or limited on Federal Form 1040, Schedule A. If a taxpayer with high income is subject to limitations on itemized deductions, and has taken a state income tax deduction, the taxpayer will need to use the revised itemized deduction worksheet (Resident Worksheet 14A or Nonresident Worksheet 16A) to reflect the amount of state income tax deductions that were limited on the Maryland return. New Addition Modification If the taxpayer sold or exchanged a property for which he or she claimed a subtraction modification under Senate Bill 367 (Chapter 231, Acts of 2017) or Senate Bill 580/House Bill 600 (Chapter 544 and Chapter 545, Acts of 2012), he or she must enter the amount of the difference between his or her Federal adjusted gross income as reportable under the Federal Mortgage Forgiveness Debt Relief Act of 2007 and his or her Federal adjusted gross income as claimed in the taxable year on Form 502.


http://forms.marylandtaxes.gov/17_forms/502D.pdf

http://forms.marylandtaxes.com/current_forms/502B.pdf

Lesson 1 - 4 Hour - Maryland Tax Law Updates, Residency, Rates, Returns, Exemptions, Credits


New Subtraction Modifications In 2017, a new subtraction modification is available for an amount included in Federal adjusted gross income contributed by the State into an investment account under Section 18-19A-04.1 of the Education Article during the taxable year. This includes amounts included in Federal adjusted gross income contributed by the State into an investment account under the Maryland College Investment Plan. Also, a new subtraction modification is available for any amount included in Federal adjusted gross income for:

1. The value of any medal given by the International Olympic Committee, the International Paralympic Committee, the Special Olympics International Committee, or the International Committee of Sports for the Deaf,

2. Any prize money or honoraria received from the United States Olympic Committee from a performance at the Olympic Games, the Paralympic Games, the Special Olympic Games, or the Deaflympic Games.

Additionally, a new subtraction modification is available for any amount of qualified principal residence indebtedness included in Federal adjusted gross income that was allowable as an exclusion under the Mortgage Forgiveness Debt Relief Act of 2007, as amended. The subtraction may not exceed $100,000 for taxpayers who file single or married filing separately, and may not exceed $200,000 for married filing joint, head of household, or qualifying widow(er). Qualified principal residence indebtedness is debt used to buy, build or substantially improve your principal residence, or to refinance debt incurred for those purposes but only if the debt is secured by the home. Lastly, a new subtraction modification is available for qualifying retired law enforcement officer or fire, rescue, or emergency services personnel pension exclusion. Subtraction Modification Updates for Tax Year 2017 Increase to the existing Honorable Louis L. Goldstein Volunteer Fire, Rescue and Emergency Medical Services Personnel Subtraction Modification Program maximum amount from $4,250 to $4,500. This includes $4,500 for each taxpayer who is a qualifying member of the U.S. Coast Guard Auxiliary, Maryland Defense Force or Maryland Civil Air Patrol as certified by these organizations. The Honorable Louis L. Goldstein Volunteer Police Personnel Subtraction Modification Program is $4,500 for each taxpayer who is a qualifying police auxiliary or reserve volunteer as certified by a bona fide Maryland police agency. The mileage rate for certain qualifying charitable use of a car on Form 502V has decreased from 54 cents to 53.5 cents. The subtraction modification for the amount of qualified principal residence indebtedness included in Federal adjusted gross income that was allowable as an exclusion under the Mortgage Relief Act of 2007, as amended is no longer available as a subtraction modification. Increased Pension Exclusion Maryland's maximum pension exclusion, which is available to qualifying taxpayers who are age 65 or older; are totally and permanently disabled; or have a spouse who is totally and permanently disabled, increased from $29,400 to $29,900 for tax year 2017. Interest Rate Decrease The annual interest rate decreases from 12% per annum to 11.5% per annum on January 1, 2018. The annual interest rate changes again on January 1, 2019. Interest is due at a rate of 11.5% annually or .9583% per month for any month or part of a month that a tax is paid after the original due date of the 2017 return but before January 1, 2019. Updated Form 502CR, Part E Update reflects a maximum credit of $410 for the payment of Long-Term Care Insurance Premiums for a resident age 40 or younger for whom this credit has never been claimed.




Refundable Earned Income Tax Credit (REITC) The REITC increases each year through 2018 when it reaches 28% of the Federal Earned Income Tax Credit (EITC). For 2017, the REITC amount for eligible residents is 27%. Retirement Income Form - Form 502R Form 502R - Retirement Income has a new part created to capture information regarding the new retired law enforcement officer or fire, rescue, or emergency services personnel pension exclusion. The reported amounts are from Line 8 of Worksheet 13E in the Resident Instruction Booklet. Income Tax Credits on Form 502CR for Student Loan Debt A new refundable income tax credit is available for certain individuals who have incurred at least $20,000 in undergraduate student loan debt. Certification must be attached. Tax Fraud Many state revenue agencies, including Maryland, are requesting additional information in an effort to combat stolen-identity tax fraud and to protect the taxpayer and his or her tax refund. If the taxpayer and his or her spouse have a driver's license or state issued identification card, they should provide the requested information from it. The return will not be rejected if the taxpayer does not provide a driver's license or state-issued identification. However, if the taxpayer provides this information, it may help to identify him or her. (1)

Business Taxpayer Changes Apprentice Employee Tax Credit Certain taxpayers may be eligible for an income tax credit for the first year of employment of eligible apprentices. The income tax credit is based on the number of eligible apprentices employed by the taxpayer. “Eligible apprentice” means an individual who is enrolled in an apprenticeship program registered with the Maryland Apprenticeship and Training Council. Eligible apprentices must have been employed by the taxpayer for at least 7 full months of the taxable year. This credit is not refundable and is applied against only the Maryland State income tax. Excess credit may be carried forward until the excess amount is fully used. The excess credit amount is applied against the Maryland State income tax after the application of all other business income tax credits on the Form 500CR.

A copy of the proof of enrollment for each eligible apprentice in a registered apprenticeship program and proof of the duration of the eligible apprentice’s employment by the taxpayer must be included.

Qualified Farms Tax Credit Qualified farms that make an eligible food donation may be eligible for an income tax credit. A qualified farm that makes an eligible food donation is eligible for a tax credit amount equal to 50% of the value of the eligible food donation. A qualified farm that makes a donation of certified organic produce is eligible for a tax credit amount equal to 75% of the value of the donated certified organic produce. Certification of the tax credit is issued by an individual or organization authorized by the State Department of Agriculture to receive eligible food donations from a qualified farm and to issue the qualified farm a tax credit certificate. For any taxable year, the aggregate amount of credits authorized for a qualified farm may not exceed $5,000 unless the Maryland Secretary of Agriculture increases the credit limitation for a qualified farm to an amount not to exceed $10,000. If the allowable credit amount exceeds the State income tax, the unused credit may be carried forward each subsequent year until the allowable credit is used up or 5 years, whichever first occurs. “Qualified farms” means a farm business that is located in Anne Arundel County, Calvert County, Charles County, Montgomery County, Prince George’s County, or St. Mary’s County.


http://forms.marylandtaxes.com/current_forms/502r.pdf



“Eligible food donation” means fresh farm products for human consumption. “Certified organic produce” means an eligible food donation certified under Title 10, Subtitle 14 of the Agriculture Article as an organically produced commodity. A copy of all certificates issued by a Tax Credit Certificate Administrator must be included with Form 500CR. No credit may be earned for any tax year beginning on or after January 1, 2020. Qualified Veteran Employees Tax Credit A credit may be claimed by a small business for each qualified veteran employee hired. The credit for each qualified veteran employee may not exceed 30% of up to the first $6,000 of wages paid to the qualified veteran employee during the first year of employment. A small business qualifying for this tax credit is required to apply to the Maryland Department of Commerce for a tax credit certificate. A copy of the Maryland Department of Commerce certification must be included with the tax return of the small business to claim this tax credit. “Qualified veteran employee” means an individual who:

1. Is honorably discharged or released under honorable circumstances from active military, naval, or air service as defined in 38 U.S.C. Section 101; and

2. Is a qualified veteran as defined under 26 U.S.C. Section 51(d) (3)(a) for purposes of the Federal Work Opportunity Tax Credit.

“Small business” means an individual, a partnership, a limited partnership, a limited liability partnership, a limited liability company, or a corporation that employs 50 or fewer full-time employees. A small business may not claim the credit for more than five qualified veteran employees in a taxable year. A small business may not claim a credit for a qualified veteran employee who is hired to replace a laid-off employee or an employee who is on strike. Also, any unused credit amount for the tax year may not be carried forward to any other taxable year. Reminder about Electronic Format For tax years beginning after December 31, 2012, the taxpayer must file his or her tax return electronically in order to claim a business tax credit unless he or she submits a waiver from the electronic filing requirement. To request a waiver from filing the Form 500CR electronically, the taxpayer must submit a completed Form 500CRW - Waiver Request For Electronic Filing of Form 500CR and it must be attached to Form 500CR in the filing of his or her income tax return. Instructions to Form 500CR As of tax year 2015, certain individual taxpayers may elect to claim the Community Investment Tax Credit and/or the Endow Maryland Tax Credit on Maryland Form 502CR, and thus avoid the electronic filing requirement. Changes to Biotechnology Investment Incentive Tax Credit In the case of the Biotechnology Investment Incentive Tax Credit, the definition of “biotechnology company” has been expanded to include a company that will, within 2 months, become primarily engaged in the research, development, or commercialization of innovative and proprietary technology that comprises, interacts with, or analyzes biological material including biomolecules, cells, tissues, or organs. Previously the company had to be engaged in these activities at the time of investment. The definition also extended the time period in which the company has been in business. A qualified company cannot be in business longer than 12 years (previously 10). The Department of Commerce can extend this time period to 15 years if it determines the company needs additional time to complete process of regulatory approval. If a company receives an investment but fails to satisfy the requirements of biotechnology company within 2 months, the Department of Commerce shall revoke the tax credit certificates issued and recapture tax credits already claimed by the qualified investor. (1)


http://forms.marylandtaxes.gov/17_forms/500CR.pdf

http://forms.marylandtaxes.gov/17_forms/500CR.pdf



Fiduciary Tax Changes The Schedule A is now detached from Form 504 - Fiduciary Income Tax Return and renamed Form 504 Schedule A. This detachment was done to help process paper-filed tax forms faster. (1)

Reminders Political Subdivision Fields There are required fields to be completed on page 1 of the Form 502 based upon the physical address of a taxpayer as of December 31, 2017 or last day of the taxable year. The political subdivision information includes the 4- digit political subdivision code, Maryland Political Subdivision, Physical Street Address Line 1, Physical Street Address Line 2, City, Zip Code and Maryland County. The taxpayer should use the county, city, town or taxing area of which he or she was a resident on the last day of his or her Maryland residence. (2) Payment Voucher – Form IND PV Resident returns filed with a payment by check or money order are now submitted with a Form IND PV - Income Tax Payment Voucher. The Form IND PV is a payment voucher the taxpayer will send with his or her check or money order for any balance due on the “Total Amount Due” line of his or her 2017 Form 502 or 2017 Form 505. If the taxpayer is not sending a check or money order for his or her balance due, he or she does not need to complete this form. If the taxpayer has electronically filed the Form 502 or Form 505, he or she should include this payment voucher with his or her check or money order.

If the taxpayer’s paper or electronic tax return has a balance due, he or she may pay electronically at www.marylandtaxes.com by selecting Bill Pay. The amount that the taxpayer designates will be debited from his or her bank or financial institution on the date that he or she chooses. For alternative methods of payment, such as a credit card, the taxpayer should visit also visit www.marylandtaxes.com.

Form EL102 - Income Tax Payment for Electronic Filers The Form EL102 was discontinued after tax year 2016. See the information above related to the new payment voucher, Form IND PV. Form 502DEP In a continuing effort to protect sensitive taxpayer information, the Comptroller’s Office will no longer mail the Declaration of Estimated Personal Income Tax Packet (Form 502DEP coupons). To file the taxpayer’s personal estimated tax payments, he or she is encouraged to file electronically using the Comptroller’s iFile system. Taxpayers who choose not to file electronically may submit payment by printing and mailing the Form 502D. Refund to Purchase Savings Bonds Individual taxpayers now have the option to use all or part of their Maryland income tax refund to purchase U.S. Series I Savings Bonds with Form 588 - Direct Deposit of Maryland Income Tax Refund to More than One Account. The taxpayer must have an established account with TreasuryDirect (www.treasurydirect.gov) to which the designated portion of his or her refund will be deposited. Once the taxpayer’s designated refund has been deposited into his or her TreasuryDirect account, he or she may purchase U.S. Series I Savings Bonds by accessing his or her TreasuryDirect Account.

Affordable Care Act The Affordable Care Act addresses health insurance coverage and financial assistance options for individuals and families, including the Premium Tax Credit. It also includes the individual shared responsibility provision and exemptions from that provision.


http://forms.marylandtaxes.com/current_forms/504.pdf

http://forms.marylandtaxes.com/current_forms/IND_PV.pdf

http://forms.marylandtaxes.com/current_forms/IND_PV.pdf

http://www.marylandtaxes.com/

http://forms.marylandtaxes.com/15_forms/588.pdf

http://www.treasurydirect.gov/



The shared responsibility payment for individual mandate, which is a penalty for not having required minimum essential health coverage and no exemption from the mandate, is repealed by the Tax Cust and Jobs Act. However, this change does not take effect until 2019. Thus, it continues to apply for 2017 and 2018. No

changes have been made in the premium tax credit for those who choose to buy health coverage from a government Marketplace. Premium Tax Credit An individual is allowed a Premium Tax Credit only for health insurance coverage he or she purchases through the Marketplace for him or herself or other members of his or her tax family. Generally, the members of the individual’s tax family are the individuals included on his or her tax return: him or herself, his or her spouse and his or her dependents. A credit is not allowed for health insurance coverage purchased outside the Marketplace. Individuals who are eligible to enroll in certain employer-sponsored coverage or government health coverage, like Medicare, Medicaid, or TRICARE, are not eligible for the Premium Tax Credit. In general, the taxpayer may be eligible for the credit if he or she meets all of the following: (3)

1. He or she or a family member enrolled in health insurance coverage through the Maryland Health Connection (MHC) Marketplace for one or more months of the year in which the enrolled individual is not eligible for non-Marketplace health coverage.

2. His or her health insurance premiums for one or more of those same months are paid by the unextended due date of his or her return, either through advance credit payments, payment by the taxpayer, or payment by someone else.

3. He or she has income within certain income limits (e.g. $24,600 - $98,400 for a family of four in 2017). 4. He or she does not file a Married Filing Separately tax return (unless he or she meets the criteria in Notice

2014-23, which allows certain victims of domestic abuse and spousal abandonment to claim the Premium Tax Credit as married filing separately).

5. He or she cannot be claimed as a dependent by another person.

To qualify for the credit, the taxpayer must get insurance through the Maryland Health Connection (MHC) Marketplace. If eligible for the credit, the taxpayer can choose to:

Get It Now: have some or all of the estimated credit paid in advance directly to the taxpayer’s insurance company to lower what he or she pays out-of-pocket for his or her monthly premiums during 2017; or

Get It Later: wait to get all of the credit when the taxpayer files the 2017 tax return in 2018. During enrollment through the Marketplace, using information the taxpayer provides about his or her projected income and family composition for 2017, the Marketplace will estimate the amount of the Premium Tax Credit he or she will be able to claim for the 2017 tax year that he or she will file in 2018. The taxpayer will then decide whether he or she wants to have all, some or none of the estimated credit paid in advance directly to his or her insurance company. The taxpayer reports income and family size changes to the Marketplace throughout the year. Reporting changes will help make sure he or she gets the proper type and amount of financial assistance and will help him or her avoid getting too much or too little in advance. Receiving too much or too little in advance can affect the taxpayer’s refund or balance due when he or she files his or her 2017 tax return in 2018. For example, if the taxpayer does not report income or family size changes to the Marketplace when they happen in 2017, the advance payments may not match his or her actual qualified credit amount on the Federal tax return that the taxpayer will file in 2017. This might result in a smaller refund or a balance due. For any tax year, if the taxpayer receives advance credit payments in any amount or if he or she plans to claim the Premium Tax Credit, the taxpayer must file a Federal income tax return for that year. If the taxpayer chooses to get it now: When the taxpayer files the 2017 tax return in 2018, he or she will subtract the total advance payments he or she received during the year from the amount of the Premium Tax Credit calculated on the tax return. If the Premium Tax Credit computed on the return is more than the advance payments made on the taxpayer’s behalf during the year, the difference will increase his or her refund or lower the amount of tax he or she owes. If the advance credit payments are more than the Premium Tax Credit, the difference will increase the amount the taxpayer owes and result in either a smaller refund or a balance due.


https://www.marylandhealthconnection.gov/


http://www.irs.gov/pub/irs-drop/n-14-23.pdf

http://www.irs.gov/pub/irs-drop/n-14-23.pdf




If the taxpayer chooses to get it later: The taxpayer will claim the full amount of the Premium Tax Credit when he or she files the 2017 tax return in 2018. This will either increase the taxpayer’s refund or lower his or her balance due. Individual Shared Responsibility Provision For tax year 2017, the IRS will not consider a return complete and accurate if the taxpayer does not report full-year coverage, claim a coverage exemption, or report a shared responsibility payment on the tax return. Most taxpayers have qualifying health coverage for all 12 months in the year, and will check the "Full-year coverage" box on their tax return. Taxpayers who do not have full-year coverage will indicate whether they qualify for a coverage exemption or owe a shared responsibility payment. Executive Order 13765 was issued on January 20, 2017, and directed Federal agencies to exercise authority and discretion available to them to reduce potential burden. However, legislative provisions of the ACA are still in force until changed by the Congress, and taxpayers remain obligated to follow the law and pay what they may owe. Taxpayers should continue to file their tax returns as they normally would. Under the Affordable Care Act, the Federal government, State governments, insurers, employers, and individuals share the responsibility for health insurance coverage. Many people already have qualifying health insurance coverage (called minimum essential coverage) and do not need to do anything more than maintain that coverage. The individual shared responsibility provision requires the taxpayer and each member of his or her family to either:

Have qualifying health coverage called minimum essential coverage. Qualify for a health coverage exemption. Make a shared responsibility payment when he or she files his or her Federal income tax return.

If the taxpayer and his or her family need to acquire minimum essential coverage, he or she may have several options. Minimum essential coverage includes:

Health insurance coverage provided by his or her employer. Health insurance purchased through the Health Insurance Marketplace in the area where he or she lives,

where he or she may qualify for financial assistance. Coverage provided under a government-sponsored program for which he or she is eligible (including

Medicare, Medicaid, and health care programs for veterans). Health insurance purchased directly from an insurance company. Other health insurance coverage that is recognized by the Department of Health & Human Services as

minimum essential coverage. U.S. citizens who are residents of a foreign country for an entire year, and residents of U.S. territories, are deemed to have minimum essential coverage.

For purposes of the individual shared responsibility payment, the taxpayer is considered to have minimum essential coverage for the entire month as long as he or she has minimum essential coverage for at least one day during that month. For example, if the taxpayer starts a new job on June 26 and is covered under his or her employer’s health coverage starting on that day, the taxpayer is treated as having coverage for the entire month of June. Similarly, if the taxpayer is eligible for an exemption for any one day of a month, he or she is treated as exempt for the entire month. The taxpayer may be exempt from the requirement to maintain minimum essential coverage and thus will not have to make a shared responsibility payment when he or she files the 2017 Federal income tax return in 2018, if he or she meets certain criteria. The taxpayer may be exempt if: (4)

He or she has no affordable coverage options because the minimum amount he or she must pay for the annual premiums is more than 8% of household income.

He or she has a gap in coverage for less than three consecutive months. He or she qualifies for an exemption for one of several other reasons, including having a hardship that

prevents him or her from obtaining coverage, or belonging to a group explicitly exempt from the requirement.




If the taxpayer or any of his or her dependents do not have minimum essential coverage and do not have an exemption, the taxpayer will need to make an individual shared responsibility payment on the tax return. If the taxpayer must make an individual shared responsibility payment, the annual payment amount is the greater of a percentage of his or her household income or a flat dollar amount, but is capped at the national average premium for a bronze level health plan available through the Marketplace. The taxpayer will owe 1/12th of the annual payment for each month him or herself or his or her dependent(s) do not have either coverage or an exemption. For 2017, an individual will pay whichever of these amounts is higher:

1. 2.5% of his or her yearly household income (to determine payment using the income formula, subtract filing threshold from household income). The maximum penalty is the national average yearly premium for a bronze plan.

2. $695 per person for the year ($347.50 per child under 18). The maximum penalty per family using this method is $2,085.

The fee may increase every year as it is adjusted for inflation. If an individual is uninsured for just part of the year, 1/12 of the yearly penalty applies to each month he or she uninsured. If the individual is uninsured for less than 3 months, he or she does not have a make a payment. The taxpayer will pay the fee on his or her Federal income tax return. The following types of health plans that do not meet minimum essential coverage do not qualify as coverage in 2017. If the individual only has these types of coverage, he or she may have to pay the fee. Examples include:

Coverage only for vision care or dental care. Workers' compensation. Coverage only for a specific disease or condition. Plans that offer only discounts on medical services.

Maryland Health Benefit Exchange (MHBE) The Affordable Care Act (ACA) required states to establish and operate a health insurance exchange by 2014, or to participate in a Federal exchange. Maryland opted to create Maryland Health Connection, a marketplace for Marylanders to shop for and enroll in health plans. The Maryland Health Benefit Exchange Act of 2012 established programs to serve both the Individual and the SHOP Exchanges. Nearly 250,000 Marylanders are expected to become newly insured as a result of expanded Medicaid eligibility and the creation of subsidized health insurance products offered through Maryland Health Connection (MHC). To successfully enroll the State’s uninsured residents in coverage options available through the Affordable Care Act, the MHBE has developed the Connector Program to provide robust outreach and enrollment mechanisms to help consumers learn about, apply for and enroll in an appropriate health insurance product, including Medicaid, the Maryland Children’s Health Program, and subsidized and non-subsidized qualified health plans. Affordable Care Act Tax Credits for Small Businesses in Maryland Small businesses in Maryland are potentially eligible for Federal tax credits under the Affordable Care Act. The value of the tax credit depends on the number of employees and average wage. The credit was worth up to 35% of eligible premium expenses for tax years 2010 - 2013. For tax years beginning in 2014 or later, there were changes to the credit:

The maximum credit increased to 50% of premiums paid for small business employers and 35% of premiums paid for small tax-exempt employers.

To be eligible for the credit, a small employer must pay premiums on behalf of employees enrolled in a qualified health plan offered through a Small Business Health Options Program (SHOP) Marketplace or qualify for an exception to this requirement.

The credit is available to eligible employers for two consecutive taxable years.




The Small Business Health Care Tax Credit benefits employers that:

Have fewer than 25 full-time equivalent employees. Pay an average wage of less than $50,000 a year. Pay at least half of employee health insurance premiums.

Even if the taxpayer is a small business employer who did not owe tax during the year, he or she can carry the credit back or forward to other tax years. Also, since the amount of the health insurance premium payments is more than the total credit, eligible small businesses can still claim a business expense deduction for the premiums in excess of the credit. That is both a credit and a deduction for employee premium payments.

To find out what percentage of the Federal tax credit a taxpayer will most likely qualify for given his or her number of employees and their average annual wages, visit the tax credit calculator for Small Business Tax Credits.

Insurance Tax Exemption Enacted for Nonprofit Health Insurers Legislation has been enacted that exempts qualified nonprofit health insurance issuers established under the Federal Patient Protection and Affordable Care Act (ACA) from Maryland insurance premium tax. Such entities are part of the Consumer Operated and Orientated Plan (COOP) program under ACA. The exemption terminates June 30, 2018.

Significant Maryland Tax Law Legislation Subtraction for Civil Air Patrol Members For tax year 2015 and beyond, eligibility for the Maryland personal income tax subtraction that is available for qualifying volunteer fire, rescue, or emergency medical services personnel will be expanded to include members of the Maryland Civil Air Patrol. Certain Damages Awarded for Unlawful Discrimination may be Deducted Legislation provides a subtraction from Maryland personal income tax, to the extent included in Federal adjusted gross income, for payments received by a claimant for noneconomic damages as a result of certain claims of unlawful discrimination. Sales by School-Related Organizations Exempted Maryland sales and use tax does not apply to sales made by a parent-teacher organization or other organization within an elementary or secondary school or school system in Maryland. Motorcycles Now Subject to Short-term Vehicle Rental Tax The Maryland short-term vehicle rental tax applies to rentals of motorcycles for a period of 180 days or less. Corporate Lodging Facilities Exempt from County Hotel Taxes County hotel taxes do not apply to the sale of a right to occupy a room as a transient guest at a dormitory or lodging facility that:

Provides lodging solely for employees, contractors, vendors, and other invitees of the corporation that owns the dormitory or lodging facility.

Is operated solely in support of a headquarters, training, conference, or awards facility, or the campus of a corporation or other organization.

Does not offer lodging to the general public. As before, lodging at such facilities is exempt from state sales and use taxes.


http://smallbusinesstaxcredits.org/



State Department of Assessments and Taxation (SDAT) Must Maintain an Internet Database of

Single-family Home Values The State Department of Assessments and Taxation must maintain a searchable database on its website that relates to the Maryland property tax valuation of single-family residential real property. Environmental Surcharge on Electricity Extended The termination date for the environmental surcharge per kilowatt hour of electricity discharged to retail electric customers within Maryland is extended from June 30, 2015 to June 30, 2020. Each electric company is authorized to add the full amount of the surcharge to its customers’ bills. Health Enterprise Zone Hiring Tax Credit A Health Enterprise Zone (HEZ) Employer may be eligible for a refundable income tax credit based on wages paid to qualified employees. To be eligible for the credit, the HEZ Employer may create one or more qualified positions within a 24-month period. The $10,000 credit must be taken over a 24-month period, with half of the credit amount allowed beginning with the first year certified. This credit is for qualified employees hired by a Health Enterprise Zone Employer after December 31, 2012 and before January 1, 2017. No credit may be earned for any tax year beginning on or after January 1, 2017.

Credit eligibility has been expanded to include certain profit and not-for-profit entities which employ qualified employees and provide health care services in a HEZ.

Job Creation Tax Credit The termination date of the Job Creation Tax Credit is extended from January 1, 2014 to January 1, 2020. After the termination of the credit, a business entity may be considered eligible for the credit based on positions filled before termination, provided that other requirements are satisfied. Film Production Tax Credit A qualified film production entity may claim a credit against the State income tax for film production activities in the state in an amount equal to the amount stated in the final tax credit certificate approved by the Maryland Department of Commerce (DOC). To claim the credit, before beginning a film production activity, a qualified film production entity shall apply with the Maryland Department of Commerce for an initial credit certificate for the estimated production costs. To qualify as a film production entity, the estimated total direct costs incurred in Maryland must exceed $500,000. The credit claimed cannot exceed the amount stated in the final certificate. After the production activity is completed, the film production entity must apply to the DOC for a tax credit certificate, providing proof of the total direct costs that qualify for the credit and the number of employees hired and qualifying wages paid. DOC will determine the total direct costs that qualify for a refundable Maryland income tax credit and issue a tax credit certificate for 25% of the total direct costs that qualify for the refundable income tax credit (27% of the total qualified direct costs for a television series). A film production entity will not receive more credit than the amount certified by DOC. This tax credit is a refundable tax credit, i.e. if the tax credit allowed in any taxable year exceeds the total tax otherwise payable by the qualified film production entity for that taxable year, the qualified film production entity may claim a refund in the amount of the excess. For taxable years beginning after December 31, 2012, this credit is available only with an electronically-filed return. A copy of the final certificate issued by DOC must be included with the electronic return, and the Form 500CR section of the return must be completed.




Employees with Disabilities Tax Credit Legislation has been enacted that repeals the termination date for the credit against Maryland corporate and personal income tax for employers that hire qualifying individuals with disabilities. Research and Development Tax Credits Businesses that incur qualified research and development expenses in Maryland may be entitled to tax credits. The total of research and development credits for all businesses may not exceed $9,000,000 per year. There are two credits. The Basic Credit is 3% of the qualified Maryland research and development expenses paid during the tax year, up to a base amount. The Growth Credit is 10% of the Maryland research and development expenses paid during the tax year that exceed the base amount. Certification must be obtained from the Maryland Department of Business and Economic Development (DBED) before the credit can be claimed. The credit must be taken for the tax year in which the expenses were incurred. Therefore, an electronic amended return may need to be filed. A copy of the certification from DBED must be included with the return. (5) Wineries and Vineyards Tax Credit Maryland legislation provides a credit against corporate and personal income tax liabilities equal to 25% of the qualified capital expenses made in connection with the establishment of new wineries or vineyards or capital improvements made to existing wineries or vineyards. The total amount of credits approved by the Department of Business and Economic Development for a taxable year cannot exceed $500,000. The credit is applicable to taxable years beginning after December 31, 2012, and expires June 30, 2018. Credits Enacted for Registration of Certain Tractors A credit is allowed for the expense of registering a qualified vehicle in Maryland. “Qualified vehicle” means a Class F (Tractor) vehicle described under Section 13-923(a) of the Transportation Article that is titled and registered in Maryland. Upon approval of an application by an individual or business, the Maryland Vehicle Administration (MVA) will issue a tax credit certificate in the amount of $400 for each qualifying vehicle registered during the taxable year. The aggregate amount of the tax credit certificate issued may not exceed $10,000 for any one taxpayer. An individual or business that obtains a tax credit certificate may claim credit against the State income tax for the amount on the tax credit certificate. The credit allowed may not exceed the State income tax for the taxable year. Any unused credit amount for the tax year may not be carried forward to any other taxable year. A copy of the tax credit certificate from MVA must be included with your tax return when claiming this tax credit. No credit may be earned for any tax year beginning on or after January 1, 2020. Credit for Costs of Security Clearances Increased Businesses that incur qualified Federal security clearance administrative expenses, and construction and equipment costs for constructing or renovating sensitive compartmented information facilities (SCIFs) in Maryland may be eligible for a State income tax credit. In addition, a qualified small business that performs security-based contracting in Maryland may be eligible for a State income tax credit for the first year of rental payments for spaces leased in Maryland. For a business to be eligible, it must apply to and be certified by the Maryland Department of Business and Economic Development (DBED.) Legislation amends the employer security clearance cost tax credit available against Maryland corporate and personal income tax liabilities. The maximum amount of credit is increased from $100,000 to $200,000 and from $250,000 to $500,000 for multiple sensitive compartmented information facilities (SCIFs). Also, certain rental payments incurred by a small business that performs security-based contracting qualify for the credit. Qualified Maryland Biotechnology Company Definition Expanded Legislation expands the definition of ‘‘qualified Maryland biotechnology company’’ for purposes of the biotechnology investment tax credit available against corporate and personal income taxes to include a company that has been in




active business for up to 10 (previously, 15) years from the date the company first received a qualified investment. The definition applies to all initial tax credit certificates issued after June 30, 2013. Total Annual Contribution to Community Assistance Program Increased The maximum total of contributions in a fiscal year that are eligible for a corporate or personal income tax credit under the Department of Housing and Community Development’s (DHCD) Neighborhood and Community Assistance Program is increased from $2 million to $3.5 million. In addition, when considering approval or disapproval of a proposal for a project under the program and in determining the maximum sum of contributions eligible for the tax credit, the DHCD may give preference to a neighborhood conservation district that is locally designated. Acreage Qualification for Reforestation Deduction Expanded A Maryland corporate and personal income tax subtraction modification is available for twice the amount of expenses for reforestation or timber stand improvement activity on 3 to 1,000 (previously, 10 to 100) acres of land. The expansion of eligible acreage is effective October 1, 2013. Deduction for Conservation Tillage Equipment Expanded Legislation applicable to taxable years beginning after December 31, 2012, amends the subtraction modification for conservation tillage equipment for purposes of computing Maryland corporate and personal income taxes. The subtraction modification that formerly applied to ‘‘conservation tillage equipment’’ now applies to ‘‘enhanced agricultural management equipment’’ and is expanded to include qualified purchases of specified:

1. Manure spreading equipment. 2. Vertical tillage equipment. 3. Global positioning system devices used for management of agricultural nutrient applications. 4. Integrated optical sensing and nutrient application systems.

The subtraction modification for qualified purchases of vertical tillage equipment is equal to 50% of eligible costs incurred. All equipment must be retained for three years following the tax year that the subtraction is taken. Tax returns must be adjusted if the equipment is sold or traded before the three-year retention period ends. Farmers who claim a deduction for manure spreading or injection equipment or equipment to manage nutrient applications may be subject to a spot check. Certification of equipment for the income tax subtraction is authorized by Section 208 of the Tax General Article, Laws of Maryland. Credit for Historic Structure Restoration and Preservation Increased The property tax credit for the restoration and preservation of a structure that has historic or architectural value is increased from 10% to 25% of the properly documented expenses, applicable to tax years beginning after June 30, 2013. Application Deadline for Homestead Credit Changed An application for a Maryland homestead property tax credit must be filed with the State Department of Assessments and Taxation on or before the May 1 preceding the first taxable year for which the property tax credit is to be allowed. Previously, the application was due on or before July 1 of the first taxable year for which the property tax credit is to be allowed. Nexus Limitation Created for Out-of-State Businesses Doing Disaster Related Work An out-of-state business that performs disaster or emergency related work in Maryland during a disaster period does not establish a level of presence that would require the business or its out-of-state employees to be subject to state or local licensing or registration requirements, state or county income taxes, income tax withholding with respect to out-of-state employees, unemployment insurance contributions, personal property tax, or any requirement to collect sales and use tax. ‘‘Disaster period’’ means a period that begins 10 days before the first day and ends 60 days after the last day of a declared state disaster or emergency.




An ‘‘out-of-state business’’ is a business entity that had no registrations, nexus, or tax filings in Maryland prior to the declared state disaster or emergency and is requested by a registered business or the state or a local government to perform disaster or emergency related work during a disaster period. The term includes a business entity that is affiliated with a business in the state solely through common ownership. ‘‘Disaster or emergency related work’’ means repairing, renovating, installing, building, rendering services, or other business activities that relate to infrastructure that was damaged, impaired or destroyed by the declared disaster or emergency. A business must provide to the Comptroller a statement that the business is in the state solely for purposes of performing disaster or emergency related work. Tax Credit Evaluation Process Established Maryland has enacted legislation that establishes a legislative review process for evaluating certain corporate, personal, and property tax credits. A tax credit that has a termination date provided by law must be evaluated on or before July 1 of the year preceding the calendar year of the termination date. Otherwise, a tax credit evaluation must occur on or before July 1, 2014, for wages paid in an enterprise zone (Section 10-702, Tax General Art.), qualified property in an enterprise zone (Section 9-103, Prop. Tax Art.), and the One Maryland Credit (Section 10-714, Tax General Art.); on or before July 1, 2015, for earned income (Section 10-704, Tax General Art.), and film production activity (Section 10-730, Tax General Art.); on or before July 1, 2016, for sustainable communities (Section 10-704.5, Tax General Art.), and qualified research and development expenses (Section 10-721, Tax General Art.); and on or before July 1, 2017, for new job creating businesses (Section 10-704.8, Tax General Art.) and biotechnology investments (10-726 Tax General Art.). The evaluation process is to be conducted by a legislative evaluation committee in consultation with the Comptroller’s Office, the Department of Budget and Management, and the Department of Legislative Services. The committee is appointed jointly by the President of the Senate and the Speaker of the House and must include at least one member of the Senate Budget and Taxation Committee and one member of the House Ways and Means Committee. The evaluation report must recommend whether each tax credit should continue, with or without changes, or terminate. A tax credit that is not renewed before its evaluation date will terminate. If a credit is renewed, it will be subject to reevaluation in five years unless another period is set by law. Sales and Use Tax Changes Due to legislative changes, there is a section on Sales and Use Tax Form 202 for the 9-1-1 Surcharge Fee. Sellers of prepaid wireless telecommunications services are required to report and remit all Prepaid Wireless E 9-1-1 Fees collected by the seller for retail transactions of prepaid wireless telecommunications. Also, taxpayers may no longer include or report sales and use taxes using the Electronic Funds Transfer Automated Clearinghouse (EFT ACH) option. Small Business Research and Development Tax Credit The Small Business Research and Development Tax Credit is refundable. Research and Development tax credits certified after December 15, 2012 are refundable for “small business” to the extent that the tax credits exceed the income tax liability for that taxable year. A small business means a for-profit corporation, limited liability company, partnership or sole proprietorship with net book value assets totaling, at the beginning or the end of the taxable year for which the Maryland Qualified Research and Development expenses are incurred, as reported on the balance sheet, less than $5,000,000. The tax credit remains in effect until January 1, 2020, subject to extension by the General Assembly. (6) Business Personal Property Taxes In Maryland there is a tax on business owned personal property which is imposed and collected by the local governments. Responsibility for the assessment of all personal property throughout Maryland rests with the Department of Assessments and Taxation.

Personal property generally includes furniture, fixtures, office and industrial equipment, machinery, tools, supplies, inventory and any other property not classified as real property. Personal property, except inventory, is assessed based on the original cost less an annual depreciation allowance. (7)




Refundable Business Income Tax Credits Maryland refundable business tax credits include: (2)

One Maryland Economic Development Tax Credit. Biotechnology Investment Incentive Tax Credit. Clean Energy Incentive Tax Credit. Film Production Tax Credit. Small Business Research and Development Tax Credit. Cybersecurity Investment Incentive Tax Credit. Aerospace, Electronics, or Defense Contract Tax Credit.

Review Question 1 In 2017, Samantha had $4,000 of qualified capital expenses, approved by the Department of Business and Economic Development, incurred in connection with the establishment of a new winery in Maryland. What amount of credit can she claim on her Maryland state income tax return?

A. $1,000 B. $1,500 C. $1,750 D. $2,000

See Review Feedback for answer.

Tax Calendar Below are significant dates of interest to the Maryland taxpayer and tax practitioner: January 1st - Assessments of real property become final for next taxable year. 15th - Final declaration and payment of estimated income tax due; declaration of estimated tax for farmers due. 31st - Statements must be furnished to employees for income taxes withheld in previous year on or before this date

and final estimated income tax return and balance of tax due.

February 28th - Copy of withholding statement must be submitted to Comptroller. March 1st - Full and complete returns and full amount of income tax due for farmers and fishers. 15th - Calendar-year corporations’ income tax returns due; Public service company franchise tax returns due; Reports

and payments of gross premiums taxes on insurance companies due. April 17th - Calendar-year individuals’ income tax returns and payments due; Personal property tax returns due Declaration

of estimated tax (gross receipts tax) due from utilities expecting to incur over $1,000 of tax. 30th - Renewal fees for alcoholic beverage licenses are due; Renewal fees for motor vehicle distributor, manufacturer,

and factory branch licenses due.

May 15th - Annual report for income-producing property due.

June 1st - Annual gross receipts tax on utilities due; Homestead Property Tax Credit applications due.

July 1st - Property taxes due.




September 1st - Elderly or Disabled Renters’ Property Tax Credit applications due; Homestead Property Tax Credit applications

due. 15th - Surplus lines brokers premiums tax due. 30th - End of grace period for payment of property tax without interest. Quarterly Recurring Dates January 15th - Quarterly returns and payment of income taxes withheld due from employers. 21st - Consumer use tax due (for purchases October - December).

April 15th - First declaration and payment of estimated income tax from individuals due; Quarterly declaration and payment

of estimated income tax from calendar year corporations due; Quarterly returns and payment of income taxes withheld due from employers.

21st - Consumer use tax due (for purchases January - March). June 15th - Second declaration and payment of estimated tax due from individuals; Quarterly declaration and payment of

estimated income tax from calendar year corporations.

July 15th - Quarterly returns and payment of income taxes withheld due from employers. 21st - Consumer use tax due (for purchases April. - June). September 15th - Quarterly declaration and payment of estimated income tax from calendar year corporations.

October 15th - Quarterly returns and payment of income taxes withheld due from employers. 21st - Consumer use tax due (for purchases July - September). December 15th - Quarterly declaration and payment of estimated income tax from calendar year corporations; Fourth declaration

and payment of estimated tax due from individuals. Monthly Recurring Dates 10th - Alcoholic beverage manufacturers’ & wholesalers’ return and payment due; Admissions tax returns and

payments due. 15th - Monthly returns and payments of income tax withheld due from employers. 20th - Monthly sales and use tax returns and payments due. 21st - Wholesalers’ tobacco tax returns due. 25th - Alcoholic beverage tax returns & payments due from holders of Class E, F, and G licenses. Last day - Monthly returns and payment of income taxes withheld due from employers for March, June, September, and December.

Overview of Personal Income Tax The current Maryland personal income tax is imposed by Title 10 of the General Tax Article of the Maryland Code. Regulations governing personal income tax can be found at Title 3, Subtitle 4 of the Code of Maryland Regulations. Maryland’s personal income tax is imposed on the Maryland taxable income of each individual and fiduciary. Maryland counties and the city of Baltimore also impose a local personal income tax. Maryland adopts Federal adjusted gross income with certain additions and subtractions as the starting point for the determination of Maryland taxable income. Either the standard deduction or itemized deductions are then subtracted




to arrive at Maryland taxable net income, which is used to determine the amount of Maryland state and local tax. Refundable and nonrefundable tax credits are then subtracted to determine the amount of tax due or refunds owed. Residents are subject to tax on their total Federal adjusted gross income minus the adjustments discussed above. Part-year residents are subject to tax on their Maryland taxable income for the part of the year in which they were residents of Maryland. Nonresidents are subject to Maryland personal income tax on that portion of their adjusted gross income that is derived from income of a business, trade, profession, or occupation carried on in Maryland. The Maryland Comptroller of the Treasury is charged with the administration of Maryland’s income tax laws. Local income taxes are collected by the Comptroller in conjunction with the state income tax and distributed to the respective counties on a quarterly basis. A decision of the Maryland Comptroller of the Treasury may be appealed to the Maryland Tax Court. Filing Status Generally, taxpayers must use the same filing status as declared on their Federal income tax return, or, if the taxpayer did not file a Federal return, the same filing status as would be required under Federal law. However, Maryland has a dependent taxpayer filing status that is not authorized under Federal law. Taxpayers who are single and who may be claimed as a dependent on another taxpayer’s return must use the dependent taxpayer filing status. In addition, a husband and wife who file a joint Federal income tax return may file separate Maryland income tax returns if: (8)

One spouse is a resident and the other spouse is a nonresident. The spouses are domiciled, or maintain principal places of abode, in different counties on the last day of the

taxable year. The spouses have different tax periods. The Comptroller determines that the specific circumstances are such that filing a separate return is

acceptable.

Married couples who have the option of filing either a joint or a separate return should calculate their taxes using both filing statuses to determine which status is more advantageous. Only married taxpayers who file joint returns and who both have taxable income can claim the two-income married couple subtraction of up to $1,200. Legally married same-sex couples may file a joint income tax return in Maryland. Generally, each resident and each nonresident of this state shall use the same filing status used on their Federal income tax return or the same filing status as if the individual had been required to file a Federal income tax return. The U.S.

Internal Revenue Service now allows same-sex spouses to file joint Federal income tax returns. All legally married couples who file Maryland income tax returns must select their Maryland filing status under the same rules. Dependent Taxpayer Any person who can be claimed as a dependent on his or her parent's (or another person's) Federal return should use the Dependent taxpayer filing status. Single Dependent taxpayers, regardless of whether income was earned or unearned, are not required to file a Maryland income tax return unless their Maryland gross income is $10,400 or more in 2017. Who is Subject to the Tax A tax is imposed on the Maryland taxable income of each individual resident, nonresident, and fiduciary. Residents A “resident” individual subject to Maryland personal income tax is any person who is domiciled in Maryland on the last day of the taxable year. Alternatively, residency may be established if both of the following conditions are true: (9)

1. An individual maintains a place of abode in Maryland for more than six months of the taxable year. 2. Spends, in the aggregate, 183 days or more in Maryland during the taxable year.




Mere ownership of a residence without actual occupancy for six months of the taxable year is not sufficient to subject an individual to Maryland income taxation. Effect of Domicile A key factor in residency issues is determining whether an individual has established a domicile in Maryland or in another state. A domicile and an abode are not the same thing. An individual may have several places of abode, but only one domicile. The Maryland Court of Appeals defined “domicile” as “that place where a person has his or her true, fixed, permanent home, habitation, and principal establishment without any present intention of removing therefrom, and to which place he or she has, whenever he or she is absent, the intention of returning.” Domicile is a question of intent. It is established by the individual intending to treat a place as the person’s true, fixed, and permanent home. However, an individual’s mere intent to treat a place as the person’s domicile is not enough. Intent must be supported by action. An individual must take specific actions to change the person’s domicile. The individual must be physically present in the new domicile and must establish ties that create the new domicile, while severing ties with the old domicile. Factors considered in determining whether domicile is established include:

Where homes are located. Where business is conducted. Where cars are registered and driver’s license is issued. Where bank accounts are maintained. Where the taxpayer registers to vote. Terms of employment contracts. Where personal belongings are stored.

Additional criteria used to determine a person’s domicile include home, time, items near and dear, active business involvement, and family connections. The total facts and circumstances of each case are reviewed to determine whether a change of domicile has occurred. A taxpayer’s domicile has not changed simply because his or her job assignment sent him or her out of Maryland. Temporary absences from Maryland do not constitute a change of domicile.

In situations in which a taxpayer moves from Maryland to a state that does not impose an income tax, the Maryland Comptroller and the Maryland Tax Court apply a “strict scrutiny” test to determine whether there has been an actual change in domicile.

Presence in New Domicile A taxpayer not only has to abandon the taxpayer’s old domicile, but the person must establish a new domicile. In order to establish a new superseding domicile, the taxpayer must be physically present in the state or foreign country that the individual intends to be the new domicile. For example, a taxpayer cannot leave Maryland for an assignment in Spain, but claim Florida as their new domicile without being physically present in Florida and without taking steps to establish the new Florida domicile. Once an individual establishes a domicile, it continues until it is superseded by the individual establishing a new domicile. Every person at all times must have a domicile. An individual may have more than one residence, but can only have one domicile. Part-Year Residents Individuals who move to Maryland during the taxable year with the intent to be domiciled in Maryland, and individuals who move outside Maryland before the last day of the taxable year with a bona fide intent to remain permanently outside Maryland, are required to file a part-year resident return for that portion of the year in which they were Maryland residents. In the event that such an individual again resides in Maryland within six months after having moved outside the state, there is a rebuttable presumption that the individual did not have a bona fide intention to remain permanently outside Maryland. A part-year resident must file Form 502 - Resident Income Tax Return.





Example: Part year residents who work in Maryland for the entire year The typical part-year resident rules contemplate that the taxpayer moves into or out of Maryland and starts or stops working in Maryland at the time of the move. Another common situation, however, is that the taxpayer works in Maryland for the entire year, during which time he or she moves into or out of Maryland. In such circumstances, the taxpayer would have to file a part-year resident return for that portion of the year in which he or she was a Maryland resident and a nonresident return for that portion of the year in which he or she was not a Maryland resident but had Maryland source income. Statutory Resident An individual may also be a resident of Maryland, even though not domiciled in this State, if the individual maintains a place of abode in Maryland for more than six months of the taxable year and is physically present for 183 days or more during the taxable year. The term “maintaining a place of abode in this State for more than six months of the taxable year” is not intended to include every person who owns property within this State. If a residence is used for the purpose of a vacation home or for the purpose of returning to Maryland to visit family and friends, then the individual cannot be considered a resident of this State unless they are physically present in the State for 183 days or more of the taxable year. Nonresidents If the taxpayer is a nonresident of Maryland, he or she is required to file Form 505 - Maryland Nonresident Income Tax Return and Form 505NR - Maryland Nonresident Income Tax Calculation if he or she has income derived from: (10)

The portion of Federal adjusted gross income that is derived from tangible real or personal property permanently located in Maryland (whether received directly or from a fiduciary).

Income from a business, trade, profession, or occupation carried on in Maryland. All gambling winnings derived from Maryland sources.

Adjustments to Federal gross income and losses not allocable to Maryland may not be used by nonresidents to reduce Maryland income.

There is a special tax on nonresidents. Individuals subject to Maryland income tax but not a county income tax (i.e., nonresidents) are subject to the lowest county income tax rate set by any Maryland county (currently 1.75%).

An individual who maintains a place of abode in Maryland for more than six months of the taxable year and is not domiciled in Maryland is considered a nonresident if the individual is:

An active member of the armed forces. A midshipman of the Naval Academy in Annapolis. A commissioned officer of the U.S. Public Health Service.

Generally, taxpayers should file a return in their state of residence. If a taxpayer lives in Washington, D.C., Pennsylvania, Virginia, or West Virginia but works in Maryland, the taxpayer should file a return only in his or her home state and not in Maryland, unless Maryland income tax was withheld or the taxpayer had Maryland income from non-wage sources. Maryland residents who work in any other jurisdiction on a regular basis should check with that government to determine their taxable status under that state’s laws (Personal Tax Tip #56 - When You Live in One State and Work in Another, Maryland Comptroller of the Treasury). The taxpayer is not required to file as a nonresident if: (10)

His or her Maryland gross income is less than the minimum filing level for his or her filing status. He or she had no income from a Maryland source. He or she resides in Pennsylvania, Virginia, West Virginia or Washington, D.C., and earned only wages in

Maryland.




http://forms.marylandtaxes.com/current_forms/505nr.pdf

http://taxes.marylandtaxes.com/Resource_Library/Tax_Publications/Tax_Tips/Personal_Tax_Tips/tip56.pdf

http://taxes.marylandtaxes.com/Resource_Library/Tax_Publications/Tax_Tips/Personal_Tax_Tips/tip56.pdf



If the taxpayer is exempt, but has had Maryland taxes withheld on wage or salary income earned in Maryland, he or she must use the following method to obtain a refund: (11)

Obtain nonresident Maryland Form 505 - Maryland Nonresident Income Tax Return. Complete all of the information at the top of the form through the filing status, residence information and

exemption areas. Enter the taxpayer’s Federal adjusted gross income on line 17 in both columns 1 and 3 and on line 24. Complete lines 33, 42-47, 49 and 51. Attach the state copy of W-2 form(s) showing the Maryland tax withheld. File a corrected Form MW507 - Employee’s Maryland Withholding Exemption Certificate with the taxpayer’s

employer. Be sure to complete line 4 of this form to stop the withholding of Maryland tax.

The possibility exists that the Comptroller may eliminate the use of Form 515 by Nonresidents employed in Maryland who reside in jurisdictions that impose a local income or earnings tax on Maryland residents. The Comptroller’s staff has noted that a very low volume of returns are currently filed so the necessity of maintaining the return may not be justified.

Military Personnel Military personnel are subject to special treatment. Under the Servicemembers Civil Relief Act, a person does not lose his or her domicile in any state solely by reason of being absent as a result of compliance with military or naval orders. Therefore, military and other personnel domiciled in Maryland, but who work or are stationed outside of the state, are taxed as residents and must pay on all income earned, regardless of source. If some of the income is from overseas service, the taxpayer may qualify for an adjustment from Federal adjusted gross income. Nonresident military personnel stationed in Maryland are not subject to Maryland income tax on their military compensation. However, nonresident military personnel are subject to tax on any non-military compensation earned from Maryland sources. The Military Residency Relief Act of 2009 prohibits a service member’s spouse from either losing or acquiring a residence or domicile for purposes of taxation because he or she is absent or present in any U.S. tax jurisdiction solely to be with the service member in compliance with the service member’s military orders, if the residence or domicile is the same for the service member and the spouse. It also prohibits a spouse’s income from being considered income earned when the spouse is in that jurisdiction solely to be with a service member serving under military orders. Maryland’s taxation of pay and benefits received by members of the U.S. Armed Forces is generally the same as Federal because the starting point for Maryland taxable income is Federal taxable income. The following income of military personnel is subject to both Federal and Maryland income taxes:

Active duty and reserve training pay. Incentive pay. Travel and per diem allowances. Enlistment and reenlistment bonuses. Severance, separation, or release pay. Lump sum payments for accrued leave. Personal allowances for high ranking officials. Military retirement pay based on age or length of service. Scholarships and student loan repayments. Payments received from a former employer.

Maryland does provide subtractions for the first $5,000 of military retirement income received by qualified individuals, a subtraction modification on certain military retirement income, for individuals who are 65 years or over, of $10,000 and the first $15,000 of military pay received by military service personnel serving outside the United States. Fiduciaries and Personal Representatives A fiduciary is any person holding the legal title to property for the use and benefit of another person. For purposes of the income tax, a “person” is a natural person, partnership, limited partnership, trust, estate, association, limited liability, or a corporation.



http://forms.marylandtaxes.com/current_forms/mw507.pdf



Resident fiduciaries and personal representatives are subject to Maryland income tax. Fiduciaries are considered residents of Maryland if:

The trust was created, or consists of, property transferred by the will of a decedent who was a Maryland domiciliary on the date of the decedent’s death.

The creator or grantor of the trust is a current Maryland resident. The trust is principally administered in Maryland.

Personal representatives are also considered fiduciaries. Personal representatives of an estate are residents of Maryland and subject to Maryland income tax if the decedent was domiciled in Maryland on the date of the decedent’s death. The following individuals are not considered to be fiduciaries for purposes of personal income taxation:

Agents holding custody or possession of property that is owned by the principal of the agent. Guardians. A committee or trustee for an incompetent. An individual, firm, or corporation acting individually or collectively as manager or trustee of an exempt

employees’ pension fund.

Furthermore, even though a person may be required to file a Federal income tax return, he or she is not required to file a Maryland fiduciary return if the person is either an agent holding custody or possession of property owned by his or her principal, or a guardian. For additional information of the tax treatment of fiduciaries, including trusts and estates, see Administrative Release No. 16 - Maryland Comptroller of the

Treasury, September 2011. Persons Subject to Local Income Tax The following individuals are subject to local income taxes:

Each resident, other than a fiduciary, who on the last day of the taxable year is domiciled in a Maryland county or maintains a principal residence or a place of abode in a Maryland county.

Each personal representative of an estate if the decedent was domiciled in a Maryland county on the date of the decedent’s death.

Each resident fiduciary of a trust that is principally administered in a Maryland county or that is otherwise principally connected to a Maryland county and is not principally administered in Maryland.

A nonresident is liable for county income tax on income from salary, wages, or other compensation from employment in the county unless the Comptroller determines that:

The locality in which the nonresident resides imposes no tax on income of a Maryland resident from wages earned in that locality.

The locality exempts the income from its income tax. The locality allows a credit for that income and exempts that income from its personal income withholding tax

requirements. Maryland Income Tax Form 515 - Nonresident Local Tax Return must be completed for nonresidents employed in Maryland who reside in the jurisdictions of Delaware, New York, and Pennsylvania that impose a local income or earnings tax on Maryland residents. Tax Rates The Maryland personal income tax utilizes a graduated rate scale, imposed on single individuals, married taxpayers filing separately, dependent taxpayers or fiduciaries according to the following income levels: (12)


http://taxes.marylandtaxes.com/Resource_Library/Tax_Publications/Administrative_Releases/Income_and_Estate_Tax_Releases/ar_it16.pdf




Maryland Taxable Net Income Maryland Tax Rate $1 - $1,000 2.00% $1,000 - $2,000 $20 plus 3.00% of the excess over $1,000 $2,000 - $3,000 $50 plus 4.00% of the excess over $2,000 $3,000 - $100,000 $90 plus 4.75% of the excess over $3,000 $100,000 - $125,000 $4,697.50 plus 5.00% of the excess over $100,000 $125,000 - $150,000 $5,947.50 plus 5.25% of the excess over $125,000 $150,000 - $250,000 $7,260.00 plus 5.50% of the excess over $150,000 Over $250,000 $12,760.00 plus 5.75% of the excess of $250,000

Table 1-1 - Maryland Income Tax Rates (2017)

There was a 6.25% bracket that expired for taxable years beginning after December 31, 2010, and the 5.75% bracket is new for tax year 2012 and beyond. An individual must compute personal income tax using the tax tables prepared by the Comptroller if the individual has income of less than $100,000 for the taxable year. The following graduated rates apply to spouses filing jointly, surviving spouses, and heads of household: Maryland Taxable Net Income Maryland Tax Rate $1 - $1,000 2.00% $1,000 - $2,000 $20 plus 3.00% of the excess over $1,000 $2,000 - $3,000 $50 plus 4.00% of the excess over $2,000 $3,000 - $150,000 $90 plus 4.75% of the excess over $3,000 $150,000 - $175,000 $7,072.50 plus 5.00% of the excess over $150,000 $175,000 - $225,000 $8,322.50 plus 5.25% of the excess over $175,000 $225,000 - $300,000 $10,947.50 plus 5.50% of the excess over $225,000 Over $300,000 $15,072.50 plus 5.75% of the excess over $300,000

Table 1-2 - Maryland Income Tax Rates (2017)

Use of Tax Table and Tax Rate Schedules The Maryland Tax Tables must be used for all returns on which the taxpayer’s taxable income is less than $100,000. The Maryland Tax Rate Schedules must be used for all returns on which the taxpayer’s taxable income is over $100,000. Local Income Tax Rates

Maryland's 23 counties and Baltimore City levy a local income tax which the Comptroller of Maryland collects on the state income tax return as a convenience for local governments. The local income tax is calculated as a percentage of the taxpayer’s taxable income. Local officials set the rates, which range between 1.75% and 3.20% for the current tax year. The taxpayer should report his or her local income tax amount on line 29 of long Form 502.

Local income tax is based on where the taxpayer lives - not where he or she works, or where his or her tax preparer is located. Be sure to use the correct rate for the local jurisdiction in which the taxpayer lives. (13) Local Tax Area 2017 2018 Allegany County .0305 .0305 Anne Arundel County .0250 .0250 Baltimore City .0320 .0320 Baltimore County .0283 .0283 Calvert County .0300 .0300




Caroline County .0273 .0273 Carroll County .0303 .0303 Cecil County .0280 .0300 Charles County .0303 .0303 Dorchester County .0262 .0262 Frederick County .0296 .0296 Garrett County .0265 .0265 Harford County .0306 .0306 Howard County .0320 .0320 Kent County .0285 .0285 Montgomery County .0320 .0320 Prince George's County .0320 .0320 Queen Anne's County .0320 .0320 St. Mary's County .0300 .0300 Somerset County .0320 .0320 Talbot County .0240 .0240 Washington County .0280 .0280 Wicomico County .0320 .0320 Worcester County .0175 .0175 Nonresidents .0175 .0175

Table 1-3 - Local Tax Area (2017)

For tax year 2017, Calvert County has increased its rate to 3.00% and Somerset County has increased its rate to 3.2%. Please note the changes on 2017 Form 502D. For tax year 2018 Cecil County has increased its rate to 3.00%. Please note the changes on 2018 Form 502D. Also, since the Special Nonresident Tax

Rate is tied to the lowest local rate, the Special Nonresident Tax Rate is 1.75% for 2017.

Maryland Returns Who Must File Generally, a taxpayer is required to file a Maryland income tax return if: (14)

The taxpayer is or was a Maryland resident. The taxpayer was required to file a Federal income tax return. The taxpayer’s Maryland gross income equals or exceeds the level listed below for his or her filing status (The

filing levels also apply to nonresident taxpayers who are required to file a Maryland return).

2017 Tax Year Minimum Filing Levels Filing Status Maryland Gross Income Single (including dependent taxpayers) Under 65 $10,400 65 or older $11,950 Head of Household Under 65 $13,400 65 or older $14,950 Married Filing Jointly Both under 65 $20,800




One spouse 65 or older $22,050 Both 65 or older $23,300 Married Filing Separately All (regardless of age) $4,050 Qualifying Widow(er) Under 65 $16,550 65 or older $18,000

Table 1-4 - Minimum Filing Levels Tables (2017)

Even if the taxpayer is not required to file a Federal return, he or she may be required to file a Maryland return if his or her Maryland addition modifications added to his or her gross income exceed the filing requirement for his or her filing status. Dependent taxpayers must take into account both their additions to and subtractions from income to determine their gross income.

One of the tax benefits for senior citizens is a higher income allowance before being required to file a Maryland income tax return. This applies to both resident and nonresident taxpayers. When calculating gross income for senior citizens to determine if they must file a Maryland return, do not include income from Social Security or Railroad Retirement benefits If the taxpayer lives in Maryland and works in Washington, D.C., Pennsylvania, Virginia or West Virginia he or she should file his or her state income tax return with Maryland. Maryland has a reciprocal agreement with these states. The agreement applies only to wages, salaries, tips and commissions. It does not apply to business income, farm income, rental income, gain from the sale of tangible property, etc. If the taxpayer had such income subject to tax in these states, he or she should complete Form 502CR - Maryland Income Tax Credits for Individuals and attach it and a copy of the other state’s nonresident income tax return (not just the taxpayer’s W-2 Form) to his or her Maryland return. Maryland residents who work in Delaware must file tax returns with both states. To avoid dual taxation, the taxpayer can get a credit for taxes paid to Delaware by completing Maryland Form 502CR - Maryland Income Tax Credits for Individuals and filing it with his or her Maryland income tax return. Be sure to include a copy of the taxpayer’s Delaware return Return Forms The principal Maryland income tax return forms are as follows: Resident individuals 502, 502B Nonresident and part-year residents 502, 505, 505NR, 515 Estates and Fiduciary MET–1, 504D Partnership, LLC, S-Corp, Bus. trust 510 Amended individual return 502X (resident), 505X(nonresident)

Table 1-5 - Maryland Return Forms (2017)

A copy of the Federal return and schedules must accompany the 505NR. It must also accompany the 502 if the taxpayer attached any Federal schedules other than Schedule A or B to the Federal return. If the taxpayer is not required to file a Maryland return but had Maryland taxes withheld and wants them refunded, then he or she must file a Maryland return. Taxpayers who are filing for refund only should complete all of the information at the top of Form 502 (Form 503 is no longer available) and complete the following lines: Form 502: 1-16, 23*, 30*, 35-43, 45, 47 *Enter a zero unless the taxpayer can claim an Earned Income Tax Credit on his or her Federal return.


http://forms.marylandtaxes.com/current_forms/502CR.pdf





Sign the form and attach withholding statements (all W-2, 1099, and K-1 forms) showing Maryland and local tax withheld equal to the withholding the taxpayer is claiming. The form is then complete. Use of Form 502

Maryland Form 502 - Maryland Resident Income Tax Return is similar to Federal Form 1040. All taxpayers may use Form 502. A taxpayer must use this form if they itemize deductions, have any Maryland additions or subtractions, have made estimated payments or are claiming business or personal income tax credits. The taxpayer must also use this form if they have moved into or out of Maryland during the tax year. If the

taxpayer has dependents to be claimed then include Form 502B - Dependents’ Information. What Form to File The taxpayer’s residency status largely determines which form he or she will need to file for his or her personal income tax return. (15)

IF THE TAXPAYER IS: THE TAXPAYER SHOULD FILE

The taxpayer is a Maryland resident and his or her Federal adjusted gross income (AGI) is less than $100,000.

Form 502 Resident Return and 502B Dependents’ Information

An individual whose permanent home (domicile) is a state other than Maryland unless he or she his is a statutory resident.

Form 505 Nonresident Return and Form 505NR Nonresident Income Tax Calculation

An individual who maintains a place of abode (that is, a place to live) for more than six months of the tax year in Maryland and he or she is physically present in Maryland for 183 days or more, he or she is a statutory resident.

Form 502 Resident Return

An individual who began or ended legal residence in Maryland during the tax year, he or she must file as a resident for that portion of the year during which he or she maintained Maryland residence, even if less than six months.

Form 502 Resident Return

A nonresident of Maryland but received salary, wages or other compensation for personal services performed in any Maryland county or Baltimore City and he or she lived in a jurisdiction that imposes a local or earnings tax on Maryland residents, NOTE: If the taxpayer has other income subject to Maryland tax, he or she must also file Form 505.

Form 515 Nonresident Local Tax Return

Taxpayer who moved into or out of Maryland during the tax year and received income from Maryland sources while he or she was a nonresident of Maryland.

Form 505 Nonresident Return and Form 502 Resident Return






The taxpayer is a nonresident and needs to amend his or her income tax return Form 505X Nonresident Amended Tax Return

Table 1-6 - What form to file (2017)

Reporting Federal Changes Most changes to a Federal return will result in changes on the Maryland return and the taxpayer will need the information from the Federal amendment to complete a Maryland amended return. Therefore, complete the amended Federal return first. Maryland law requires that income and deductions be entered on the Maryland return exactly as they were reported on the Federal return. However, all items reported on a Maryland return are subject to verification, audit and revision by the Maryland Comptroller’s Office. If the taxpayer is amending his or her Federal return, attach a photocopy of the Federal Form 1040X and any revised schedules to Maryland Form 502X - Amended Maryland Tax Return. If the tax owed has been increased by the Internal Revenue Service, the taxpayer must report this increase to the Maryland Revenue Administration Division within ninety (90) days from the final IRS determination.

Review Question 2 Edwin sold his home and ended his Maryland residence on April 1, 2017 by moving to New York. He earned a salary in Maryland. Which of the following is true regarding his Maryland state income tax return?

A. Edwin does not have to file a Maryland return because he maintained a residence for less than 6 months

B. Edwin should file Form 515 - Nonresident Local Return based on the fact that he earned wages in Maryland

C. Edwin should file Form 505 - Nonresident Return based on the fact that he earned wages in Maryland and that his permanent home is now in a state other than Maryland

D. Because he started the year as a resident, Edwin must file Form 502 - Resident Return, for the that portion of the year during which he maintained Maryland residence, even if less than 6 months


Maryland Electronic Filing (i-File) The Comptroller of Maryland accepts electronic filing of returns from individuals and professional preparers through the i-File program. This system allows online electronic filing of resident or nonresident personal income tax returns along with the most commonly associated schedules and forms. Mandatory Electronic Filing All income tax return preparers who have prepared, for compensation, more than a certain number of qualified State income tax returns in the prior taxable year, must file all qualified State income tax returns electronically. A qualified State income tax return is any original return of individual income tax imposed by Title 10 of the Tax-General Article, regardless of whether a tax is due or a refund is claimed. For any taxable year beginning after December 31, 2010, a preparer who has prepared more than 100 qualified returns in the prior taxable year is required to file the returns electronically. (16)


http://forms.marylandtaxes.com/17_forms/502X.pdf

https://interactive.marylandtaxes.com/Individuals/iFile_ChooseForm/default.asp



This Act authorizes the Comptroller to impose on a preparer a $50 penalty for each return that is not filed electronically in compliance with this Act, unless the preparer is able to show that the failure to comply is due to reasonable cause and not due to willful neglect. The total penalties assessed may not exceed $500 for all returns filed by the preparer in a taxable year. The penalty does not apply if a taxpayer does not want the taxpayer's return filed by electronic means or if the preparer has sought by written request, and

received, a waiver from the Comptroller. The written waiver request must establish to the satisfaction of the Comptroller either reasonable cause for not filing returns by electronic means or undue hardship due to lack of feasible means to file returns electronically.

Personal Exemption A taxpayer is permitted the same number of exemptions on his or her Maryland return which are permitted on his or her Federal return; however, the exemption amount is different on the Maryland return. If the taxpayer is not required to file a Federal return but he or she must file a Maryland return, the taxpayer may still claim the exemptions permitted under Federal law. The personal exemption is $3,200. This exemption is reduced when Federal adjusted gross income exceeds $100,000 ($150,000 if filing Joint, Head of Household, or Qualifying Widow(er) with Dependent Child). The $3,200 exemption is phased out entirely when the income exceeds $150,000 ($200,000 for joint taxpayers). The following table summarizes exemption amounts. (14)

If Federal AGI is Single or Married Filing Separately

Married Filing Jointly,

Head of Household or

Qualifying Widow(er)

Dependent Taxpayer (eligible to be claimed on another taxpayer’s return)

Exemption is Exemption is Each Exemption is $100,000 or less $3,200 $3,200 $0

Over But not over

$100,000 $125,000 $1,600 $3,200 $0 $125,000 $150,000 $800 $3,200 $0 $150,000 $175,000 $0 $1,600 $0 $175,000 $200,000 $0 $800 $0

In excess of $200,000 $0 $0 $0

This reduction applies to the additional dependency exemptions as well; however, it does not apply to the taxpayer’s age or blindness exemption of $1,000. Use the chart to determine the allowable exemption amount based upon the filing status.

Table 1-7 - Exemption Amount Chart (2017)

The taxpayer must complete the Exemptions Section of the return with Form 502B - Dependents’ Information if completing the Form 502.

In addition to the exemptions allowed on the Federal return, a taxpayer and spouse may claim an additional $1,000 exemption on their Maryland return for being 65 years of age or older or blind. If any other dependent claimed is 65 or over, an exemption of up to $3,200 can be claimed as well.

Fiduciaries, other than personal representatives, may claim a $200 exemption. Personal representatives may deduct $600 as an exemption. Part-year residents and nonresidents prorate the exemption on the basis of the percentage of their income subject to Maryland tax.


http://taxes.marylandtaxes.com/Individual_Taxes/Individual_Tax_Types/Income_Tax/Filing_Information/Determine_Your_Personal_Exemptions/Exemptions_section.pdf

http://forms.marylandtaxes.com/13_forms/502B.pdf



Maryland Tax Credits Maryland allows a variety of credits against personal income tax for purposes of supporting low income workers, promoting job development, encouraging employers to provide certain benefits to employees, and providing pollution control incentives. In addition, Maryland allows a personal income tax credit for taxes paid in other states. These credits are applied against both the state and local personal income taxes, unless stated otherwise. Below is a summary of some Maryland tax credits, however, this is not an exhaustive list and credits are often subject to review. A practitioner should therefore investigate all potential applicable credits for their client as well as if they have carryover periods that may extend into future years. For tax years beginning after December 31, 2012, the Comptroller will require that a taxpayer submit tax credit claims electronically for the following credits:

One Maryland Economic Development Tax Credit. Biotechnology Investment Incentive Tax Credit. Cybersecurity Investment Incentive Tax Credit. Small Business Research & Development Tax Credit. Clean Energy Incentive Tax Credit. Film Production Activity Tax Credit. Aerospace, Electronics, or Defense Contract Tax Credit.

The Comptroller may require by regulation that other tax credit claims be submitted electronically in the future.

Individual Tax Credits Earned Income Tax Credit If a taxpayer qualifies for the Federal Earned Income Tax Credit and claims it on his or her Federal return, he or she may be entitled to a Maryland Earned Income Tax Credit on the state return equal to 50% of the Federal tax credit. The Maryland Earned Income Tax Credit (EITC) will either reduce or eliminate the amount of the state and local income tax that the taxpayer owes. For tax year 2017, the Maryland Earned Income Tax Credit is allowed if the taxpayer meets the following conditions:

He or she has three or more qualifying children and he or she earns less than $48,340 ($53,930 if married filing jointly).

He or she has two qualifying children and he or she earns less than $45,007 ($50,597 if married filing jointly). He or she has one qualifying child and he or she earns less than $39,617 ($45,207 if married filing jointly). He or she does not have a qualifying child and he or she earns less than $15,010 ($20,600 if married filing

jointly). To calculate the amount of the tax credit, the taxpayer should complete the State Earned Income Tax Credit Worksheet included in Instruction 18 of the Maryland Tax Booklet. The taxpayer may qualify for the Maryland Earned Income Tax Credit even if he or she is not required to file a Maryland tax return. However, the taxpayer must file a return to claim the state tax credit, using Form 502 (or Form 505 or Form 515 if he or she is a nonresident). If the Maryland Earned Income Tax Credit exceeds the taxpayer’s Maryland tax liability, he or she may be entitled to a refund. For tax year 2017, the Refundable Earned Income Tax Credit (REITC) is calculated as 27% of the taxpayer’s Federal Earned Income Tax Credit, less his or her state income tax liability. If this amount is zero or less, no refund is due. The refundable amount of the credit may not be carried forward to any other tax year. If the taxpayer is a Maryland resident who qualifies for the state Earned Income Tax Credit, he or she may also qualify for a Local Earned Income Tax Credit. The taxpayer should Complete the Local Earned Income Credit Worksheet


http://forms.marylandtaxes.com/current_forms/resident_booklet.pdf



included in Instruction 19 of the tax booklet. The unused local income credit may not be refunded or carried forward to any other tax year.

As of tax year 2015, nonresidents may no longer claim an Earned Income Tax Credit (EITC), local EITC or Refundable EITC. These credits have been removed from Forms 505, 515, and 505X.

Employers are required to provide electronic or written notification on or before December 31 of each calendar year to an employee who may be eligible for the Earned Income Tax Credit available against Maryland personal income tax. The notice must include the following statements:

1. The employee may be eligible for the Federal Earned Income Tax Credit under IRC Section 32. 2. The employee may be eligible for the Earned Income Tax Credit under Section 10-704, Tax General Art.

An employee may not pursue a private cause of action against an employer for the employer’s failure to provide the notice. Poverty Level Credit If the taxpayer’s earned income and Federal adjusted gross income plus additions are below the poverty level income for the number of exemptions on his or her Federal tax return, he or she may be eligible for the Poverty Level Credit. The taxpayer is not eligible for this credit if he or she checked filing status 6 (dependent taxpayer) on his or her Maryland income tax return. Generally, if the taxpayer’s Maryland state tax exceeds 50% of his or her Federal Earned Income Tax Credit and his or her earned income and Federal adjusted gross income are below the poverty income guidelines from the worksheet, the taxpayer may claim a credit of 5% of his or her earned income. This is not a refundable credit The credit is equal to the lesser of: (17)

The taxpayer’s Maryland income tax after deducting the Maryland Earned Income Tax Credit. 5% of the taxpayer’s earned income as determined for purposes of the Federal Earned Income Tax Credit.

To qualify for the credit, the taxpayer’s Federal adjusted gross income, as modified with Maryland additions, and the taxpayer’s earned income, as computed for purposes of the Federal Earned Income Tax Credit, must not exceed the applicable poverty income level for the household size.

Poverty Income Guidelines Number of Exemptions on Federal Return Income Level

1 $12,060 2 $16,240 3 $20,420 4 $24,600 5 $28,780 6 $32,960 7 $37,140 8 $41,320

If the taxpayer has more than 8 exemptions, add $4,180 to the last income level for each additional exemption.

Table 1-8 - State and Local Tax Forms and Instruction - Poverty Income Guidelines (2017)

In addition, the taxpayer may not be claimed as an exemption on another individual’s Maryland income tax return and the taxpayer’s Maryland income tax must exceed his or her Maryland Earned Income Tax Credit. Individuals who are nonresidents or part-year residents during the tax year must prorate the credit on the basis of the taxpayer’s income attributable to Maryland.




Credit for Income Taxes Paid to Other States and Localities If the taxpayer is a Maryland resident (including a resident fiduciary) and he or she paid income tax to another state, he or she may be eligible for a State and local tax credit on his or her Maryland return. Nonresidents (filing Form 505, 515 or 504) are not eligible for this local tax credit.

The taxpayer may be allowed to claim a credit against the state and local tax on the Maryland return, when he or she pays an income tax to another state and/or local jurisdiction within another state. If the taxpayer was a part-year resident, he or she may not claim a credit for tax paid on nonresident income that was subtracted out on the income received during period of nonresidence line of the Form 502. The taxpayer should find the state to which he or she paid a nonresident tax or the state of the locality to which he or she paid a nonresident tax in one of the groups in the instructions for Form 502CR - Income Tax Credits for Individuals. The instructions for that group will tell the taxpayer if he or she is eligible for credit and should complete Part A of Form 502CR. The taxpayer must file his or her Maryland income tax return on Form 502 and complete lines 1 through 21 and line 28 of that form, or on Form 504 and complete lines 1 through 11 and line 18. Then complete Form 502CR Parts A, J, and K and attach to Form 502 or 504. A completed, signed copy of the income tax return filed in the other state and/or locality must also be attached to Form 502 or 504. (18) The taxpayer does not use the income or withholding tax reported on the wage and tax statement (W-2 Form) issued by his or her employer for the credit computation. He or she should use the taxable income and the income tax calculated on the return he or she filed with the other state.

If the taxpayer is claiming credit for taxes paid to multiple states and localities, a separate Form 502LC must be completed for each state.

Nonresident Income In states, such as California, that subject all of a nonresident’s income to the applicable tax rate and then reduce the tax liability by the percentage of the taxpayer’s gross income attributable to California to determine the amount of California tax due, Maryland considers the percentage used to reduce the tax liability, and not the nonresident’s entire income, as the income subject to tax in the other state. No credit is allowed to a Maryland resident, other than a fiduciary, if the other state allows the resident a credit for state income taxes paid to Maryland. Further, no credit is allowed to a resident for less than the full taxable year for tax on income paid to another state during residency in that state. Below is a listing of the states for which a Maryland resident may claim a credit for income earned in the state (Instructions for Form 502CR - Maryland Income Tax Credits for Individuals). GROUP I - Nonreciprocal - Credit is taken on the Maryland resident return: Alabama Louisiana Oklahoma Arizona Maine Oregon Arkansas Massachusetts Pennsylvania* California Michigan Rhode Island Colorado Minnesota South Carolina Northern Mariana Island Connecticut Mississippi Tennessee Puerto Rico Delaware Missouri Texas U.S. Virgin Islands District of Columbia* Montana Utah Georgia Nebraska Vermont Hawaii New Hampshire Virginia* Idaho New Jersey Washington DC* Illinois New Mexico West Virginia* Indiana New York Wisconsin Iowa North Carolina U.S. Territories and Possessions Kansas North Dakota American Samoa Kentucky Ohio Guam *Except wage income







Maryland has reciprocal agreements with the District of Columbia, Pennsylvania, Virginia, and West Virginia (Group II) to exempt nonresident wages, salaries, tips, and commission income from state taxation. Consequently, if a resident has business income, farm income, rental income, or other non-wage income from these states, he or she may claim a credit for income tax paid to those states. A credit may also be

claimed by self-employed individuals and partners in a partnership that are subject to D.C. unincorporated business franchise tax (Instructions for Form 502-CR - Personal Income Tax Credits for Individuals). If the taxpayer had wages subject to tax in a locality in Pennsylvania, he or she may file Form 502CR to claim a State and local tax credit. The taxpayer should enter the amount of tax that he or she paid to the locality on line 11, Part A of the Form 502CR. There is no credit allowed for Alaska, Florida, Nevada, South Dakota, Washington or Wyoming. A taxpayer must report income from these states on his or her Maryland resident return. He or she cannot claim any credit for income earned in these states because he or she did not pay any income tax to the other state. Dual Residency A person may be a resident of more than one state at the same time for income tax purposes. If the taxpayer must file a resident return with both Maryland and another state, he or she should use the following rules to determine where the credit should be taken:

1. A person who is domiciled in Maryland and who is subject to tax as a resident of any of the states listed in Group I or II can claim a credit on the Maryland return (Form 502) using Part A of Form 502CR.

2. A person domiciled in any state listed in Group I or II who must file a resident return with Maryland must take the credit in the state of domicile.

Claiming the Credit The credit is claimed on Form 502-CR and a completed, signed copy of the income tax return filed in the other state must be attached. A taxpayer may claim the credit within one year after being notified that another state’s income tax credit is due, even if the statute of limitations period for filing a refund claim has expired. Any unused portion of the credit may NOT be carried over. The taxpayer may be allowed a credit for tax paid to another state when a capital gain is recognized in the current year on the Federal return, but was taxed by another state in an earlier year. The gain must have resulted from the sale of a personal residence located in another state or from an installment sale. The credit equals the amount of the gain multiplied by the highest state tax rate used on the Maryland tax return or the personal income tax rate in the other state in the year in which the state taxes the gain, whichever is less. If the credit exceeds the taxpayer’s tax liability, the unused credit may not be carried forward to any other tax year. The Form 502LC - State and Local Tax Credit for Income Taxes Paid to Other States and Localities replaces the State tax credit calculation for individuals who paid an income tax to a local jurisdiction in another state for tax years 2012-2014. The Form 502LC also calculates a local tax credit for income taxes paid to another state or to a local jurisdiction in another state for tax years 2012-2014. Individuals should complete this form to determine if the individual may claim a local tax credit and a recalculated State tax credit on the Maryland return. If the individual has already filed a return, the Form 502LC may be used to determine if the individual may file an amended return to claim a local tax credit and a recalculated State tax credit. This form may not be used to claim a local tax credit for taxes paid to another state for tax year 2011 unless an extension was filed for that year with Maryland. Child and Dependent Care Tax Credit Taxpayers who are eligible to claim a Federal Child and Dependent Care Credit and whose Federal adjusted gross income (AGI) for the taxable year does not exceed $50,000 ($25,000 in the case of a married individual filing a separate return) may claim a nonrefundable credit against state income tax for expenses paid by the taxpayer during the taxable year for the care of a qualifying individual. This credit is in addition to the subtraction modification allowed for child and dependent care expenses.


http://forms.marylandtaxes.com/current_forms/502LC.pdf



In terms of the amount of the credit, it is equal to the lesser of:

32.5% of the Federal child and dependent care credit claimed by the taxpayer for the taxable year. The taxpayer’s state income tax for the taxable year.

However, the credit is phased-out for taxpayers with Federal adjusted gross income (AGI) of $41,000 or more. For married taxpayers filing separate returns, the phase-out threshold is $20,500. For taxpayers, other than married individuals filing separate returns, with Federal AGI for the taxable year in excess of $41,000, the credit is reduced by 10% for each $1,000 or fraction thereof by which their Federal AGI exceeds $41,000. Married individuals filing separate returns who have Federal AGI for the taxable year in excess of $20,500, must reduce the credit by 10% for each $500 or fraction thereof by which the their Federal AGI exceeds $20,500. No credit is allowed for an individual whose Federal adjusted gross income exceeds $50,000 ($25,000 for married filing separately). Nonresidents and part-year residents must prorate the credits based on the ratio of Maryland AGI to Federal AGI. Any unused portion of the credit may NOT be carried over.

Credit for Child and Dependent Care Expenses Chart If the taxpayer’s filing status is Married Filing Separately and his or her Federal adjusted gross income (AGI) is:

Decimal Amount For all other filing statuses, if the taxpayer’s Federal adjusted gross income (AGI) is:

At Least: But less than: At least: But less than: $0 $20,501 .3250 $0 $41,001 $20,501 $21,001 .2925 $41,001 $42,001 $21,001 $21,501 .2600 $42,001 $43,001 $21,501 $22,001 .2275 $43,001 $44,001 $22,001 $22,501 .1950 $44,001 $45,001 $22,501 $23,001 .1625 $45,001 $46,001 $23,001 $23,501 .1300 $46,001 $47,001 $23,501 $24,001 .0975 $47,001 $48,001 $24,001 $24,501 .0650 $48,001 $49,001 $24,501 $25,001 .0325 $49,001 $50,001 $25,001 or over .0000 $50,001 or over

Table 1-9 - Form 502CR - Credit for Child and Dependent Care Expenses Chart (2017)

This credit is in addition to the subtraction modification available on the Maryland return for child and dependent care expenses.

Quality Teacher Incentive Credit A Maryland public school classroom teacher holding a standard or advanced professional certificate may be able to claim a credit against his or her State tax liability for tuition paid to take graduate-level courses required to maintain certification. This credit applies to individuals who: (19)

Currently hold a standard professional certificate or an advanced professional certificate. Be employed by a county/city board of education in Maryland, a state or local correctional facility, or a juvenile

correctional facility as listed below in the note. Teach in a public school or qualified facility and receive a satisfactory performance. Successfully complete the graduate courses with a grade of B or better. Have not been fully reimbursed by the state/county/city for these expenses.

Qualified juvenile facilities are: the Alfred D. Noyes Children's Center; the Baltimore City Juvenile Justice Center; the Charles H. Hickey, Jr. School; the Cheltenham Youth Facility; the J. DeWeese Carter Center; the Lower Eastern Shore Children's Center; the Thomas J.S. Waxter Children's Center; the Victor Cullen Center; the Western Maryland's Children's Center; and the youth centers.




Only the unreimbursed portion qualified for the credit. The courses taken must be required to maintain certification and the cost of the courses must exceed any amount reimbursed by the county or Baltimore City. The maximum amount of credit allowed is $1,500 for each qualifying individual. The credit is limited to the amount paid, less any reimbursement, up to the maximum allowed credit. See Page 3 of the Instructions for Form 502CR to learn how to calculate the credit. Each spouse that qualifies may claim this credit. Complete a separate column on Form 502CR Part C for each spouse. The credit can be claimed on Maryland forms 502, 505 or 515. If the credit exceeds the taxpayer’s tax liability, the unused credit may not be carried forward to any other tax year. Credit for Aquaculture Oyster Floats A credit is allowed for 100% of the amounts paid to purchase new aquaculture oyster floats that are designed to grow oysters at or under an individual homeowner’s pier. The devices must be buoyant and assist in the growth of oysters for the width of the pier. In the case of a joint return, each spouse is entitled to claim the credit, provided each spouse purchases or contributes to the purchase of a float. The credit amount is limited to the lesser of the individual’s state tax liability for that year or the maximum allowable credit of $500. In the case of a joint return, each spouse must calculate his or her own state tax liability for limitation purposes. If the credit is more than the tax liability, the unused credit may not be carried forward to another tax year. To claim the credit, the taxpayer must complete Part D of Form 502CR and attach to his or her Maryland income tax return. The taxpayer must also report the credit on Maryland Form 502, 505 or 515. Long-Term Care Insurance Credit If the taxpayer purchases a long-term care insurance contract for him or herself or certain members of his or her family, he or she may be eligible for a one-time credit of up to $500 for each insured. To qualify for the credit, the insured must be all of the following: (20)

1. A spouse, parent, stepparent, child or stepchild. 2. A Maryland resident. 3. Not covered by long-term care insurance before July 1, 2000. 4. Not claimed on the credit for the insured by another taxpayer this year. 5. Not claimed on the credit for the insured by anyone in any other tax year.

For 2017, the taxpayer can claim a credit equal to the premiums paid, up to a maximum of $410 for each insured person 40 years of age or younger, and up to a maximum of $500 for each insured person 41 or older as of December 31, 2017.

This tax credit must not have been claimed for the insured by another taxpayer in this year or anyone else in any other tax year. If the credit exceeds the tax liability, the unused credit may not be carried forward to any other tax year.

The credit may not be claimed if: (21)

The insured was covered by Long-term Care (LTC) insurance prior to July 1, 2000. The credit for the insured is being claimed in this year by another taxpayer. The credit is being or has been claimed by anyone in any other tax year. The insured is a nonresident of Maryland.

Credit for Preservation and Conservation Easements Businesses or individuals may be eligible for a credit for an easement conveyed to the Maryland Environmental Trust, the Maryland Agricultural Land Preservation Foundation or the Maryland Department of Natural Resources to preserve




open space, natural resources, agriculture, forest land, watersheds, significant ecosystems, viewsheds or historic properties if: (21)

1. The easement is perpetual. 2. The easement is accepted and approved by the Board of Public Works. 3. The fair market value of the property before and after the conveyance of the easement is substantiated by a

certified real estate appraiser. The credit is equal to the difference in the fair market values of the property reduced by payments received for the easement. The credit amount is limited to the lesser of the individual’s state tax liability for that year or the maximum allowable credit of $5,000, per owner, who qualifies to claim the credit. If the individual’s allowable credit amount exceeds the maximum of $5,000, the excess may be carried forward for up to 15 years or until fully used. Community Investment Income Tax Credit Businesses or individuals who contribute to approved Community Investment Programs may be eligible for a credit against the Maryland state income tax. Contributions must be made to a nonprofit organization approved by the Department of Housing and Community Development (DHCD). The taxpayer must apply to and receive approval by the DHCD for each contribution for which a credit is claimed. The credit is limited to 50% of the approved contributions (including real property) not to exceed $250,000. This credit is not refundable and is applied only against the Maryland State income tax. To the extent the credit is earned in any year and it exceeds the state income tax, the taxpayer is entitled to an excess carryover of the credit until it is used or it expires five years after the credit was earned, whichever comes first. A copy of the required approval from the DHCD must be included with Form 502CR.

Individuals who anticipate having a carryover of the CITC are advised to use Form 500CR instead of Form 502CR. Individuals who have an existing carryover on Part X of their 2015 Form 500CR may elect to use Form 502CR if their Excess Carryover Credit is attributable only to the CITC.

Endow Maryland Tax Credit A taxpayer who makes a donation to a qualified permanent endowment fund at an eligible community foundation may be eligible for a credit against the Maryland State income tax. Donations of $500 or more of cash or publicly traded securities made by the taxpayer to a “qualified permanent endowment fund” at an “eligible community foundation” that meets certain requirements are eligible for tax credits. The taxpayer must apply to the Maryland Department of Housing and Community Development (DHCD) for a certification for the donation. The credit is 25% of the value of the approved donation. Each individual may claim a credit of up to $50,000. Individuals claim the Endow Maryland Tax Credit by filing an electronic tax return supporting Business Income Tax Credit Form 500CR. An electronic return must be filed to claim this credit against the Maryland income tax. However, individuals who are eligible to claim the Endow Maryland Tax Credit, and who are not Pass-Through Entity (PTE) members may elect to claim this credit on Part I of Form 502CR, instead of claiming the credit on Part V of Form 500CR. Taxpayers electing to use Form 502CR to claim the Endow Maryland Tax Credit are not required to file their return electronically. However, an individual may not claim this credit on both Form 500CR and Form 502CR. PTE members who are eligible for this credit must claim the credit on Business Income Tax Credit Form 500CR. Individuals who anticipate having a carryover of the Endow Maryland Tax Credit are advised to use Form 500CR instead of Form 502CR. For any tax year, the sum of all Endow Maryland tax credits, including any carryover credits, may not exceed the lesser of $50,000 or the total amount of tax otherwise payable by the individual for the tax year. Excess credits may be carried over for five years.

Whenever the Endow Maryland Tax Credits are claimed against the income tax, an addition modification must be included for the amount deducted as a donation to the extent that the amount of donation is included in an application for the Endow Maryland Tax Credit.




Homeowners' Property Tax Credit The State of Maryland has developed a program which is known to many as the Circuit Breaker Program and allows credits against the homeowner's property tax bill if the property taxes exceed a fixed percentage of the person's gross income. In other words, it sets a limit on the amount of property taxes any homeowner must pay based upon his or her income. Before eligibility according to income can be considered, the taxpayer must meet four basic requirements:

1. He or she must own or have a legal interest in the property. 2. The dwelling on which he or she is seeking the tax credit must be his or her principal residence where he or

she lives at least six months of the year, including July 1, unless he or she is a recent home purchaser or unless he or she is unable to do so because of health or need of special care.

3. The taxpayer’s net worth, not including the value of the property on which he or she is seeking the credit or any qualified retirement savings or Individual Retirement Accounts, must be less than $200,000.

4. The taxpayer’s combined gross household income cannot exceed $60,000. The tax credit is based upon the amount by which the property taxes exceed a percentage of the taxpayer’s income according to the following formula: 0% of the first $8,000 of the combined household income; 4% of the next $4,000 of income; 6.5% of the next $4,000 of income; and 9% of all income above $16,000. (22) Example If the taxpayer’s combined household income is $16,000, the tax limit is $420. He or she would be entitled to receive a credit for any taxes above $420. If his or her actual property tax bill was $990, the taxpayer would receive a tax credit in the amount of $570 - this being the difference between the actual tax bill and the tax limit. Additional limitations include:

Only the taxes resulting from the first $300,000 of assessed valuation. The credit applies to the ad valorem taxes imposed by the state, county and municipalities, but it does not

cover any metropolitan or fixed charges for water and sewer services that may appear on the tax bill. If an applicant owns a large tract of land, the credit will be limited to the lot or curtilage on which the dwelling

stands and will not include the excess acreage. If a portion of the taxpayer’s dwelling is used for commercial or business purposes, the credit will be based

only upon the taxes for that portion of the dwelling occupied by his or her own household. The taxpayer may apply for the credit on only the one dwelling which is his or her principal residence.

The Homeowners' Tax Credit is not automatically granted and each person must apply and disclose his or her income. The taxpayer must apply every year by no later than September 1 on a standard application supplied by the Department of Assessments and Taxation. However, it is to his or her advantage to submit the application by May 1 so that any credit due him or her can be deducted beforehand from the initial July tax bill. Renters' Tax Credits For applications received before September 1, 2018, the State of Maryland provides a direct check payment of up to $1,000 a year for renters who paid rent in the State of Maryland and meet the following eligibility requirements: (23)

Renters age 60 and over or those 100% disabled as of December 31, 2017. Renters under age 60, who have one or more dependents under the age of 18 living in their household and

who do not receive Federal or State housing subsidies or reside in public housing. If the taxpayer is age 60 or older or 100% disabled, he or she should use this chart to determine if he or she should file an application to have the State determine his or her eligibility. The taxpayer finds his or her approximate 2017 total gross household income and if his or her monthly rent is more than the figure across from his or her income, the taxpayer may be eligible and is encouraged to apply.




2017 Total Gross Income

2017 Monthly Rent


2017 Monthly Rent


2017 Monthly Rent

$1 - $10,000 $117 $43,000 $1,100 $59,000 $1,600 $20,000 $423 $46,000 $1,200 $62,000 $1,700 $25,000 $576 $49,000 $1,300 $66,000 $1,800 $33,000 $800 $53,000 $1,400 $69,000 $1,900 $39,000 $1,000 $56,000 $1,500 $73,000 $2,000

Table 1-10 - CHART 1 - AGE 60 OR OLDER OR 100% DISABLED (2017)

If the taxpayer is a renter under the age of 60 who, during 2017 had at least one dependent under the age of 18 living with him or her and he or she did not receive Federal or State housing subsidies or reside in public housing, and the combined income of all residents of the taxpayer’s dwelling is below the following guidelines, he or she is encouraged to apply for the renter’s credit.

Persons in Household (including Applicant)

2017 Gross Income Limit





2 $16,543 5 $29,111 8 $41,781 3 $19,105 6 $32,928 9 $49,721 4 $24,563 7 $37,458

Note: If the taxpayer qualifies based upon the income limits above, the State will determine his or her eligibility using the formula comparing rent and gross income.

Table 1-11 - CHART 2 - UNDER 60 YEARS OF AGE (2017)

The rented dwelling may be an apartment in an individual house or any type of apartment building, duplex, co-op, condominium, house trailer, or mobile home pad. The dwelling must be the principal residence in Maryland and the renter must live there at least six months of the year. The taxpayer is only eligible to receive a tax credit for rent paid in the State of Maryland. The applicant must have a bona fide leasehold interest in the property and be legally responsible for the rent. If the dwelling that is rented is owned by a tax exempt, charitable organization or is exempt in any way from property taxation, a tax credit cannot be granted. The deadline for filing an application for the Renters' Tax Credit Program is September 1st of each year. Oyster Shell Recycling Tax Credit An individual or corporation may claim a credit against the State income tax in an amount equal to $5 for each bushel of oyster shells recycled during the tax year. The credit may not exceed $750 per taxpayer. The credit may be taken against corporate income tax, or the State portion of the personal income tax. A credit may not be allowed against more than one type of tax. Any unused credit amount for the tax year may not be carried forward to any other tax year. No credit may be earned for any tax year beginning on or after January 1, 2018. Sole proprietorships, corporations, and pass-through entities, such as partnerships, subchapter S corporations, limited liability companies and business trusts may claim the tax credit. The Oyster Shell Recycling Tax Credit is available only on an electronically-filed income tax return for the tax year in which the credit is being claimed. The Form 500CR section of the electronic return must be completed and must include the certification from the Department of Natural Resources.




The Comptroller of Maryland will allow a Maryland income tax credit for the amount certified by the Department of Natural Resources, not to exceed the lesser of $750 per taxpayer or the amount of the State income tax liability. If the credit is more than the state tax liability, the unused credit may not be carried forward to any other tax year. Preceptors in Areas with Health Care Workforce Shortages Tax Credit If the taxpayer is a qualified licensed physician or a qualified nurse practitioner who served without compensation as a preceptor, he or she may be eligible to claim a nonrefundable credit against his or her State tax liability. There are two credits for qualified preceptors. The first credit is only available for licensed physicians. The second credit is available for both licensed physicians and nurse practitioners. A licensed physician who served as a physician preceptor in a preceptorship program authorized by an accredited medical school in Maryland may claim a credit in the amount of $1,000 for each student for whom the licensed physician served as a physician preceptor without compensation. For purposes of claiming the Physician Preceptorship Tax Credit, “preceptorship program” means an organized system of clinical experience that, for the purpose of attaining specified learning objectives, pairs an enrolled student of a liaison committee on medical education-accredited medical school in Maryland or an individual in a postgraduate medical training program in Maryland with a licensed physician who meets the qualifications as a preceptor. To qualify for the credit, the licensed physician must have worked in an area of Maryland identified as having a health care workforce shortage by the Department of Mental Health and Hygiene. The licensed physician must have worked a minimum of three rotations, each consisting of 160 hours of community-based clinical training. The amount of this credit may not exceed $10,000. For Nurse Practitioner Preceptorship Tax Credit, a nurse practitioner or licensed physician who served as a preceptor in a preceptorship program approved by the Maryland Board of Nursing may claim a credit in the amount of $1,000 for each nurse practitioner student for whom the nurse practitioner or licensed physician served as a preceptor without compensation. For purposes of claiming the credit nurse practitioner or licensed physician, “preceptorship program” means an organized system of clinical experience that, for the purpose of attaining specified learning objectives, pairs a nurse practitioner student enrolled in a nursing education program that is recognized by the Maryland Board of Nursing with a nurse practitioner or licensed physician who meets the qualifications as a preceptor. To qualify for the credit, a nurse practitioner or licensed physician must have worked in an area of Maryland identified as having a health care workforce shortage by the Department of Mental Health and Hygiene. The nurse practitioner or licensed physician must have worked a minimum of three rotations, each consisting of at least 100 hours of community-based clinical training. The amount of this credit may not exceed $10,000. Eligibility for these credits is limited to funds budgeted. Applicants seeking certification will be approved on a first-come, first-served basis. The taxpayer must attach the required certification to Form 502CR when claiming the credit. The taxpayer should visit the Department of Mental Health and Hygiene website at dhmh.maryland.gov for more information.

Review Question 3 Albert Newsom, age 43, and his wife Joanne, age 38, purchased qualified long-term insurance care policies. Albert’s premiums cost $1,500 and Joanne’s premiums cost $1,200 for the year. Both Albert and Joanne meet all the requirements for the Long-term Insurance Credit. What amount can the Newsoms claim on their Maryland state income tax return?

A. $0 B. $410 C. $500 D. $910



http://dhmh.maryland.gov/pages/index.aspx



Business Tax Credits Job Creation Tax Credit Certain businesses that create new qualified positions in Maryland before January 1, 2020 may be eligible for tax credits based on the number of qualified positions created or wages paid for these positions. The credit may be taken against corporate income tax, personal income tax, insurance premium tax or public service company franchise tax. The same credit may not, however, be applied to more than one tax type. Sole proprietorships, corporations and pass-through entities, such as partnerships, subchapter S corporations, limited liability companies and business trusts may claim the tax credit. (24) In order to qualify, the business must, during any 2-year period, have created at least: (24)

60 qualified positions. 30 qualified positions if the total payroll for the positions is greater than a threshold amount equal to 60 times

the state’s average annual salary. 25 qualified positions if the business facility is located in a state priority funding area.

The positions have to be newly created as a result of the establishment or expansion of a business facility in a single location in Maryland, and must be filled, full-time positions of indefinite duration that pay at least 150% of the Federal minimum wage. A business must also be primarily engaged in specific activities to qualify for the credit. These activities include: (24)

Manufacturing or mining. Transportation or communications. Agriculture, forestry, or fishing. Research, development, or testing. Biotechnology. Computer programming or related services and data processing. Financial, real estate or insurance. A public utility. Business services. Entertainment, recreation, cultural or tourism.

The amount of the credit equals the lesser of: (24)

$1,000 times the number of qualified employees employed by the qualified entity during the credit year. 2.5% of the wages paid by the qualified business entity during the credit year to the qualified employees.

In the case of employees working in a facility located in a revitalization area, the credit equals the lesser of: (24)

$1,500 times the number of qualified employees employed by the qualified entity during the credit year. 5% of the wages paid by the qualified business entity during the credit year to the qualified employees.

Half of the allowable credit is claimed in the first year and the remaining half in the following taxable year. The total credit earned by any one company may not exceed $1 million for any credit year. If the credit is more than the State portion of the income tax liability, the unused credit may be carried forward for the next five tax years, or until it is fully used, whichever comes first.

One Maryland Economic Development Tax Credit A project tax credit and a start-up tax credit against Maryland personal income tax are available for eligible project costs and start-up costs for certain businesses, including organizations exempt under IRC Section 501(c)(3) or (4), that establish or expand business facilities in qualified distressed counties. The business must create 25 or more new qualified full-time positions within a 24-month period. The business project must be located in a priority funding area in Baltimore City, or Allegany, Caroline, Dorchester, Garrett, Somerset, Wicomico, or Worcester counties. To qualify for the project tax credit, the business must also incur at least $500,000 in total eligible project costs.




Applicable for tax years beginning after December 31, 2010, during any tax year after a qualified business entity is certified for the credit, the business entity may claim a prorated share of the credit for eligible project or start-up costs if the number of qualified positions filled by the business entity falls below 25, but does not fall below 10, and the business entity has maintained at least 25 qualified positions for at least 5 years. The prorated credit is calculated based on the number of qualified positions filled for the taxable year divided by 25. In order to qualify for the credits, the business must be engaged in a qualifying industry or activity at a facility, however, nearly all business activity meets these requirements. A project tax credit of up to $5 million may be claimed based on qualifying costs and expenses incurred in connection with the acquisition, construction, rehabilitation, installation, and equipping of an eligible development project. The credit is equal to the lesser of:

100% of the eligible project costs, less the amount of credit taken in previous years. The state personal income tax for the taxable year on the qualified business entity’s income generated by or

arising out of the project, as determined by the Comptroller and the Department of Assessments and Taxation. The start-up tax credit is equal to the lesser of:

100% of the start-up costs associated with establishing or expanding the facility, less the amount of the credit claimed in prior tax years.

$10,000 times the number of qualified employees employed at the new or expanded facility. A taxpayer must notify the Department of Business and Economic Development of its intent to claim the credits and be certified by the Department prior to hiring qualified employees or incurring any start-up or project costs. The project must be commenced within 12 months of notifying the Department of the taxpayer’s intent to claim the credit or from providing a written application to the Department for the tax credit, whichever is earlier. The project must be completed and placed in service within three years after the project’s construction, acquisition, or installation began. In addition, the 25 qualified positions must be created and filled within 24 months after the date on which a project is placed in service and the positions must be filled for 12 months, not necessarily consecutively.

The credits may also be taken against Maryland corporate income tax and insurance gross premiums tax. However, the same tax credit may not be claimed more than once against different taxes by the same taxpayer.

Unused credit may be carried over for up to 14 taxable years, provided the taxpayer continues to employ the 25 qualified employees. In addition, for any taxable year after the fourth taxable year following the taxable year in which the qualified business entity locates in a qualified distressed county but before the 15th taxable year, a taxpayer may claim a refund of any unused credit in an amount not to exceed the amount of withholding tax the taxpayer is required to remit for the taxable year from the wages of the qualified employees. Also, after the fourth taxable year, the taxpayer may claim any unused credit against the taxpayer’s total tax due (rather than being limited to the tax arising from income associated with the project). Biotechnology Investment Incentive Tax Credit The Biotechnology Investment Incentive Tax Credit is available for an investment in a qualified Maryland biotechnology company (QMBC). To qualify, a company can be any entity of any form (except a sole proprietorship) that is duly organized and existing under the laws of any jurisdiction for the purpose of conducting business for profit, and must be primarily engaged in the research, development, or commercialization of innovative and proprietary technology that comprises, interacts with, or analyzes biological material including biomolecules (DNA, RNA, or protein), cells, tissues or organs. A qualified Maryland biotechnology company is a biotechnology company that: (5)

1. Has its headquarters and base of operations in Maryland. 2. Has fewer than 50 full-time employees.




3. Has been in active business no longer than 10 years. 4. Has been certified by the Maryland Department of Business and Economic Development as a biotechnology

company. 5. Must not have any securities publicly traded on any exchange.

The investor: (5)

1. Can be an individual or any entity (except a retirement plan) and must make an investment of at least $25,000 in a QMBC (but not own more than 25% of the equity interests in the company after making the investment).

2. Must be required to file an income tax return in any jurisdiction. 3. Must apply for and receive final certification from DBED to claim the Biotechnology Investment Incentive Tax

Credit.

The amount of the credit is 50% of the investment in the qualified Maryland biotechnology company, not to exceed $250,000. The investment must be the contribution of money in cash or cash equivalents expressed in United States dollars, at risk of loss, to a QMBC in exchange for stock, a partnership or membership interest, or other ownership interest in the equity of the company title to which ownership shall vest in the qualified investor. The investment cannot include debt.

If the Qualified Maryland Biotechnology Company (QMBC) is located in Allegany County, Dorchester County, Garrett County, or Somerset County an individual or business may be allowed a tax credit of up to 75% of an eligible investment, up to $500,000. The investor, after making the proposed investment, cannot own or control more than 25% of the biotechnology company.

The credit may be taken against corporate income tax or personal income tax. Sole proprietorships, corporations and pass-through entities, such as partnerships, subchapter S corporations, limited liability companies and business trusts, may claim the tax credit. Endow Maryland Tax Credit Donations of $500 or more of cash or publicly traded securities made by the taxpayer to a “qualified permanent endowment fund” at an “eligible community foundation” that meets certain requirements are eligible for tax credits. Businesses may claim a maximum of $50,000 in credits per year, representing a donation of no more than $200,000. The taxpayer must apply to the Maryland Department of Housing and Community Development (DHCD) for a certification for the donation. The credit is 25% of the value of the approved donation. Each business may claim a credit of up to $50,000. Businesses claim the Endow Maryland Tax Credit by filing an electronic tax return supporting Business Income Tax Credit Form 500CR. An electronic return must be filed to claim this credit against the Maryland income tax. For any tax year, the sum of all Endow Maryland tax credits, including any carryover credits, may not exceed the lesser of $50,000 or the total amount of tax otherwise payable by the business for the tax year. Excess credits may be carried over for five (5) years.

Whenever the Endow Maryland Tax Credits are claimed against the income tax, an addition modification must be included for the amount deducted as a donation to the extent that the amount of donation is included in an application for the Endow Maryland Tax Credit

Maryland Disability Employment Tax Credit Businesses that employ persons with disabilities, as determined by the Division of Rehabilitation Services (DORS) in the Maryland State Department of Education and/or by the Maryland Department of Labor, Licensing and Regulation (DLLR), may be eligible for a tax credit for wages paid to, and for childcare expenses and for transportation expenses paid on behalf of qualified employees. The credit may be taken against corporate income tax, personal income tax, state and local taxes withheld (for certain tax-exempt organizations only), insurance premiums tax or public service company franchise tax. The same credit may not, however, be applied to more than one tax type.




Sole proprietorships, corporations, tax-exempt nonprofit organizations and pass-through entities, such as partnerships, subchapter S corporations, limited liability companies and business trusts may claim the tax credit. The company must hire an individual with a disability and obtain a determination from the Division of Rehabilitation Services (DORS) in the Maryland State Department of Education, or the Maryland Department of Labor, Licensing and Regulation (DLLR) for a disabled veteran, that the individual is a qualified employee with a disability. A “Qualified Employee” with a disability means an individual who:

1. Meets the definition of an individual with a disability as defined by the Americans with Disability Act; 2. Has a disability that presently constitutes an impediment to obtaining or maintaining employment or to

transitioning from school to work; and, 3. Is ready for employment; or, 4. Is a veteran who has been discharged or released from active duty by the American Armed Forces for a

service-connected disability. An employee must not have been hired to replace a laid-off employee or to replace an employee who is on strike or for whom the business simultaneously receives Federal or state employment training benefits. Qualifying child care expenses are those expenses incurred by a business to enable a qualified employee with a disability to be gainfully employed.

The credit is allowed for the first two years of employment of the disabled individual for both the wages paid and the child care or transportation expenses paid on behalf of the employee. The credit allows employers to claim a credit equal to 30% of the first $9,000 of wages paid to the qualifying employee for each of the first

two years of employment. Also, a credit for eligible child care and transportation expenses up to $900 can be claimed by employers in each of the first two years of employment of the disabled individual.

If the credit is more than the tax liability, the unused credit may be carried forward for up to five tax years. Also, whenever this credit is claimed against the income tax, an addition modification must be made in the amount of the credit claimed.

Commuter Tax Credit A credit is allowed for businesses that conduct or operate a trade or business in Maryland and provide commuter benefits for their employees. The business must pay a portion of the cost of travel between the employee’s home and the workplace. Qualified commuter benefits include the cost of transit instruments (tickets, passes, vouchers, fare cards, smartcards and tokens) used to transport an employee of the business to or from home and the workplace. The portion of the cost an employer pays to provide a “Guaranteed Ride Home” program or for a parking “Cash-Out” program for their employees also are qualified commuter benefits. Travel must be on a qualified mass transit vehicle or system, or in a vanpool. The vanpool vehicle must seat at least 8 adults and be used primarily to transport employees between home and the workplace.

The credit is now the lesser of 50% of providing commuter benefits or $100 per month for each employee. Previously, the credit was the lesser of 50% of providing commuter benefits or $50 per month for each employee. Also, the number of required passengers in a qualifying vanpool vehicle has decreased from 8 adults to 6 adults.

Clean Energy Incentive Tax Credit This credit is allowed if a Maryland facility is originally placed in service or initially began co-firing, during the period of January 1, 2006 through December 31, 2018 and produces electricity during the tax year primarily using qualified energy resources derived from: (5)

Wind. Open and Closed Loop Biomass. Geothermal. Solar.




Facilities that produce electricity from a qualified energy resource co-fired with coal no longer qualify for this credit.

Cybersecurity Investment Incentive Tax Credit (CIITC) The refundable Cybersecurity Investment Incentive Tax Credit (CIITC) has been enacted against corporate or personal income tax for qualified investments in Maryland cybersecurity companies, applicable to all taxable years beginning after December 31, 2013, but before January 1, 2019. CIITC provides a refundable income tax credit to Qualified Maryland Cybersecurity Companies (QMCCs) that secure investment from investors. The purpose of this new program is to incentivize and attract cybersecurity companies to startup in or move to Maryland; and to attract investment to cybersecurity companies in order to help them grow, create jobs and retain intellectual property in Maryland. QMCCs receive a credit equal to 33% of an eligible investment in the QMCC. A QMCC is limited to $250,000 for each investor, each fiscal year. A single QMCC may not receive total credits exceeding 15% of the total program appropriation for each fiscal year. QMCCs are limited to participating in the program for two years. Total credits issued during the fiscal year cannot exceed the budget amount and are, therefore, issued on a first come basis. The credit is refundable if the QMCC has no Maryland income tax liability.

The $250,000 cap on this credit has been increased to $500,000 for investments in Maryland Cybersecurity Companies located in Allegany County, Dorchester County, Garrett County, or Somerset County. This credit is now 50%, rather than 33%, of an investment in a Maryland Cybersecurity Companies located in these counties.




Review Feedback Review feedback provides both the answers to each question and an explanation or feedback as to how we arrived at each answer at the end of the lesson. Review feedback also contains evaluative feedback explaining why incorrect answers are wrong. You are also provided the course topic from which we derived our answer and the external source material we used for verification. If you are using the online version of the course, Ctrl+click on the topic to find the section from which we arrived at the answer for the question. You can also Ctrl+click on the question number to return to the specific review question. Question 1 - A. $1,000 Businesses and individuals may claim a credit of 25% of qualified capital expenses, approved by the Department of Business and Economic Development, made in connection with the establishment of new wineries or vineyards or capital improvements to existing wineries or vineyards. In this question, $4,000 x 25% = $1,000 making Choice A the only correct response. The Wineries and Vineyards tax credit is available for tax years beginning after December 31, 2012, and remains in effect through June 30, 2018. Topic - Wineries and Vineyards Tax Credit Source - Business Tax Credits - Wineries and Vineyards Tax Credit Question 2 - D. Because he started the year as a resident, Edwin must file Form 502 - Resident Return, for the that portion of the year during which he maintained Maryland residence, even if less than 6 months Choice A is incorrect because an individual who began or ended legal residence in Maryland during the tax year, must file as a resident for that portion of the year during which he or she maintained Maryland residence, even if less than six months. Choices B and C are also incorrect because Form 515 - Nonresident Local Return and Form 505 - Nonresident Return are not required based on the facts given. Therefore, only Choice D is correct as Edwin must file Form 502 - Resident Return, for the that portion of the year during which he maintained Maryland residence, even if less than 6 months Topic - What Form to File Source - Spotlight on Maryland Taxes - Choose the Right Income Tax Form Question 3 - D. $910 A one-time credit may be claimed against the state income tax for the payment of qualified long-term care (LTC) insurance premiums as defined by the IRS (Publication 502) for a policy to insure the taxpayer, or his or her spouse, parent, stepparent, child or stepchild, who is a resident of Maryland. For 2017, the taxpayer can claim a credit equal to the premiums paid, up to a maximum of $410 for each insured person 40 years of age or younger, and up to a maximum of $500 for each insured person 41 or older. In this question the Newsoms can claim $500 for Albert’s premiums and $410 for Joanne’s premiums for a total of $910. Making Choice D the correct response as all other answers have the incorrect total. Topic - Long-Term Care Insurance Credit Source - Comptroller of Maryland - Long-Term Care Insurance Credit


http://taxes.marylandtaxes.com/Business_Taxes/General_Information/Business_Tax_Credits/Wineries_and_Vineyards_Tax_Credit.shtml

http://taxes.marylandtaxes.com/Individual_Taxes/Individual_Tax_Types/Income_Tax/Filing_Information/Income_Tax_Forms/Income_Tax_Forms/Choose_the_Right_Income_Tax_Form.shtml

http://taxes.marylandtaxes.com/Individual_Taxes/Individual_Tax_Types/Income_Tax/Filing_Information/Determine_Tax_Credits_and_Deductions/Long-Term_Care_Insurance_Credit.shtml


Maryland Income Definition of Gross Income Maryland is a conformity state - its statutes integrate the Internal Revenue Code’s regulations and tax liability except for certain Maryland-specific adjustments. Maryland adopts Federal adjusted gross income with certain additions and subtractions as the starting point for the determination of Maryland adjusted gross income. Gross income is broadly defined to include income derived from any source, except as otherwise specifically provided in the statute. Either the standard deduction or itemized deductions are subtracted from Maryland adjusted gross income to arrive at Maryland net income. Personal exemptions are then subtracted to determine Maryland taxable income. From there, credits are subtracted to determine the amount of tax due or overpaid. Special rules apply to nonresidents and part-year residents. To the extent practicable, the Maryland Comptroller is required to apply the administrative and judicial interpretations of the Federal income tax law to the administration of the Maryland income tax law. The Internal Revenue Code for Maryland tax purposes means Title 26 of the U.S. Code. Maryland temporarily decouples from any Federal law change that affects Federal adjusted gross income in the year in which it is enacted if the Federal law change impacts Maryland tax revenues by $5 million or more. This decoupling only applies to the first taxable year. Any decoupling extension requires affirmative action by the Maryland legislature. A person who files a Federal income tax return must compute Maryland taxable income for the same annual accounting period and by the same accounting method that is used to compute the income reported on the Federal return. If the person does not file a Federal income tax return, the person must compute Maryland taxable income in accordance with the cash or accrual method that the person uses to compute income regularly in keeping the person’s books or the method that the Maryland Comptroller of the Treasury requires to clearly reflect the person’s income. Maryland conforms, as a general rule, to most of the Federal provisions. This lesson will detail the differences between Maryland and Federal law regarding gross income.

Overview of Additions to Federal Adjusted Gross Income To the extent excluded from Federal adjusted gross income (AGI), the following items must be added to the Federal AGI of a resident to determine Maryland AGI. The additions discussed here are not all inclusive and the tax practitioner should look at all possible sources of additions to income and consult with the Comptroller of Maryland in the event of uncertainty. Nonresidents are required to make the following additions only if the income is attributable to Maryland sources:

Dividends and interest from another state or local obligation. Federal tax-exempt income subject to Maryland taxation. Lump sum distributions. Oil percentage depletion allowance. Capital losses from sale of certain trust property. Pick-up contributions of a state or local retirement or pension system member.

Nonresidents must make the following additions, regardless of the source of income or expense:

Credit expenses. Reforestation and timber stand modification. S corporation credit for tax paid to another state. Net operating losses. Tax preferences. Operating expenses from unregistered family day care homes or unlicensed child care centers. Higher education investment contract refunds.


Lesson 2 - 4 Hour - Maryland Income


Depreciation Maryland does not incorporate the following Federal provisions: (25)

Special Depreciation Allowance under the Federal Job Creation and Worker Assistance Act of 2002 (JCWAA) as increased and extended under the Federal Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA); and subsequent Federal legislation, including the American Recovery and Reinvestment Act of 2009 (ARRA).

Carryover of a net operating loss (NOL) under IRC Section 172 without regard to an election under IRC Section 172(b)(1)(H) for a carryback period of up to 5 years.

Federal Section 179 depreciation deductions taken for a tax year beginning on or after January 1, 2003. For Maryland tax purposes, a taxpayer only is allowed to expense up to $25,000, reduced dollar-for-dollar by the amount over $200,000, of the cost of Section 179 property that is purchased and put in service for a trade or business for the tax year. For vehicles placed in service after May 31, 2004, Maryland also has decoupled from the higher depreciation deduction for certain heavy-duty SUVs allowed under Internal Revenue Code Section 280F.

Deferral of recognition of income from discharge of indebtedness under the ARRA. Deferral of deduction for original issue discount in debt for debt exchanges under the ARRA.

A taxpayer that claims the increased or enhanced deductions that impact the amount of his or her depreciation deduction on his or her Federal return must decrease the amount of depreciation claimed for Maryland income tax purposes for the property’s initial year of purchase or use, and adjust for any difference in the depreciation deduction for subsequent tax years.

An addition or subtraction adjustment may also be required when qualifying property is sold to reflect the difference in the amount of the gain or loss on the sale and the amount of any depreciation recapture, if any, as a result of the differing basis in the property for Federal and state purposes. Finally, other deductions (or credits) that are calculated on the basis of adjusted gross income (AGI) must use the Maryland AGI number adjusted for differences in depreciation and gain/loss resulting for Maryland’s decoupling from Federal law. Examples include passive loss deduction and the credit for taxes paid to another state. These modifications are computed on Maryland Form 500DM - Decoupling Modification. Interest and Dividends Interest and dividends, less related expenses, attributable to an obligation or security of another state is added to Federal AGI. This includes interest from mutual funds that invest in non-Maryland state or local obligations. Interest on U.S. and foreign government obligations is exempt if also exempt under Federal law or treaties. Interest earned on obligations of Maryland or any Maryland subdivision is exempt from Maryland tax and should not be entered on this line. Non-Maryland State Bonds Interest or dividends on obligations or other securities of a state or political subdivision of a state other than Maryland are taxable by Maryland. Any profit realized from the sale or exchange of bonds issued by a state or political subdivision of a state other than Maryland is taxable by Maryland. Because profit realized on such sale is already included in Federal adjusted gross income, no addition modification is required for profit realized. Interest and dividends earned on obligations of a state or political subdivision other than Maryland must be added to Federal adjusted gross income. The Comptroller’s office has indicated that the following obligations are subject to Maryland income tax: (26)

District of Columbia armory bonds (issued after 1975). District of Columbia bonds (issued after 1975). Export-Import Bank of the United States (Eximbank) Certificate of Beneficial Interest (CBIs). Farmers Home Administration (including USAVE certificates). Federal Home Loan Mortgage Corporation (Freddie Mac) mortgage participation certificates (PCs). Federal Housing Authority (FHA).


http://forms.marylandtaxes.com/current_forms/500dm.pdf



Federal National Mortgage Association (Fannie Mae). Government National Mortgage Association (Ginnie Mae). International institutions such as the Asian Development Bank, Inter-American Development Bank,

International Bank of Reconstruction and Development (World Bank), and the International Monetary Fund. Maritime Administration (Merchant Marine). Money market certificates. Municipal or state obligations, other than Maryland. New communities debentures issued under the Housing and Urban Development Act of 1968 and

supplemented and extended in 1970 (includes Jonathan Development Corporation). Repurchase agreements. RFK Stadium and Washington Airports Authority bonds.

Exemptions apply to interest from the following obligations or obligations issued by the following institutions: (26)

Banks for cooperatives. Federal Deposit Insurance Corporation. Farm credit consolidated system wide discount notes and farm credit banks consolidated system-wide bonds

from Federal farm credit banks. Federal Financing Bank. Federal home loan banks. Federal intermediate banks. Federal Land Bank Association. Federal land banks. Federal Savings and Loan Insurance Corporation (FSLIC). Financial Assistance Corporation (Farm Credit System Financial Assistance Corporation). Financing Corporation (FICO). General Services Administration (GSA) (Participation Certificates). Guam bonds. Maryland municipal and state obligations. Panama Canal Zone Bonds specifically exempt from tax by 31 U.S.C. Sections. 744 and 745. Production Credit Association. Public housing and urban renewal project notes issued by public housing and urban renewal agencies

administered by the Department of Housing and Urban Development. Puerto Rican bonds. Resolution Funding Corporation. Small Business Administration (SBA) debentures. Student Loan Marketing Association (Sallie Mae). Tennessee Valley Authority (TVA). U.S. Postal Service. U.S. Savings Bonds (Series E and H or EE and HH). U.S. Treasury notes and bills. The Virgin Island bonds. Washington Metropolitan Area Transit Authority bonds (METRO). Washington Suburban Sanitary Commission bonds.

If an obligation is not listed above, the burden is on the taxpayer to demonstrate that it is exempt.

State Retirement Pickups If the taxpayer pays a deduction to the State Retirement System, he or she must remember to include the State Pickup Amount from the first line of box 14 labeled “STPICKUP” on his or her Maryland tax return. The pickup amount is the mandatory retirement deductions that the taxpayer paid during the year that are not subject to Federal tax but are subject to Maryland state and local tax.

If the taxpayer is due a refund on his or her Maryland tax, failure to add the state pickup amount on his or her Form 502 or Form 505 Maryland tax return may result in the refund being delayed.




Retirement Benefits and Contributions Addition modifications are required for pick-up contributions made by certain government employees and for specified lump sum distributions from a qualified retirement plan. An addition adjustment is required for the amount of pick-up contributions made by a member of a state or local retirement or pension system that is excluded from Federal adjusted gross income. The pick-up amount is stated separately in Box 14 (Other) on the W-2 wage statement. For a list of the pension and retirement programs to which this addition modification applies, see Administrative Release No. 21, Maryland Comptroller of the Treasury. Once the pension or retirement benefits are actually paid to the taxpayer, the taxpayer may claim a subtraction from Federal AGI for the amounts previously added back in as a result of this addition modification, see Instructions to Form 502 - Maryland Resident Income Tax Return. An addition modification is required for the amount by which the total taxable amount of a lump-sum distribution from a qualified retirement plan exceeds the sum of:

60% of the capital gains portion of the total taxation amount. The minimum distribution allowance.

For purposes of this calculation, the capital gains portion of the total taxable amount is determined by multiplying the total taxable amount by a fraction, the numerator of which is the number of calendar years of active participation by the employee in the plan before January 1, 1974, and the denominator of which is the number of calendar years of active participation by the employee in the plan. The addition amount is determined by adding the ordinary income portion of distribution from Form 1099R reported on Federal

Form 4972 (taxable amount less capital gain amount) to 40% of the capital gain portion of distribution from Form 1099R. The minimum distribution allowance from Form 4972 is then subtracted from this amount to determine the addition. The addition is entered on Form 502, line 4. Net Operating Loss Deduction To ensure that taxpayers claim only the amount of net operating loss (NOL) claimed on the Federal return, Maryland requires an addition to Federal adjusted gross income in a year in which a Federal net operating loss is used to offset a net addition modification. Consequently, a taxpayer may not claim the same loss twice by claiming the loss both on the Maryland return against any net addition modifications that may exist during the loss year and in the carryback or carryforward years allowed under Federal law as incorporated by Maryland. An NOL generated when an individual is not subject to Maryland income tax law may not be allowed as a deduction to offset the Maryland income from an earlier year when that individual was subject to Maryland income tax law. The addition modification for any year in which a net operating loss deduction is claimed on the Federal tax return is the lesser of:

The net operating loss deduction attributable to the loss year. The net addition modification in the loss year plus the cumulative net operating loss deductions claimed for

current and prior years attributable to the loss year less the total net operating loss in the loss year.

Alimony Maryland law is the same as Federal. Generally, alimony payments received pursuant to a divorce, dissolution, or legal separation are taxable to the ex-spouse who receives the payments. Any amount received for support of minor children is not taxable. Alimony paid by a Maryland resident to a nonresident is not taxable to the recipient. Education Expenses and Savings Plans To the extent not already included in a taxpayer’s Federal AGI, additions must be made for:

Any refund received in the taxable year by a purchaser under a prepaid contract in accordance with the Maryland Prepaid College Trust or a contributor under an investment account in accordance with the Maryland College Investment Plan.







Any distribution received in the taxable year by a purchaser or that is not used on behalf of the qualified beneficiary or qualified designated beneficiary for qualified higher education expenses.

However, the amount of the addition may not exceed the amount of the subtraction taken. An addition adjustment must also be made equal to the amount deducted under IRC Section 222 for qualified tuition and related higher-education expenses. Tax Preference Items An addition to Federal adjusted gross income is required for 50% of the amount that exceeds $10,000 ($20,000 for a joint return) of the sum of the following tax preference items listed on Federal Form 6251- Alternative Minimum Tax - Individuals:

Depreciation (pre-1987). Intangible drilling costs. Exclusion for gain on the sale of certain small business stock. Depletion 9 reduced by amount of oil percentage depletion allowance claimed and included in Federal figure. Interest from specified private activity bonds.

Nonresidents having tax preference items based on income derived both inside and outside of Maryland are allowed only that portion of the exclusion attributable to Maryland income. Each S corporation shareholder must report his or her pro rata share of the S corporation’s tax preference items. Federal Tax-Exempt Income Income exempt under Federal law or treaties from Federal taxation, but NOT state taxation, is added to Federal adjusted income. Non-Licensed Child Care Expenses Amounts allowed as a Federal deduction for expenses attributable to the operation of a non-registered family day care home or an unlicensed child care center in Maryland must be added back to Federal adjusted gross income for purposes of computing Maryland adjusted gross income. Capital Losses An addition adjustment is required for any capital loss derived from the sale or other disposition of intangible personal property that is held in trust, if the proceeds are added to the principal of the trust, and if all the remaindermen in being are nonresidents during the entire taxable year or corporations not doing business in the state. Section 179 Depreciation Federal Section 179 depreciation deductions taken for a tax year beginning on or after January 1, 2003. For Maryland tax purposes, a taxpayer only is allowed to expense up to $25,000, reduced dollar-for-dollar by the amount over $200,000, of the cost of Section 179 property that is purchased and put in service for a trade or business for the tax year. For vehicles placed in service after May 31, 2004, Maryland also has decoupled from the higher depreciation deduction for certain heavy-duty SUVs allowed under Internal Revenue Code Section 280F. Maryland ABLE Program Any refunds received by an Achieving a Better Life Experience (ABLE) account contributor under the Maryland ABLE Program or any distribution received by an ABLE account holder, to the extent the distribution was not used for the benefit of the designated beneficiary for qualified disability expense, that were subtracted from Federal adjusted gross income must be added to the Federal AGI of a resident to determine Maryland AGI. However, a new subtraction modification is available for up to $2,500 per ABLE account contributor per beneficiary of the total of all amounts contributed under the Maryland ABLE Program.


http://www.irs.gov/pub/irs-pdf/f6251.pdf




Review Question 1 In 2017, Dee Harvey, an individual taxpayer, was solely engaged in business in Maryland. In 2018, Dee was solely engaged in business in Oregon and had a net operating loss (NOL) of $5,000. Dee may use what amount of the NOL generated from doing business in Oregon in 2018 as a deduction to offset her Maryland income for 2017?

A. $0 B. $1,000 C. $2,500 D. $$5,000


Subtractions to Federal Adjusted Gross Income Maryland allows a variety of subtractions from Federal adjusted gross income for purposes of determining a taxpayer’s Maryland personal income tax liability. The subtractions discussed here are not all inclusive and the tax practitioner should look at all possible subtractions to income and consult with the Comptroller of Maryland in the event of uncertainty. A subtraction may be taken for income that Federal law or treaty exempts from state but not Federal income tax. In addition, a subtraction may be taken for state or local income tax refunds. Nonresidents may make the same subtractions from AGI as residents, including income derived from wages in the state if allowed by the Maryland Comptroller of the Treasury, except that the following income may not be subtracted:

Income derived from real or tangible personal property located in Maryland, whether the income is derived directly or from a fiduciary.

Income derived from a business that is wholly carried on in Maryland and in which the individual is a partner, S corporation shareholder, or limited liability company member.

Income from an occupation, profession, or trade that is wholly carried on in the state. The part, allocable to Maryland, of income derived from a business carried on both in and out of the state and

of which the individual is a partner, S corporation shareholder, or limited liability company member, or an occupation, profession, or trade that is carried on both inside and outside Maryland.

Income from Maryland state lottery prizes and other gambling winnings derived in the state. State Tax Refunds A taxpayer can subtract the amount of refunds of state or local income tax included in line 1 of Form 502. Child or Dependent Care Expenses Maryland provides two separate tax benefits for child or dependent care costs: a subtraction that reduces the taxpayer’s taxable income and a tax credit that reduces the amount of tax he or she owes. The state subtraction benefit, which is claimed on Form 502, reduces the taxpayer’s taxable income. If he or she has eligible child or dependent care expenses, the taxpayer first determines his or her Federal tax credit by completing the calculation on Federal Form 2441 - Child and Dependent Care Expenses. The taxpayer then transfers the amount of child or dependent care expenses (not the Federal tax credit) claimed on line 6 of the Federal form to line 9 of Maryland Form 502. The taxpayer can subtract actual expenses up to the legal maximums of $3,000 for one child or $6,000 for two or more children.

The tax credit, which is claimed on Form 502CR, reduces the amount of tax the taxpayer owes. If he or she is eligible for a child and dependent care credit on his or her Federal income tax return, he or she may be entitled to a tax credit on his or her Maryland income tax return. The tax credit does not affect the treatment or eligibility of the state tax subtraction for child care costs.





Pension Exclusion If the taxpayer is 65 or older or totally disabled (or his or her spouse is totally disabled), he or she may qualify for Maryland's maximum pension exclusion of $29,900 for tax year 2017 under the conditions described in Instruction 13 of the Maryland resident tax booklet. If the taxpayer is eligible, he or she may be able to subtract some of his or her taxable pension and retirement annuity income from his or her Federal adjusted gross income. This subtraction applies only if:

1. The taxpayer was 65 or older or totally disabled, or his or her spouse was totally disabled, on the last day of the tax year; and

2. The taxpayer included on his or her Federal return income received as a pension, annuity or endowment from an "employee retirement system". A traditional IRA, a Roth IRA, a simplified employee plan (SEP), a Keogh Plan or an ineligible deferred compensation plan does not qualify.

The taxpayer should complete the Pension Exclusion Computation Worksheet shown in Instruction 13 of the Maryland resident tax booklet. He or she should be sure to report all benefits received under the Social Security Act and/or Railroad Retirement Act on line 3 of the pension exclusion worksheet - not just those benefits the taxpayer included in his or her Federal adjusted gross income. To receive the benefit of the pension exclusion, the taxpayer should be sure to transfer the amount from line 5 of the worksheet to line 10 of Form 502, and complete the remainder of his or her return, following the line-by-line instructions. If the taxpayer is a part-year resident, he or she completes the Pension Exclusion Computation Worksheet (13A) in the Maryland Tax Booklet using total taxable pension and total Social Security and railroad retirement benefits as if he or she was a full-year resident. Prorate the amount on line 5 by the number of months of Maryland residence divided by 12. However, if the taxpayer began to receive his or her pension during the tax year he or she became a Maryland resident, he or she uses a proration factor of the number of months he or she was a resident divided by the number of months the pension was received.

Please note that, in either case, the proration factor may not exceed 1.

Social Security or Railroad Retirement Benefits Maryland does not tax Social Security and/or Railroad Retirement benefits. If the taxpayer receives Social Security benefits and/or Railroad Retirement benefits and any amount of those benefits is included in his or her Federal adjusted gross income, he or she can exempt those benefits from state and local tax in these easy steps:

1. Determine the taxable amount of Social Security and/or Railroad Retirement benefits that were included in the taxpayer’s Federal adjusted gross income on line 1 of Maryland Form 502.

2. Subtract those taxable benefits on line 12. 3. Complete the remainder of the taxpayer’s return, following the line-by-line instructions.

If the taxpayer is also eligible for Maryland's pension exclusion, be sure to report all of his or her Social Security and/or Railroad Retirement benefits on line 3 of the pension exclusion computation worksheet - not just those benefits he or she included in his or her Federal adjusted gross income.

Review Question 2 Pat Townsend moved to Maryland on March 1. If he started to receive his pension on March 1, he would prorate the pension exclusion by 10/10, which would mean he would be entitled to the full pension exclusion. However, if he began to receive his pension on February 1, Pat would prorate his pension by what proration factor?

A. 11/10 B. 12/10 C. 10/11 D. 10/12





Nonresident Income If the taxpayer began or ended his or her residence in Maryland during the year, he or she may subtract the portion of his or her income received when he or she was not a resident of Maryland. Reader for a Blind Employee Expenses up to $5,000 incurred by a blind person for a reader, or up to $1,000 incurred by an employer for a reader for a blind employee. Adoption Expenses A subtraction may be taken for reasonable and necessary adoption fees, court costs, attorney fees, and other expenses not exceeding $5,000 ($6,000 for a special needs child adopted through a public or nonprofit adoption agency) that a parent incurs in the adoption of a child who is a Maryland resident at the time of the adoption. The subtraction is limited to $2,000 ($3,000 for a special needs child adopted through a public or nonprofit adoption agency) if the child is not a Maryland resident at the time of the adoption. Military Pay and Benefits

A subtraction from Federal AGI up to $5,000 of military retirement income received by a qualifying individual during the tax year if the taxpayer has not yet attained the age of 65; or up to $10,000 of military retirement income received by a qualifying individual if the taxpayer is age 65 or over.

A subtraction is also available for the first $15,000 of military pay that is received by an individual who is in active military service and that is attributable to military service of the individual outside the United States. The amount of this subtraction is reduced dollar for dollar for the amount by which military pay received by the individual exceeds $15,000 and is reduced to zero if the amount of military pay received by the individual exceeds $30,000. The subtraction for military service also includes all individuals having served in active duty with the Commissioned Corps of the Public Health Service, the National Oceanic and Atmospheric Administration, and the Coast and Geodetic Survey. Also, a surviving spouse may claim the subtraction after a 2006 amendment eliminated the requirement that the subtraction be utilized only by a former enlisted member of the military. Unreimbursed Volunteer Travel Expenses A subtraction may be taken for unreimbursed automobile travel expenses for the following volunteer service activities:

With a volunteer fire company. As a volunteer for a charitable organization whose principal purpose is to provide medical, health or nutritional

care. To provide assistance (other than providing transportation to and from the school) for handicapped students

at a Maryland community college.

Travel expenses are calculated using the standard mileage rate of 53.5 cents per mile in 2017 allowed for unreimbursed automobile expenses, and then subtracting the amount claimed as an itemized deduction for the same organization on the Federal return. The subtraction modification is computed on Form 502V - Use of Vehicle for Charitable Purposes.

Relocation Benefits To the extent included in Federal adjusted gross income (AGI), relocation and assistance payments from the State of Maryland to owners and tenants who have been displaced from their residences may be subtracted from Federal AGI. The Honorable Louis L. Goldstein Volunteer Fire Rescue and Emergency Medical Services

Personnel Subtraction Modification Program A subtraction from Federal AGI of $4,500 for each taxpayer who is a qualifying volunteer as certified by a Maryland fire, rescue or emergency medical services organization. A subtraction from Federal AGI of $4,500 for each taxpayer


http://forms.marylandtaxes.com/16_forms/502V.pdf

http://forms.marylandtaxes.com/16_forms/502V.pdf



who is a qualifying member of the U.S. Coast Guard Auxiliary, Maryland Defense Force or Maryland Civil Air Patrol as certified by these organizations. The Honorable Louis L. Goldstein Volunteer Police Personnel Subtraction Modification Program A subtraction from Federal AGI of $4,500 for each taxpayer who is a qualifying police auxiliary or reserve volunteer as certified by a bona fide Maryland police agency. Unreimbursed Expenses Incurred by a Foster Parent on Behalf of a Foster Child A subtraction from Federal AGI up to $1,500 of unreimbursed expenses that a foster parent incurs on behalf of a foster child. The foster parent must be approved by a local department to provide 24-hour care for a foster child in the house where the foster parent resides. A treatment foster parent licensed by a child placement agency may not claim the subtraction modification. Foster parent includes a kinship parent. The expenses must be approved as necessary by the local department of social services or the Montgomery County Department of Health and Human Services and may not include an expense for which the foster parent receives an allowance or reimbursement from any public or private agency. College Savings Plans Deductions If the taxpayer contributes to the Maryland Prepaid College Trust, the Maryland College Investment Plan or the Maryland Broker-Dealer Investment Plan, he or she may claim a subtraction on the Maryland income tax return, using Form 502 for full or part-year residents or Form 505 for nonresident individuals by filing Form 502SU or Form 505SU. The taxpayer may be able to claim up to $2,500 per contract purchased for advanced tuition payments made to the Maryland Prepaid College Trust or up to $2,500 per taxpayer per beneficiary for the total of all amounts contributed to investment accounts for the same beneficiary under the Maryland College Investment Plan and the Maryland Broker-Dealer College Investment Plan. If the taxpayer has contributed more than $2,500 during the taxable year, the excess may be carried over to each subsequent succeeding tax year until the full amount of the initial contribution is allowed as a subtraction for the Maryland Prepaid College Trust or until used to the next 10 succeeding taxable years for the College Investment Plan. The taxpayer may be able to take a subtraction on the amount included in Federal adjusted gross income contributed by the State into an investment account under Section 18-19A-04.1 of the Education Article during the taxable year. This includes amounts included in Federal adjusted gross income contributed by the State into an investment account under the Maryland College Investment Plan. The beneficiary does not have to be the taxpayer’s dependent. Anyone may contribute to an account, but only the account holder is entitled to take a subtraction for the amounts the account holder contributes. If two or more people established multiple accounts for a child each person would be entitled to a maximum $2,500 subtraction modification on their respective returns for the contributions to the account that each made. An addition on the Maryland income tax return must be claimed for any refunds of advanced tuition payments made under the Maryland Prepaid College Trust, to the extent the payments were subtracted from Federal adjusted gross income and were not used for qualified higher education expenses, and any refunds of contributions made under the Maryland College Investment Plan or the Maryland Broker-Dealer College Investment Plan, to the extent the contributions were subtracted from Federal adjusted gross income and were not used for qualified higher education expenses.

The general rule for Section 529 programs is that neither the account holder (typically the parent or grandparent) nor the beneficiary (the future student) will include in Federal taxable income the increase in value of the account over time. For tax years beginning before January 1, 2002, the beneficiary included this increase in his or her Federal taxable income, and owed tax thereon, when the funds were actually used towards qualified higher education expenses. Beginning January 1, 2002, the beneficiary is no

longer required to include the increase in his or her Federal taxable income. If the account is refunded or distributed to the account holder and not used for qualified higher education expenses, the account holder will be required to include any earnings realized in his or her Federal taxable income.




Generally, any earnings on amounts not used for qualified higher education expenses will also be subject to a 10% Federal surtax. Now any individual contributing funds to a Maryland College Investment Plan or Broker-Dealer College Investment Plan qualifies for a subtraction modification. Previously, only individuals designated account holders of these plans qualified for this subtraction modification.

Maryland ABLE Program Any amount included in Federal adjusted gross income as a result of a distribution to a designated beneficiary from a Maryland ABLE account, unless it is a refund or nonqualified distribution. Up to $2,500 per ABLE account contributor per beneficiary of the total of all amounts contributed under the Maryland ABLE Program. Subject to the $2,500 annual limitation, any amount disallowed as a subtraction because it exceeds $2,500 may be carried over until used to the next 10 succeeding taxable years as a subtraction. Two-Income Household Deduction If the taxpayer and his or her spouse have taxable income and are filing a joint Federal return, he or she may be able to subtract up to $1,200, or the income of the spouse with the lower income (whichever is less) on the Maryland income tax return. The benefit is available only on the Maryland return and it applies to wages, pensions or business income. Donations A subtraction may be taken for the value of farm products the taxpayer donated to a gleaning cooperative as certified by the Maryland Department of Agriculture. To claim the subtraction, a taxpayer must file a written statement from the gleaning cooperative certifying the amount donated and a written statement from the Maryland Department of Agriculture certifying the wholesale market value of the donated products. Solar Energy Grant If the taxpayer received a grant under Maryland's Residential Clean Energy Grant Program to install a qualifying solar energy system and the grant was reported to him or her on a Form 1099G - Certain Government Payments and included in his or her Federal adjusted gross income, the taxpayer may be able to subtract the grant amount from his or her taxable income on the Maryland income tax return. The subtraction amount cannot exceed the taxpayer’s total income. To claim the subtraction, the taxpayer should enter the amount that was reported to him or her on a Form 1099G on the Maryland Form 502 and enter code letters "ee" in the code letter box.

The Residential Clean Energy Grant Program is administered by the Maryland Energy Administration and provides funding for a portion of the costs to install certain qualifying solar energy systems. Grants are allocated on a first come/ first served basis across technologies and are subject to changes in amount and existence based on funding availability.

Review Question 3 Brian and Susan have taxable income and are filing a joint Federal return. Brian earned $1,100 and Susan earned $32,500 in 2017. What is the amount they may be able to subtract as a family with two

incomes on their Maryland income tax return? A. $0 B. $550 C. $1,100 D. $1,200



https://www.irs.gov/pub/irs-pdf/f1099g.pdf



Other Income Gambling Winnings Anyone who receives winnings from lottery games, racetrack betting or gambling must pay income tax on the prize money. Both residents and nonresidents of Maryland are subject to Maryland income tax on their winnings. Income tax will automatically be withheld, just as it is from a paycheck, if the taxpayer’s winnings total more than $5,000. According to Maryland law, prize winnings of more than $5,000 are subject to withholding for both Federal and state income tax purposes. Maryland taxes will be withheld at a rate of 8.75% on a resident's winnings. For a nonresident, the withholding rate is 7.00%. If the taxpayer’s winnings are more than $500, and he or she did not have Maryland tax withheld, he or she must file Form 502D - Personal Declaration of Estimated Income Tax, and pay the tax on that income within 60 days of the time he or she receives the prize money. The taxpayer can claim a credit for taxes paid with the 502D on his or her annual income tax return. Failure to pay the estimated tax due or report the income could result in penalty and interest charges.

Standard Deduction In computing Maryland taxable income, resident individuals, other than fiduciaries or personal representatives, may subtract a standard deduction from Maryland adjusted gross income (AGI). Part-year residents and nonresidents prorate the standard deduction on the basis of the percentage of the taxpayer’s Federal AGI attributable to Maryland. An individual may claim the standard deduction whether or not itemized deductions were taken on the individual’s Federal return. The amount of the standard deduction is equal to 15% of the individual’s Maryland AGI. However, the standard deduction may not be less than $1,500 nor more than $2,000 ($3,000 and $4,000, respectively, for heads of households, surviving spouses, and spouses on a joint return). Under this formula, single individuals and married persons filing separately deduct $1,500 if their income is $10,000 or less; 15% of their income if their income is $10,001 to $13,332; and $2,000 if their income is $13,333 and over. Heads of households, surviving spouses, and married taxpayers filing jointly deduct $3,000 if their income is $20,000 or less; 15% of their income if their income is $20,001 to $26,666; and $4,000 if their income is $26,667 and over. (27)

Itemized Deductions Only an individual who itemizes deductions on his or her Federal income tax return may elect to itemize deductions on a Maryland income tax return. An individual who elects to itemize is allowed as a deduction the sum of the individual’s allowed Federal itemized deductions less:

The deduction claimed for state or local income taxes. The amount claimed as a charitable deduction for contributions of preservation/conservation easements for

which a Maryland personal income tax credit was claimed. Maryland has recoupled with the Federal itemized deduction threshold limiting itemized deductions.

The taxpayer should copy the amount from Schedule A, line 29, Total Itemized Deductions, on line 17a of Form 502. Certain items of Federal itemized deductions are not eligible for State purposes and must be subtracted from line 17a. State and local income taxes used as a deduction for Federal purposes must be entered on line 17b. Also, any amounts deducted as contributions of Preservation or Conservation Easements for which a credit is claimed on Form 500CR must be added to line 17b. Certain high-income taxpayers are required to reduce their Federal itemized deductions. If the taxpayer had to reduce his or her total Federal itemized deductions, he or she should use the Itemized Deduction Worksheet to calculate the amount of state and local income taxes to enter on line 17b of Form 502.


http://forms.marylandtaxes.com/13_forms/502D.pdf



The taxpayer is not required to itemize deductions on his or her Maryland return simply because he or she itemized on his or her Federal return. The taxpayer should figure his or her tax each way to determine which method results in the lowest tax liability.

If joint Federal returns are filed but separate Maryland personal income tax returns are filed or one spouse is not required to file a Maryland personal income tax return an individual taxpayer may claim his or her itemized deductions claimed for Federal income tax purposes that are attributable exclusively to the individual. If an individual’s itemized deductions cannot be discerned, the individual may claim itemized deductions that are identified as attributable exclusively to the individual, plus a prorated amount of the remaining itemized deductions claimed on the Federal income tax return. If the taxpayer’s unreimbursed business expenses include depreciation to which an adjustment is required for Maryland purposes, complete Form 500DM - Decoupling Modification to calculate the addition modification or subtraction modification. Part-year residents must prorate the deductions on the basis of Maryland’s AGI to Federal AGI using the following formula:

NET MARYLAND MARYLAND ITEMIZED X INCOME = ITEMIZED DEDUCTIONS FACTOR DEDUCTIONS

Enter the prorated amount on Form 502 and check the ITEMIZED DEDUCTION METHOD box. Nonresidents may claim those itemized deductions verifiable by the individual as paid in Maryland and must prorate the remaining deductions on the basis of Maryland AGI to Federal AGI.

Personal Exemptions The taxpayer is permitted the same number of exemptions on the Maryland return which he or she is permitted on his or her Federal return; however, the exemption amount is different on the Maryland return. If the taxpayer is not required to file a Federal return but he or she must file a Maryland return, he or she may still claim the exemptions permitted under Federal law. The personal exemption is $3,200. This exemption is reduced once the taxpayer’s Federal adjusted gross income exceeds $100,000 ($150,000 if filing Joint, Head of Household, or Qualifying Widow(er) with Dependent Child).

Maryland Personal Income Tax Exemptions If the taxpayer’s Federal adjusted gross income (AGI) is

Single or Married Filing Separately Each Exemption is

Joint, Head of Household or Qualifying Widow(er) Each Exemption is

Dependent Taxpayer (eligible to be claimed on another taxpayer’s return) Each Exemption is

$100,000 or less $3,200 $3,200 $0 Over But not over $0 $100,000 $125,000 $1,600 $3,200 $0 $125,000 $150,000 $800 $3,200 $0 $150,000 $175,000 $0 $1,600 $0 $175,000 $200,000 $0 $800 $0 In excess of $200,000 $0 $0 $0

Table 2-1 - Form 502 Instructions - Exemption Amount Chart (2017)





Fiduciaries, other than personal representatives, may claim a $200 exemption. Personal representatives may deduct $600 as an exemption. Part-year residents, nonresidents and members of the military must prorate the exemption on the basis of the percentage of their income subject to Maryland tax. The taxpayer must also enter the names, Social Security numbers and relationships for all dependents from Form 502B - Dependents’ Information in part C of the Exemptions section on Form 502. Form 502B must be completed and attached to Form 502 if the taxpayer is claiming one or more dependents. Age and Blindness Exemption In addition to the exemptions allowed on the taxpayer’s Federal return, the taxpayer and his or her spouse may claim an additional $1,000 exemption on the Maryland return for being 65 years of age or older or blind. If any other dependent claimed is 65 or over, the taxpayer also receives an extra exemption of up to $3,200. The taxpayer should check both boxes in columns 6 and 7 of the Exemptions section for each of his or her dependents who are age 65 or over. He or she should also check both boxes (6) and (7) of Form 503 or the Dependent Form 502B for each of his or her dependents who are age 65 or over.

Contributions The taxpayer can use his or her Maryland income tax return to contribute money to protect Maryland’s natural resources, support people with developmental disabilities, and support cancer research. The taxpayer’s contribution will reduce the amount of his or her state refund or increase the amount of additional state tax he or she owes. However, any contribution the taxpayer makes to the Chesapeake Bay and Endangered Species Fund, Developmental Disabilities Services and Support Fund (previously the Developmental Disabilities Administration Waiting List Equity Fund), and the Maryland Cancer Fund is tax deductible for the year the contribution was made, if the taxpayer itemizes deductions. Chesapeake Bay and Endangered Species Fund The taxpayer may contribute any amount he or she wishes to this fund. The amount contributed will reduce his or her refund or increase his or her balance due. Contributions to this fund support projects to restore wetlands, plant trees and protect threatened plants and animals. The donations are divided evenly between the Chesapeake Bay Trust and the Wildlife and Heritage Division of the Maryland Department of Natural Resources. Developmental Disabilities Services and Support Fund The taxpayer may contribute any amount he or she wishes to this fund. Contributions to the Developmental Disabilities Services and Support Fund help provide vital support to children and adults with disabilities such as autism, cerebral palsy, and Down syndrome. Services include support to families, job training and employment for adults, support to live in the community and crisis intervention. Maryland Cancer Fund The taxpayer may contribute any amount he or she wishes to this fund. The amount contributed will reduce his or her refund or increase his or her balance due. Contributions to the Maryland Cancer Fund support grants for cancer research, prevention and treatment. Fair Campaign Financing Fund The taxpayer may contribute any amount he or she wishes to this fund. The amount contributed will reduce his or her refund or increase his or her balance due. This fund is only for gubernatorial campaigns.

If there are not sufficient credits or other payments to satisfy both the taxpayer’s tax and the contribution he or she has designated, the contribution amount will be reduced. If the taxpayer has entered amounts for contributions to multiple funds, any reduction will be applied proportionately.






Payments Employer Withholding The withholding of Maryland income tax is a part of the state’s “pay-as-you-go” plan of income tax collection adopted by the 1955 session of the Maryland General Assembly. The provisions are set forth in the Tax-General Article of the Annotated Code of Maryland. The law aids in the proper collection of taxes required to be reported by individuals with taxable income. Generally speaking, the state’s system resembles the Federal withholding plans. Withholding tax is not an additional tax, but merely a collection device. Its purpose is to collect tax at the source, as the wages are earned, instead of collecting the tax a year after the wages were earned. Estimated Tax Payments If the taxpayer is self-employed or does not have Maryland income taxes withheld by an employer, he or she can make quarterly estimated tax payments as part of a “pay-as-you-go” plan. The taxpayer can make estimated payments online using iFile, which also allows him or her to review his or her history of previous payments made through iFile and also schedule the payments. The taxpayer can also submit estimated payments using Form 502D - Personal Declaration of Estimated Income Tax or pre-printed vouchers Form 502DEP. If the taxpayer’s employer does withhold Maryland taxes from his or her pay, he or she may still be required to make quarterly estimated income tax payments if he or she develops a tax liability that exceeds the amount withheld by his or her employer by more than $500. If the taxpayer receives $500 or more in income from awards, prizes, lotteries, racetracks or raffles, he or she must file Form 502D - along with his or her full estimated tax payment - within 60 days of receiving the income. If the taxpayer files a joint return, he or she and his or her spouse may file a joint Form 502D regardless of whether the taxpayer files his or her final return jointly or separately. The estimated tax may be claimed in any proportion on the final return as long as the amounts claimed separately do not exceed the total paid. If the taxpayer and his or her spouse plan to file jointly, the Office of the Comptroller of Maryland recommends that he or she makes estimated tax payments to a joint account. To determine the total estimated tax payments on his or her Maryland tax return, the taxpayer should include all of the following: (27)

1. Maryland estimated tax payments. 2. Amount of overpayment applied from the 2016 return. 3. Payment made with a request for an automatic extension of time to file his or her 2017 return. (See the

instructions on Form 502E). 4. Reported income tax withheld on the taxpayer’s behalf as an estimated payment, if he or she participated in

a nonresident real estate transaction as an individual. Estimated tax payments are required if the taxpayer expects to receive any income (like pensions, business income, capital gains, lottery, etc.) from which no tax or not enough Maryland tax will be withheld.


http://forms.marylandtaxes.com/current_forms/502d.pdf

http://forms.marylandtaxes.com/current_forms/502d.pdf



Review Feedback Review feedback provides both the answers to each question and an explanation or feedback as to how we arrived at each answer at the end of the lesson. Review feedback also contains evaluative feedback explaining why incorrect answers are wrong. You are also provided the course topic from which we derived our answer and the external source material we used for verification. If you are using the online version of the course, Ctrl+click on the topic to find the section from which we arrived at the answer for the question. You can also Ctrl+click on the question number to return to the specific review question. Question 1 - A. $0 A NOL deduction generated when an individual or fiduciary is not subject to Maryland income tax law may not be used to offset Maryland income from an earlier year when that individual or fiduciary was subject to Maryland income tax law. In this question, Dee may not use any NOL generated from doing business in Oregon in 2018 as a deduction to offset her Maryland income tax in 2017. Thus, Choice A is the only correct amount. Topic - Net Operating Loss Deduction Source - Administrative Release No. 18 - Net Operating Losses and Associated Maryland Addition and Subtraction Modifications Question 2 - C. 10/11 If the taxpayer is a part-year resident, he or she completes Pension Exclusion Computation Worksheet (13A) in the Maryland Tax Booklet using total taxable pension and total Social Security and railroad retirement benefits as if he or she was a full-year resident. Prorate the amount on line 5 by the number of months of Maryland residence divided by 12. However, if the taxpayer began to receive his or her pension during the tax year he or she became a Maryland resident, he or she uses a proration factor of the number of months he or she was a resident divided by the number of months the pension was received. In this example, if Pat began to receive his pension on February 1, he would prorate his pension by 10/11 making Choice C the correct answer. Please note that, in either case, the proration factor may not exceed 1. See - Pension Exclusion Source - Maryland State and Local Tax Forms and Instructions Question 3 - C. $1,100 If the taxpayer and his or her spouse have taxable income and are filing a joint Federal return, they may be able to subtract up to $1,200, or the income of the spouse with the lower income (whichever is less) on the Maryland income tax return. In this question, Brian earned $1,100 so the Two-Income Household Deduction is limited to this amount. Therefore, Choice is the correct response as all other choices have incorrect amounts. Topic - Two-Income Household Deduction Source - Spotlight on Maryland Taxes - Tax Subtraction for Two-Income Families




http://forms.marylandtaxes.com/current_forms/resident_booklet.pdf

http://taxes.marylandtaxes.com/Individual_Taxes/Individual_Tax_Types/Income_Tax/Filing_Information/Determine_Tax_Credits_and_Deductions/Tax_Subtraction_for_Two-Income_Families.shtml


Maryland Differences, Business Entities Maryland has decoupled from certain Federal provisions by enacting addition and subtraction modifications which eliminate the effect of the changes on Maryland and local taxes. Form 500DM - Decoupling Modification is used to determine the amount of the required modification. The taxpayer should use Form 500DM only if the Maryland return is affected by the use (for any tax year) of any of the following Federal provisions from which Maryland has decoupled (Decoupled Provisions): (25)

Special Depreciation Allowance under the Federal Job Creation and Worker Assistance Act of 2002 (JCWAA) as increased and extended under the Federal Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA); and subsequent Federal legislation, including the American Recovery and Reinvestment Act of 2009 (ARRA).

Carryover of a net operating loss (NOL) under IRC Section 172 without regard to an election under IRC Section 172(b)(1)(H) for a carryback period of up to 5 years.

Federal Section 179 depreciation deductions taken for a tax year beginning on or after January 1, 2003. For Maryland tax purposes, a taxpayer only is allowed to expense up to $25,000, reduced dollar-for-dollar by the amount over $200,000, of the cost of Section 179 property that is purchased and put in service for a trade or business for the tax year. For vehicles placed in service after May 31, 2004, Maryland also has decoupled from the higher depreciation deduction for certain heavy-duty SUVs allowed under Internal Revenue Code Section 280F.

Deferral of recognition of income from discharge of indebtedness under the ARRA. Deferral of deduction for original issue discount in debt for debt exchanges under the ARRA.

Maryland Differences

Maryland taxable income starts with “Federal taxable income” after the net operating loss and special deductions, as defined in the IRC. According to the Comptroller’s office, Maryland follows Federal law unless they determine that a Federal change will impact Maryland tax revenues by $5 million or more and declares that the state will decouple or deviate from Federal provisions. This decoupling is effective for the

first taxable year in which the Federal law was enacted. The following is a comparison of key features of the Maryland corporate income tax law and Federal law. (28) IRC Section 27 - Foreign Tax Credit Maryland has no equivalent to the Federal Foreign Tax Credit and has no provision allowing modification of Federal taxable income. IRC Section 40 - Alcohol Fuels Credit Maryland has no equivalent to the Federal Alcohol Fuels Credit. IRC Section 41 - Incremental Research Expenditures Credit Although Maryland has no provision related to the Federal Incremental Research Expenditure Credit, a credit for research and development expenses is allowed against Maryland corporate income tax. IRC Section 42 - Low Income Housing Credit Maryland has no equivalent to the Federal Low-Income Housing Credit IRC Section 44 - Disabled Access Credit Maryland has no equivalent to the Federal Disabled Access Credit. However, expenses incurred by a taxpayer to purchase and install handrails in existing elevators in health care facilities or any other building in which at least 50% of the space is used for medical purposes may be subtracted from Federal taxable income for Maryland tax purposes.


http://forms.marylandtaxes.com/16_forms/500dm.pdf

Lesson 3 - 4 Hour - Maryland Differences, Business Entities


IRC Section 45A - Indian Employment Credit Maryland has no equivalent to the Federal Indian Employment Credit. IRC Section 45B - Employer Social Security Credit Maryland has no equivalent to the Federal Employer Social Security Credit. IRC Section 45C - Orphan Drug Credit Maryland has no equivalent to the Federal Orphan Drug Credit. IRC Section 45D - New Markets Credit Maryland has no equivalent to the Federal New Markets Credit. However, Maryland provides credits for contributions made to the Neighborhood and Community Assistance Program. Maryland also offers the One Maryland Economic Development Tax Credit for eligible project costs and start-up costs for businesses that establish or expand facilities in qualified distressed counties. Additionally, the Federal New Markets Credit has been extended through 2019 (carryovers of the unused limitation were extended through 2021). IRC Section 45E - Small Business Pension Start-Up Credit Maryland has no equivalent to the Federal Small Business Pension Start-up Credit. IRC Section 45F - Employer-Provided Child Care Credit Maryland has no equivalent to the Federal Employer-Provided Child Care Credit. However, Maryland does allow credit for child care provided or paid for by a business entity for the children of a qualified employment opportunity employee. IRC Section 45K - Fuel from Nonconventional Source Credit Maryland has no equivalent to the Federal Fuel from Nonconventional Source Credit. IRC Section 45L - New Energy-Efficient Homes Credit Maryland has no equivalent to the Federal Energy-efficient Homes Credit. Additionally, the Federal Energy-Efficient Homes Credit was extended through 2017. IRC Section 45M - New Energy-Efficient Appliance Credit Maryland has no equivalent to the Federal Energy-efficient Appliance Credit. IRC Section 46 - IRS Section 49 - Investment Credit (former law) Maryland has no equivalent to the former Federal investment credit (repealed effective for property placed in service after 1985), but does have credits similar to those allowed under the current Federal investment credit (IRC Section 46, IRC Section 47, IRC Section 48, IRC Section 48A, and IRC Section 48B). Maryland allows an income tax credit for the substantial rehabilitation of a certified historic structure. Maryland also allows a credit for the costs of solar water heating property or photovoltaic property to heat or cool a structure or provide hot water for a structure. Maryland provides two credits related to the use of coal, a credit for cybersecurity investments, and a credit for investments in vineyards and wineries. IRC Section 51 - IRS Section 52 - Wage Credits Although Maryland has no provision equivalent to the Federal Work Opportunity Tax Credit, the Empowerment Zone Employment Credit, or the Employee Retention Credit applicable to employees hired in specific hurricane and tornado disaster areas, a subtraction from Federal taxable income is allowed for the amount of wages for which a deduction is not allowed under IRC Section 280C because the taxpayer claimed the Work Opportunity Credit.




The Protecting Americans From Tax Hikes Act of 2015 extended the Work Opportunity Tax Credit (WOTC) for hiring certain workers through December 31, 2019. The bill also modified this credit as of 2016 to allow it to be claimed by employers that hire qualified long-term unemployed individuals (individuals who have been unemployed for 27 or more weeks).

Maryland also allows a credit for wages paid and qualified care or transportation expenses incurred with respect to qualified disabled employees. IRC Section 55 - IRS Section 59 - Alternative Minimum Tax (AMT) There is no Maryland equivalent to the Federal Alternative Minimum Tax on tax preference items. IRC Section 78 - Deemed Dividends For Maryland income tax purposes, the amount included in the income of a domestic corporation claiming foreign tax credit as dividends under IRC 78 (“gross-up”) must be subtracted from Federal taxable income. Interest on Federal Obligations Interest attributable to an obligation of the United States or an instrument of the United States may be subtracted from Federal taxable income for Maryland purposes. However, dividends and interest from obligations of the United States or foreign governments and their instruments, unless exempted by Federal law or treaty from state taxation, are added back to Federal taxable income for Maryland purposes. IRC Section 103 - Interest on State Obligations Interest income received on state or local obligations, other than those of Maryland, must be added back to Federal taxable income. State tax-exempt interest from mutual funds may be subtracted from Federal taxable income. IRC Section 108 - Discharge of Indebtedness Maryland recognizes income from discharge of indebtedness by the reacquisition of a debt instrument and the allowance of any deduction with respect to original issue discount in connection with the discharge of indebtedness, without regard to the income deferral and ratable inclusion schedule set forth in I.R.C. Section 108(i). This means that if a taxpayer has elected under I.R.C. Section 108(i) to defer the recognition of income from a discharge of indebtedness of an applicable debt instrument, Maryland requires the taxpayer to add back to the taxpayer’s Federal adjusted gross income the deferred amount as if the taxpayer had not elected the Section 108(i) deferral. Because Maryland recognizes income from a discharge of indebtedness in the year that the indebtedness is discharged, the taxpayer will subtract from the taxpayer’s Federal adjusted gross income in future years the amount of income that the taxpayer will subsequently recognize for Federal income tax purposes, but which Maryland has already recognized in the year the indebtedness was discharged. For any original issue discount (OID) resulting from the discharge of indebtedness by the reacquisition of a debt instrument in a debt-for-debt exchange, Maryland recognizes deduction allowances that would have normally been allowed to the issuer of the new debt instrument but for the deferral provision under I.R.C. Section 108(i). This means that for Maryland income tax computation, the debt instrument issuer claims the deduction and therefore reduces the issuer’s federal adjusted gross income earlier than allowed for Federal income tax purposes; however, this also means that in later years when the issuer begins to claim the Federal deduction allowances, the issuer must add back to the issuer’s Maryland taxable income any deduction that the issuer has already taken previously. (29) IRC Section 163 - Interest on Indebtedness The Maryland law is the same as Federal because the starting point for Maryland taxable income is Federal taxable income after net operating loss and special deductions. IRC Section 164 - Income & Franchise Tax Deductions Income taxes (or taxes based on income) paid to another state or subdivision of another state must be added back to Federal taxable income for Maryland purposes.




IRC Section 165 - Losses The Maryland law is the same as Federal because the starting point for Maryland taxable income is Federal taxable income after net operating loss and special deductions. IRC Section 166 - Bad Debts The Maryland law is the same as Federal because the starting point for Maryland taxable income is Federal taxable income after net operating loss and special deductions. IRC Section 167 and 168 - Depreciation The Maryland law is the same as Federal because the starting point for Maryland taxable income is Federal taxable income after net operating loss and special deductions. IRC Section 168(f) - Safe Harbor Leasing Generally, the Maryland law is the same as Federal because the starting point for Maryland taxable income is Federal taxable income after net operating loss and special deductions. However, Maryland has permanently decoupled from Federal bonus depreciation and requires that the additional bonus depreciation deduction allowed under IRS Sec 168(k) be added back to Federal gross income for purposes of computing Maryland net income. IRC Section 169 - Pollution Control Facilities Amortization The Maryland law is the same as Federal because the starting point for Maryland taxable income is Federal taxable income after net operating loss and special deductions. IRC Section 170 - Charitable Contributions The Maryland law is the same as Federal because the starting point for Maryland taxable income is Federal taxable income after net operating loss and special deductions. IRC Section 171 - Amortization Bond Premium The Maryland law is the same as Federal because the starting point for Maryland taxable income is Federal taxable income after net operating loss and special deductions. IRC Section 172 - Net Operating Loss (NOL)

The Federal NOL deduction that is used in a carryback or carryforward year is the amount by which the adjusted gross income for an individual or the taxable income of a fiduciary is reduced. If the NOL is not fully utilized in one carryback or carryforward year, this generally represents the “modified taxable income” as computed on Schedule B of Federal Form 1045 - Application for Tentative Refund. Also, a NOL deduction

generated when an individual or fiduciary is not subject to Maryland income tax law may not be used to offset Maryland income from an earlier year when that individual or fiduciary was subject to Maryland income tax law. In addition, the carryback or carryforward period shall generally be the same as that required or elected for Federal tax purposes. However, Maryland follows the carryback and carryforward periods under Federal law without regard to an election under Section 172(b)(1)(H) of the Internal Revenue Code (IRC) for a carryback of up to 5 years. Where the taxpayer has elected the special 5-year NOL carryback period, addition or subtraction modifications may be required for all tax years affected by the decoupling from Federal depreciation and NOL carryback provisions. Also, if a liquidated or acquired corporation was not subject to Maryland income tax law when its NOLs were generated, then the acquiring corporation, which is subject to Maryland income tax law, cannot use acquired corporation’s NOLs as a deduction to offset its Maryland income. For a tax year that is a carryback or carryforward year, the Federal adjusted gross income (AGI) shall be reduced by the amount of the NOL deduction used for Federal purposes. A fiduciary shall reduce the Federal taxable income on Maryland Form 504 by the amount of the NOL deduction used for Federal purposes.


https://www.irs.gov/pub/irs-pdf/f1045.pdf



If the total addition modifications exceed the total subtraction modifications in the Loss Year (or if there are only addition modifications in the Loss Year), a modification to recapture the Loss Year NAM is required when applying the corresponding Loss Year NOL to a carryback/carryforward income year. If the additions do not exceed the subtractions, no modification is required. (30) IRC Section 174 - Research and Experimental Expenditures The Maryland law is the same as Federal because the starting point for Maryland taxable income is Federal taxable income after net operating loss and special deductions. IRC Section 179 - Asset Expense Election The Maryland law is the same as Federal because the starting point for Maryland taxable income is Federal taxable income after net operating loss and special deductions. However, Maryland has permanently decoupled from the expanded expense deduction. For Maryland tax purposes, a taxpayer only is allowed to expense up to $25,000, reduced dollar-for-dollar by the amount over $200,000, of the cost of Section 179 property that is purchased and put in service for a trade or business for the tax year. For vehicles placed in service after May 31, 2004, Maryland also has decoupled from the higher depreciation deduction for certain heavy-duty SUVs allowed under Internal Revenue Code Section 280F. (25) IRC Section 179D - Energy Efficient Commercial Building Deduction The Maryland law is the same as Federal because the starting point for Maryland taxable income is Federal taxable income after net operating loss and special deductions. IRC Section 190 - Deduction for Barriers Removal The Maryland law is the same as Federal because the starting point for Maryland taxable income is Federal taxable income after net operating loss and special deductions. IRC Section 195 - Start-Up Expenditures The Maryland law is the same as Federal because the starting point for Maryland taxable income is Federal taxable income after net operating loss and special deductions. Maryland also allows a credit for start-up costs for businesses that establish or expand business facilities in qualified distressed counties. IRC Section 197 - Amortization of Intangibles The Maryland law is the same as Federal because the starting point for Maryland taxable income is Federal taxable income after net operating loss and special deductions. IRC Section 198 - Environmental Remediation Costs The Maryland law is the same as Federal because the starting point for Maryland taxable income is Federal taxable income after net operating loss and special deductions. IRC Section 198A - Disaster Costs The Maryland law is the same as Federal because the starting point for Maryland taxable income is Federal taxable income after net operating loss and special deductions. IRC Section 199 - Domestic Production Activities Maryland has decoupled from the Domestic Activities Deduction. IRC Section 243 - IRC Section 245 Dividends Received Deduction The Maryland law is the same as Federal (IRC Section 243—IRC Section 245) because the starting point for Maryland taxable income is Federal taxable income after the net operating loss and special deductions. Also, dividends received from related foreign corporations may be subtracted from Federal taxable income.




IRC Section 248 - Organizational Expenditures The Maryland law is the same as Federal because the starting point for Maryland taxable income is Federal taxable income after the net operating loss and special deductions. IRC Section 301 - IRC Section 385 Corporate Distributions and Adjustments The Maryland law is the same as Federal because the starting point for Maryland taxable income is Federal taxable income after the net operating loss and special deductions. IRC Section 401 - IRC Section 424 Deferred Compensation Plans The Maryland law is the same as Federal because the starting point for Maryland taxable income is Federal taxable income after the net operating loss and special deductions. IRC Section 441 - IRC Section 483 Accounting Periods and Methods A corporation must use the same accounting period and method for Maryland income tax purposes that it used for Federal income tax purposes. If a corporation does not file a Federal return, it must compute Maryland taxable income with the method used to keep its books on a calendar year basis, unless it has maintained adequate records for an annual fiscal year accounting period. Maryland has a provision that grants authority to the Comptroller of Maryland to allocate income and deductions among related taxpayers to avoid evasion of tax or to clearly reflect income. IRC Section 501 - IRC Section 530 Exempt Organization Organizations that are exempt under IRC Section 408(e)(1) or IRC Section 501 that have no unrelated business income are exempt from Maryland corporate income tax. The unrelated business income of exempt corporations is subject to the Maryland corporate income tax. IRC Section 531 - IRC Section 547 Corporations Used to Avoid Shareholder Taxation Maryland has no provisions regarding corporations used to avoid shareholder taxation. Maryland does not impose a tax on accumulated earnings or an additional tax on the undistributed income of personal holding companies. IRC Section 581 - IRC Section 597 Banking Institutions Presumably, the Maryland law is the same as Federal, because the starting point for Maryland taxable income is Federal taxable income after the net operating loss and special deductions. Banks and other financial institutions are subject to the Maryland corporate income tax. IRC Section 611 - IRC Section 638 Natural Resources Generally, the Maryland law is the same as Federal except that the oil percentage depletion allowance claimed under IRC Section 613 or IRC Section 613A must be added back to Federal taxable income for Maryland income tax purposes. IRC Section 801 - IRC Section 848 Insurance Companies There is no Maryland equivalent to the Federal provisions relating to insurance companies. Insurance companies are exempt from corporate income tax. Most insurance companies are subject to a gross premiums tax. IRC Section 851 - IRC Section 860L RICs, REITs, REMICs, and FASITs Regulated investment companies (RICs) and real estate investment trusts (REITs) are treated as corporations for Maryland income tax purposes. In addition, RICs must subtract from Federal taxable income an amount equal to the exempt-interest dividends paid by the company, attributable to amounts received by the company that are included in the addition modification for dividends and interest from state or local obligations of another state. REMICs and former FASITs are exempt from Maryland corporate income tax, because Maryland exempts ‘‘investment conduits and special exempt entities’’.




IRC Section 861 - IRC Section 865 Foreign Source Income Maryland follows the Federal foreign sourcing rules. Multistate and international businesses that conduct business both inside and outside Maryland utilize the state’s allocation and apportionment rules for determining whether income is attributable to state sources. For Maryland income tax purposes, the amount included in the income of a domestic corporation claiming a foreign tax credit as dividends under IRC Section 78 (“gross-up”) must be subtracted from Federal taxable income. IRC Section 901 - IRC Section 908 Foreign Tax Credit Maryland has no provisions comparable to those relating to the Foreign Tax Credit. IRC Section 1001 - IRC Section 1092 Gain or Loss on Disposition of Property The Maryland law is the same as Federal (IRC Section 1001 - IRC Section 1092), except that electric or gas companies must make an adjustment to the gain or loss recognized on the disposition or transfer of assets, and profits from the sale or exchange of local bonds are subtracted from Federal taxable income. IRC Section 1201 Alternative Capital Gains Tax Maryland does not provide for an alternative tax on capital gains. IRC Section 1211 and IRC Section 1212 Capital Losses Generally, the Maryland law is the same as Federal except that Maryland does not allow a net capital loss carryback. A Federal net capital loss carryback must be added to Federal taxable income for Maryland income tax purposes. IRC Section 1221 - IRC Section 1260 Determining Capital Gains and Losses The same applies here as in IRC Section 1001 - IRC Section 1092 Gain or Loss on Disposition of Property. The Maryland law is the same as Federal except that electric or gas companies must make an adjustment to the gain or loss recognized on the disposition or transfer of assets and profits from the sale or exchange of local bonds are subtracted from Federal taxable income. IRC Section 1361 - IRC Section 1379 S corporations S corporations are exempt from Maryland corporate income tax. However, an S corporation that is incorporated in Maryland or that does business in the state is required to file a return. An S corporation must file a statement of the income tax withheld for the distributive shares of nonresident shareholders. IRC Section 1391 - 1397F Empowerment Zones & Renewal Communities Maryland has no equivalent to the Federal provision regarding empowerment zones and renewal communities. Maryland allows a credit for wages paid in an enterprise zone; however, the amount of any credit claimed for wages paid to an employee in an enterprise zone must be added back to Federal taxable income. IRC Section 1501 - IRC Section 1504 Consolidate Returns Maryland does not allow affiliated corporations to file a consolidated return. Each member of an affiliated group of corporations is required to file a separate Maryland corporate income tax return.

Review Question 1 For the following tax provisions Maryland state tax law is the same as Federal tax law except:

A. IRC Section 45D - New Markets Credit B. IRC Section 165 - Losses C. IRC Section 166 - Bad Debts D. IRC Section 195 - Start-Up Expenditures





Business Entities Limited Liability Companies Maryland generally follows the Federal tax treatment of limited liability companies (LLCs). If an LLC is classified as a partnership, income and losses, including net operating losses (NOLs), of the LLC pass through to members. State tax classification follows Federal. Thus, Maryland LLCs and foreign LLCs doing business in Maryland are treated as partnerships in applying Maryland income taxes, unless classified as corporations for Federal tax purposes. In addition, Maryland follows the IRS rules for a single member LLC electing to be disregarded as a separate entity (See Instructions, Form 510 - Pass-Through Entity Income Tax Return). Although an LLC classified as a partnership is not subject to income tax at the entity level, it is required to pay income tax on behalf of nonresident members. Maryland calls this withholding tax the pass-through entity tax. Partnerships Maryland generally follows the Federal tax treatment of partnerships. Maryland limited partnerships and LLP’s and foreign limited partnerships and LLP’s doing business in Maryland are treated as partnerships in applying Maryland income taxes, unless classified as corporations for Federal tax purposes. Income and losses, including net operating losses (NOLs) of a partnership pass through to the partners. Maryland does not have any specific provisions on publicly traded partnerships, (PTPs). However, the starting point for computing Maryland taxable income is Federal taxable income after the net operating loss and special deductions, so it is assumed the state follows Federal provisions. Although a partnership is not subject to the income tax at the entity level, it is required to pay income tax on behalf of nonresident partners. Maryland calls this withholding tax the pass-through entity tax. S Corporations Maryland generally follows the Federal treatment of S corporations. An S corporation with income subject to Federal corporation income tax, such as excess net passive income, built-in gains, or LIFO recapture, is also subject to Maryland corporate income tax on that income. (Instructions, Form 510, Pass-Through Entity Income Tax Return). The Maryland modified income of an S corporation is that part of its income that is subject to Federal income tax. Maryland utilizes the Federal definition of an S corporation. Although an S corporation is not subject to Maryland income tax at the entity level other than on income subject to Federal taxation, it is required to pay income tax on behalf of nonresident shareholders. Maryland calls this withholding tax the pass-through entity tax. Tax Treatment of Pass-through Entities

In accordance with Federal income tax law, Maryland income tax law treats pass-through entities as separate entities, but requires that the entities’ income, gain, losses, deductions and credits be passed-through to the entity’s owners generally in proportion to their distributive or pro rata share of income. Pass-through entities are required to file Form 510 - Pass-Through Entity Income Tax Return, if they are doing business in Maryland or have income from Maryland sources.

Other than the corporate income tax imposed on specified income of an S corporation, a pass-through entity is not subject to Maryland income tax at the entity level. However, it is required to pay income tax on behalf of nonresident owners. Pass-through entities that conduct business in more than one state must allocate income if at least one of the partners or shareholders is a nonresident of Maryland. Treatment of Owners Income Partners and owners of other non-incorporated associations are taxed on their distributive share of the partnership income. The distributive share for partnerships is the net amount of lines 1 through 11 of the Federal Form 1065 - U.S. Return of Partnership Income. Similarly, S corporation shareholders are taxed on their pro rata share of the S corporation’s income. For S corporation’s shareholders, pro rata income is the net income amount of lines 1 through 10 of Federal Form 1120S - U.S. Income Tax Return for an S Corporation.




http://www.irs.gov/pub/irs-pdf/f1065sk1.pdf

http://www.irs.gov/pub/irs-pdf/f1065sk1.pdf

http://www.irs.gov/pub/irs-pdf/f1120ssk.pdf



Nonresident Owners Partnerships, S corporations, LLCs treated as partnerships, and business trusts not taxed as corporations are required to pay a pass-through entity tax if they have any nonresident partners, shareholders, or members. The pass-through entity tax does not apply to a publicly-traded pass-through entity that has agreed to file with the Comptroller an annual information return reporting the name, address, taxpayer identification number, and other information requested by the Comptroller if each nonresident or nonresident entity member’s distributive share or pro-rata share of the pass-through entity’s nonresident taxable income for the taxable year exceeds $500. Also, the tax does not apply with respect to the direct or indirect distributive share or pro-rata share of a member that is a real estate investment trust. Although payment of the tax by the partnership, S corporation, or LLC does not relieve the nonresident individual or entity owner from filing a separate return and paying the owner’s personal or corporate income tax, the owner may claim a credit for the tax paid by the pass-through entity and use the pass-through entity tax in calculating his or her estimated tax liability. A similar credit against the corporate income tax is also available to a nonresident entity. However, the pass-through entity may not claim a credit for the tax paid by the nonresident owner. A pass-through entity’s nonresident taxable income includes any income derived from:

Real or tangible personal property in Maryland. Business that is in part or wholly carried on in Maryland. An occupation, profession or trade carried on in part or wholly in Maryland. Maryland wagering.

To determine the tax due, a tax rate equal to 6.75% for personal income taxpayers and 8.25% for corporate taxpayers is imposed against all of the nonresident owner’s distributive or pro-rata shares of the pass-through entity’s income attributable to business carried on in Maryland.

Pass-through Entity Returns Every Maryland pass-through entity must file a Maryland income tax return/information return using Form 510 - Pass-Through Entity Income Tax Return. All items that are reported for Federal purposes must be reported on the Maryland return in the same manner. The character of an item cannot be changed from that required or elected for Federal purposes. S corporations must file the return by the 15th day of the third month following the close of the tax year. Partnerships must file the return by the 15th day of the fourth month following the close of the tax year. An income tax return must also be filed within 60 days after the date on which a partnership is dissolved or liquidated, or withdraws from Maryland. There is generally no specific requirement to attach a copy of the entity’s Federal return. However, an S corporation must file with its information return a copy of Schedule K from Federal Form 1120S, as well as Schedule K-1 for each nonresident shareholder. Similarly, a partnership (including an LLC) must file with its information return a copy of Schedule K from Federal Form 1065, as well as Schedule K-1 for each nonresident partner. A pass-through entity unable to file Form 510 by the due date must submit Form 510E - Application for Extension of Time to File Pass-Through Entity Income Tax Return. The request will be automatically granted and will not be acknowledged, provided that both:

The application is properly filed and submitted by the 15th day of the third month for S corporations or the fourth month for partnerships following the close of the tax year.

Full payment of any balance due is submitted with the application. For S corporations, properly and timely filed requests will be automatically granted for seven months. For partnerships, properly and timely filed requests will be automatically granted for six months. Unless it is the first time that an extension request is being filed, Form 510E is not required to be filed if there is no tax due. In such instances, the taxpayer may either file for an extension online or by telefile.




http://forms.marylandtaxes.com/12_forms/510E.pdf

http://forms.marylandtaxes.com/12_forms/510E.pdf



Taxpayers Subject to the Tax Maryland corporate income tax is imposed on every corporation, domestic and foreign, that has nexus with Maryland and that has Maryland taxable income (Nexus is the term used to indicate a taxable connection between a corporation and a taxing authority). Associations, joint stock companies, real estate investment trusts, and regulated investment companies are treated as corporations for Maryland income tax purposes. Limited liability companies (LLCs) that are taxable as corporations for Federal income tax purposes are also subject to Maryland corporate income tax. (31) Although Maryland imposes a tax on all corporations that have income from Maryland sources, the Federal Interstate Income Law, P.L. 86-272, prohibits a state from imposing a net income tax on income derived within that state from interstate commerce if a corporation's only business activity within the state is the solicitation of orders for the sale of tangible personal property and the orders are approved and filled outside the state. The prohibition does not apply to corporations organized under the laws of Maryland, registered to do business within Maryland, or that are actually doing business within Maryland. The Maryland Comptroller has provided an additional, but not necessarily exhaustive, list of other Nexus creating activities: (32)

Maintaining a business location in Maryland, including any kind of office. Ownership or use of property in Maryland, real or personal, whether the property is rented office space or

equipment used in the manufacture and distribution of goods. Employees soliciting and accepting orders in Maryland. Installation or assembly of the corporation's product. Maintaining a stock of inventory in a public warehouse or placement of the corporation's inventory in the hands

of a distributor or other non-employee representative. Sales persons making collections on regular or delinquent accounts. Technical assistance and training with Maryland offered by corporate personnel to purchasers or users of

corporate products after the sale. Corporate personnel repairing or replacing faulty or damaged goods. Mobile stores in Maryland (such as trucks with driver-salesmen) from which direct sales are made.

Certain uses of an employee’s or representative’s residence are treated as though the residence is the corporation’s business location and thus subject the corporation to Maryland taxation. Such circumstances include the exclusive use of a portion of the residence for the employer’s business for which the employee is reimbursed, and/or the space is listed in the telephone directory under the employer’s name. Other nexus creating activities includes the use of the home to store supplies, equipment, or samples furnished

by the employer; or the use of the space by the employee to interview prospective employees, hold sales meetings, or discuss business with customers. However, occasional or isolated use of the residence for these purposes will not normally create nexus. Maryland Nexus and Internet/Electronic Commerce With respect to Internet/electronic commerce issues, the Maryland Comptroller of the Treasury has indicted that:

1. Having a web page on a computer server located in Maryland does not in itself create nexus for income tax purposes.

2. Processing orders on a computer server located in Maryland does not in itself create nexus if the processing is minimal in terms of the entire operation.

3. The issue of whether nexus is established by licensing of content or software to be used in Maryland has NOT yet been resolved.

4. A seller’s display or use of trademark on a web site does not create nexus 5. An out of state seller of intangible property does not create nexus by advertising on the Internet in Maryland. 6. Sales of digitized products over the Internet, as well as tapes or disks, by an out of state vendor does not in

itself obligate the vendor to file a Maryland income tax return without further evidence of nexus. However, an internet service provider who owns or leases a computer server in Maryland is deemed to have property in Maryland, and is required to file a Maryland income tax return.




Exemptions The following are exempt from Maryland corporate income tax:

Partnerships. Limited Liability Companies (LLCs) that are taxable as partnerships. Common trust funds. S corporations (other than S corporation’s income that is subject to Federal income tax). Organizations that are exempt under IRC Section 408(e)(1) or IRC Section 501 that have no unrelated

business income. Insurance companies, including managed care organizations and for-profit health maintenance organizations

subject to the insurance company gross premiums tax. Pass through entities were discussed earlier in this lesson and the pass-through entity tax imposed on those corporations with nonresident partners, shareholders or members.

Investment conduits and special entities such as regulated investment companies (RICs), non-captive real estate investment trusts (REITs), and real estate mortgage investment conduits (REMICs), are only subject to Maryland corporate income tax on their income subject to Federal taxation. Corporations The Maryland taxable income of a corporation is that portion of the corporation’s Maryland modified income that is allocated to Maryland. A corporation’s Maryland modified income is determined by making certain additions to and subtractions from the corporation’s Federal taxable income. Maryland corporate income tax is imposed on the Maryland taxable income of domestic and foreign corporations doing business in Maryland. Federal taxable income is the starting point for determining a corporation's Maryland taxable income. Maryland requires that certain additions and subtractions be made to compute Maryland taxable income or taxable net earnings. If income is derived from sources both within and outside Maryland, a corporation's taxable income is determined by using allocation or apportionment procedures. The corporation tax rate is 7% of Maryland taxable income for tax years and periods beginning in 1967 through 2007. For tax years beginning after December 31, 2007, the tax rate is 8.25%. The annual rate of interest charged for taxes owed to the State is 12% from January 1, 2017 through December 31, 2017 (the annual interest rate changes after December 31,2017). The Maryland modified income of those corporations exempt under IRC Section 501 is the sum, for the taxable year, of the corporation’s Federal unrelated business taxable income and income spent on political campaigns and/or elections, after Maryland additions and subtractions. The Maryland modified income of an S corporation is that part of its income that is subject to Federal income tax. The Maryland modified income of an investment conduit or a special exempt entity is the applicable tax base of the corporation after Maryland’s additions and subtractions. Maryland uses Federal taxable income after the net operating loss and special deductions as its starting point and consequently incorporates the IRC for this purpose. A corporation must use the same taxable year for Maryland income tax purposes that it used for Federal tax purposes. If a corporation does not file a Federal return, it must compute Maryland taxable income on a calendar year basis, unless it has maintained adequate records for an annual fiscal year accounting period. A corporation must use the same accounting method for Maryland income tax purposes that it used for Federal tax purposes. If a corporation does not file a Federal return, it must compute Maryland taxable income with the cash or accrual accounting method that it uses to compute income in keeping its books. The Comptroller is authorized to distribute, apportion, or allocate gross income, deductions, credits, or allowances among organizations, trades, or businesses if both of the following apply:

1. The organization, trade, or business is owned or controlled by the same meaning within IRC Section 482. 2. The Comptroller determines that the distribution, apportionment, or allocation is necessary in order to reflect

an arm’s length transaction and to clearly reflect the income of those organizations, trades, or businesses.




Every corporation that reasonably expects its Maryland taxable income to develop a tax in excess of $1,000 for the tax year or period must make estimated income tax payments with Form 500D - Maryland Declaration of Estimated Corporation Income Tax. If the corporation is required to make multiple payments it will use a Form 500D for each of the additional payments.

Tax-Exempt Organizations Organizations that are tax exempt under Internal Revenue Code 501(c)3 may be eligible to claim certain business tax credits against their withholding taxes. These qualified organizations no longer use Form 500CR, but will use Form 508CR as an attachment to Form MW508 - Annual Employer Withholding Reconciliation Return. A tax-exempt organization may apply the tax credit for Employment Opportunity, tax credit for Qualifying Employees with Disabilities, tax credit for Cost of Providing Commuter Benefits to Employees, and tax credit for Long-Term Employment of Qualified Ex-Felons against:

1. The State income tax due on unrelated business taxable income as defined under the Internal Revenue Code; and

2. The income tax required to be withheld from the wages of employees and remitted to the Comptroller of Maryland.

A tax-exempt organization may estimate the amount of the tax credit for qualifying employees for the taxable year. The total amount of the estimated tax credit should be divided evenly over the number of periods for filing employer withholding returns (Form MW506 - Employer’s Return of Income Tax Withheld). For example, if quarterly returns are required, then the total estimated tax credit should be divided by 4 and each quarterly payment to the Comptroller would be reduced by the amount of the credit. The amount of withholding reported on the Form MW506 should match the withholding payments being remitted to the Comptroller. Alternatively, if applicable, the tax-exempt organization could claim the credit against the tax on unrelated business taxable income on its annual Maryland income tax return. If the credit allowed for the Employment Opportunity, Qualifying Employees with Disabilities, and Long-Term Employment of Qualified Ex-Felons in any taxable year exceeds the sum of State income tax otherwise payable by the tax-exempt organization for that taxable year and the taxes that the organization has withheld from the wages of employees, then the excess may be applied to succeeding taxable years, but no longer than five years. For the Cost of Providing Commuter Benefits to Employees, the credit allowed in any taxable year is limited to the sum of the State income tax otherwise payable by the tax-exempt organization for that taxable year and the taxes that the organization has withheld from the wages of employees. Any excess credits may NOT be carried over and applied to succeeding taxable years.

Review Question 2 Three Stars, LLC is a Maryland LLC that is classified as a partnership. It contains three partners, two of whom are Maryland residents and the third is a resident of Washington, D.C. How does Maryland treat this partnership for income tax purposes?

A. The LLC is not required to pay income tax on behalf of the partners nor is it subject to income tax at the entity level

B. The LLC is required to pay income tax on behalf of all the partners and it is also subject to income tax at the entity level

C. The LLC is required to pay income tax only on behalf of the nonresident partner, however, it is not subject to income tax at the entity level

D. The LLC is required to pay income tax on behalf of all the partners, however, it is not subject to income tax at the entity level





Additions to Federal Taxable Income To the extent excluded from Federal taxable income, the following amounts are added to Federal taxable income for the purposes of determining Maryland modified income: (2)

1. Tax exempt local bond interest - the interest from non-Maryland state or local bonds or other obligations (less related expenses). This includes interest from mutual funds that invest in non-Maryland state or local obligations. Interest earned on obligations of Maryland or any Maryland subdivision is exempt from Maryland tax and should not be entered.

2. State retirement pickup - Pickup contributions of a State retirement or pension system member. The pickup amount will be stated separately on the taxpayers W-2 form. The tax on this portion of his or her wages is deferred for Federal but not for state purposes.

3. Lump sum distribution from a qualified retirement plan - If the taxpayer received such a distribution, he or she will receive a Form 1099R showing the amounts distributed. The taxpayer must report part of the lump sum distribution as an addition to income if he or she files Federal Form 4972. The taxpayer uses the Lump Sum Distribution Worksheet to determine the amount of his or her addition.

4. Other additions to income - If one or more of these apply to the taxpayer, he or she enters the total amount and identifies each item using the code letter:

a. Part-year residents: losses or adjustments to Federal income that were realized or paid when the taxpayer was a nonresident of Maryland.

b. Net additions to income from pass-through entities not attributable to decoupling. c. Net additions to income from a trust as reported by the fiduciary. d. S corporation taxes included on line 8 of Maryland Form 502CR - Part A, Tax Credits for Income

Taxes Paid to Other States. e. Total amount of credit(s) claimed in the current tax year to the extent allowed on Form 500CR for the

following Business Tax Credits: Maryland Disability Employment Tax Credit, Small Business Research & Development Tax Credit, Maryland Employer Security Clearance Costs Tax Credit (do not include Small Business First-Year Leasing Costs Tax Credit), and Cellulosic Ethanol Technology Research and Development Tax Credit. Also, the amount of carryover claimed in the current tax year for the expired Maryland Employment Opportunity Tax Credit is added to income.

f. The oil percentage depletion allowance claimed under IRC Section 613 or IRC Section 613A. g. Income exempt from Federal tax by Federal law or treaty that is not exempt from Maryland tax. h. Net operating loss deduction to the extent of a double benefit. i. Taxable tax preference items from line 5 of Maryland Form 502TP. The items of tax preference are

defined in IRC Section 57. j. Amount deducted for Federal income tax purposes for expenses attributable to operating a family day

care home or a child care center in Maryland without having the registration or license required by the Family Law Article.

k. Any refunds of advanced tuition payments made under the Maryland Prepaid College Trust, to the extent the payments were subtracted from Federal adjusted gross income and were not used for qualified higher education expenses, and any refunds of contributions made under the Maryland College Investment Plan or the Maryland Broker-Dealer College Investment Plan, to the extent the contributions were subtracted from Federal adjusted gross income and were not used for qualified higher education expenses.

l. Net addition modification to Maryland taxable income when claiming the Federal depreciation allowances from which the State of Maryland has decoupled.

m. Net addition modification to Maryland taxable income when the Federal special 5-year carryback period was used for a net operating loss under Federal law compared to Maryland taxable income without regard to Federal provisions.

n. Amount deducted on the taxpayer’s Federal income tax return for domestic production activities. o. Amount deducted on the taxpayer’s Federal income tax return for tuition and related expenses. Do

not include adjustments to income for Educator Expenses or Student Loan Interest deduction. p. Net addition modification to Maryland taxable income resulting from the Federal deferral of income

arising from business indebtedness discharged by reacquisition of a debt instrument. q. Net addition modification from multiple decoupling provisions. r. Net addition decoupling modification from a pass-through entity.




Maryland does not follow Federal provisions, and therefore requires additional modification, for the following Federal provisions:

The 30%, 50% or 100% bonus depreciation deductions under IRC Section 168(k). The extended net operating loss carrybacks for losses incurred in 2001, 2002, 2008, and 2009. The increased and expanded IRC Section 179 asset expense deduction that increases the maximum

deduction to $500,000 ($510,000 in 2017), raises the qualified capital purchase amount to $2,010,000 ($2,030,000 in 2017) and extends the deduction to purchases of-the-shelf computer software.

The exclusion of heavy duty sports utility vehicles with gross vehicle weights of between 6,000 and 14,000 pounds from IRC Section 280F luxury auto depreciation cap limits.

The IRC Section 199 qualified production activities income deduction. The deferral, under IRC Section 108(i) of certain discharge of indebtedness income in connection with the

reacquisition after December 31, 2008, and before January 1, 2011, of a corporate or business debt instrument.

A taxpayer that claims the bonus depreciation deduction on the Federal return must decrease the amount of depreciation claimed for Maryland income tax purposes for the property’s initial year of purchase or use, and adjust for any difference in the depreciation for subsequent tax years. Similarly, an addition or subtraction may be required when qualifying property is sold to reflect the difference in the amount of the gain or loss on the sale of the property and the amount of any depreciation recapture, if any, as a result of the differing basis in the property for Federal and state purposes. The modifications are computed on Maryland Form 500DM - Decoupling Modification Form. Finally, for purposes of calculating other deductions or credits that are calculated on the basis of adjusted gross income, taxpayers must use the Maryland adjusted gross income figure adjusted for differences in depreciation and gain/loss resulting from Maryland’s differences compared to Federal law. Examples of these other deductions or credits include the passive loss deduction, itemized deductions, and the credit for taxes paid in another state. The following amounts are also added to Federal taxable income to determine Maryland modified income:

1. Any credit claimed for wages paid to an employee in an enterprise zone or any credit claimed for amounts paid to or on behalf of qualified employees in enterprise zones, qualified employment opportunity employees, qualified employees with disabilities, or for the long-term employment of qualified ex-felons.

2. A net operating loss deduction allowed for the taxable year equal to the lesser of: a. The amount of the net operating loss deduction attributable to that loss year. b. The amount by which the total net operating loss in the loss year is less than the sum of the net

addition modification for that loss year and the cumulative net operating loss deductions attributable to that loss year allowed for the taxable year and all prior taxable years.

3. In the year after decertification of land used for commercial forest land, the amount allowed in a prior taxable year as a subtraction for reforestation or timber stand development.

4. The amount of the corporate income tax credit allowed for 60% of the property taxes paid by a telecommunications company on operating real property that is used in its telecommunications business.

5. The amount allowed as a deduction for Federal income tax purposes for expenses attributable to operating a non-registered family day care home or an unlicensed child care center in Maryland.

6. The amount of the credit allowed for wages paid to employees at a qualified corporate headquarters of a multi-jurisdictional electric company.

7. Amounts claimed as a research and development credit. A corporation is required to add interest or intangible expenses to Federal taxable income in determining Maryland gross income, if the expense is paid, accrued, or incurred in connection with a transaction with a related member. This addition does not apply if the corporation and the related member are banks.






Subtractions from Federal Taxable Income To determine Maryland modified income, various subtractions must be made from Federal taxable income. The following amounts are subtracted from Federal taxable income to the extent they have been included for Federal tax purposes: (28)

The amount included in the income of a domestic corporation claiming a foreign tax credit as dividends under IRC Section 78 “Foreign Dividend Gross-Up”.

The percentage of dividends received from an affiliated domestic international sales corporation equal to the percentage that would be excluded if the corporation did not qualify under IRC Sec 922(a).

Dividends from related foreign corporations. Profits from the sale or exchange of Maryland state or local bonds. Relocation and assistance payments received from a specified displacing agency. State or local tax refunds. State tax-exempt interest from mutual funds. Interest attributable to a U.S. obligation or obligation from a U.S. instrumentality, including dividends from

mutual funds that invest in U.S. obligations. Income from Government Mortgage Associations securities may not be subtracted. The following amounts are also subtracted from Federal taxable income to determine Maryland modified income, whether or not included in Federal taxable income:

1. Conservation tillage equipment expenses certified by the Maryland Department of Agriculture. 2. Expenses incurred in the purchase of poultry or livestock manure spreading equipment pursuant to a nutrient

management plan certified by the Maryland Department of Agriculture. 3. The amount of salary or wages paid for which a deduction is not allowed under the Federal provision

precluding a deduction for wages or expenses incurred for which a Federal Indian employment credit, work opportunity credit, or empowerment zone employment credit may be claimed.

4. Expenses for reforestation or timber stand improvement activities on 3 to 1,000 acres of commercial forest land, 50% to be deducted in the tax year in which the Department of Natural Resources issues an initial certificate and 50% in the tax year in which the Department issues the final certificate.

5. Expenses incurred by a taxpayer to purchase and install handrails in existing elevators in health care facilities or any other buildings in which at least 50% of the space is used for medical purposes.

6. Amounts received by any Maryland Stadium Authority affiliate in consideration of the transfer of the heritage structure rehabilitation credit.

Interest on any Build America Bond that is Federally taxable may be subtracted in arriving at Maryland corporate or personal income tax. Taxpayers may file an amended 2009 or 2010 return to claim the subtraction modification. All Maryland income tax returns starting in 2011 will include a subtraction modification for this purpose.

A subtraction from Federal taxable income is available for the amount received as royalties, interest, or similar income from intangibles from a related member to the extent the related member is required to add such amounts back for purposes of computing Maryland or another state’s taxable income. The subtraction is not allowed to the extent that:

The transaction giving rise to the payment of the interest or intangible expense had as its purpose the avoidance of state income taxes.

The interest or intangible expense was not paid pursuant to arms-length contracts at an arm’s length rate of interest or price.

The aggregate effective tax rate imposed on the amounts received by the recipient exceeds the aggregate effective tax rate imposed on the income of the payor corporation.




Review Question 3 To determine Maryland modified income, which of the following are allowable subtractions from Federal taxable income?

A. Expenses incurred for timber stand improvement activities on two acres of commercial forest land

B. Dividends from related foreign corporations C. Profits from the sale of out of state bonds D. Income in the form of interest or dividends from Fannie Mae or Freddie Mac government

mortgage associations securities See Review Feedback for answer.




Review Feedback Review feedback provides both the answers to each question and an explanation or feedback as to how we arrived at each answer at the end of the lesson. Review feedback also contains evaluative feedback explaining why incorrect answers are wrong. You are also provided the course topic from which we derived our answer and the external source material we used for verification. If you are using the online version of the course, Ctrl+click on the topic to find the section from which we arrived at the answer for the question. You can also Ctrl+click on the question number to return to the specific review question. Question 1 - A. IRC Section 45D - New Markets Credit Maryland has no equivalent to the Federal New Markets Credit making Choice A the correct response. Maryland provides credits for contributions made to the Neighborhood and Community Assistance Program. Maryland also offers the One Maryland Economic Development Tax Credit for eligible project costs and start-up costs for businesses that establish or expand facilities in qualified distressed counties. Additionally, the Federal New Markets Credit has been extended through 2019 (carryovers of the unused limitation were extended through 2021). IRC Section 165 - Losses (Choice B), IRC Section 166 - Bad Debts (Choice C) and IRC Section 195 - Start-Up Expenditures (Choice D) have Maryland equivalents. Topic - IRC Section 45D - New Markets Credit Source - Form 500CR - Business Income Tax Credits Instructions’ Question 2 - C. The LLC is required to pay income tax only on behalf of the nonresident partner, however, it is not subject to income tax at the entity level Maryland does not have any specific provisions on publicly traded partnerships, (PTPs). However, the starting point for computing Maryland taxable income is Federal taxable income after the net operating loss and special deductions, so it is assumed the state follows Federal provisions. Although a partnership is not subject to the income tax at the entity level, it is required to pay income tax on behalf of nonresident partners making Choice D the only correct response. Maryland calls this withholding tax the pass-through entity (PTE) tax. Topic - Partnerships Source - Form 510 - Pass-Through Entity Income Tax Return Question 3 - B. Dividends from related foreign corporations To determine Maryland modified income, various subtractions must be made from Federal taxable income. The following amounts are subtracted from Federal taxable income to the extent they have been included for Federal tax purposes:

• The amount included in the income of a domestic corporation claiming a foreign tax credit as dividends under IRC Sec. 78 “Foreign Dividend Gross Up”.

• The percentage of dividends received from an affiliated domestic international sales corporation equal to the percentage that would be excluded if the corporation did not qualify under IRC Sec 922(a).

• Dividends from related foreign corporations. • Profits from the sale or exchange of Maryland state or local bonds. • Relocation and assistance payments received from a specified displacing agency. • State or local tax refunds. • State tax-exempt interest from mutual funds. • Interest attributable to a U.S. obligation or obligation from a U.S. instrumentality, including dividends from

mutual funds that invest in U.S. obligations. Only Choice B appears in the list above making it the only allowable subtractions from Federal taxable income in this question. Topic - Subtractions to Federal Taxable Income Source - Maryland 2017 Instructions for Filing Corporation Income Tax Returns


http://forms.marylandtaxes.com/current_forms/500CR_INST.pdf


http://forms.marylandtaxes.com/17_forms/Corporate_Booklet.pdf


Maryland Professional Tax Preparer Requirements, Ethics, Penalties

Individuals who, for a fee, prepare Federal and State tax returns for Marylanders are required to be registered by the Department of Labor, Licensing and Regulation (DLLR). An individual must obtain this registration before soliciting or preparing tax returns. The following professionals are exempt from the registration requirements:

Actively licensed certified public accountants (CPA). IRS enrolled agents (EA). Attorneys in good standing. Employees of state, local and Federal government employees who perform tax return services in accordance

with their official duties. Federal Preparer Tax Identification Number (PTIN) Registered tax preparers are required to hold a valid and current Preparer Tax Identification Number (PTIN) issued by the U.S. Internal Revenue Service. The PTIN must be renewed each tax year. Registrants must update the expiration date of the PTIN each year and submit a copy their most recent IRS PTIN Confirmation Certificate to the Maryland Board of Individual Tax Preparers at the beginning of each tax year. Tax preparers who prepare taxes for Marylanders are required to have passed the Maryland Tax Preparers Examination in order to continue to provide those services. Individuals who are found to have prepared tax returns this tax season and beyond and have not passed the examination are subject to disciplinary action which may result in a suspension, revocation and or a civil penalty not to exceed $5,000. Currently registered tax preparers can schedule to take the examination at any PSI test center, where information about scheduling, payment and taking the Maryland Tax Preparers Examination is detailed. Test takers have the ability schedule to take the exam up to one day before the desired date of examination. PSI will transmit examination scores to the Board to update individual registrants’ records. Current Maryland registered tax preparers may qualify for waiver from the examination under two limited conditions:

1. The tax preparer passed the Registered Tax Return Preparer (RTRP) examination administered by the IRS from November 2010 to January 13, 2013 or

2. The tax preparer provided 15 consecutive years of tax preparation services, and performed these services for these 15 years with average of 50 returns annually, with no less than 25 returns prepared in a given year.

Individuals filing as for registration for the first time should first file the Maryland application for registration and apply under the examination, 15-year experience or RTPR Examination waiver supplement forms to the application. A registration issued by the Maryland State Board is required to prepare Maryland individual tax returns. The holding of a current, valid Federal PTIN is the primary credential required for the issuance of a state registration. An applicant must be at least 18 years old and hold a valid High School Diploma or GED. The application provides instructions on forwarding a copy of the electronic confirmation he or she received when applying for the PTIN on line OR the "welcome letter" he or she received after his or her PTIN was issued. Failure to provide one of the requested documents will keep his or her registration from being issued.

A registration fee for the initial two-year registration and subsequent bi-annual renewal is $100. The expiration date will be two years from the date of issuance. The reinstatement of expired registration fee is $120.


https://candidate.psiexams.com/catalog/fti_agency_license_details.jsp?fromwhere=findtest&testid=3856

Lesson 4 - 4 Hour - Maryland Professional Tax Preparer Requirements, Ethics, Penalties


The following individuals are exempted by law from the requirement to hold a state individual tax preparers registration: (33)

1. A current, active CPA registered by Maryland or any other state. 2. An individual in good standing and admitted to practice law in any state. 3. An individual employed by a local, state, or Federal governmental agency but only in performance of official

duties. 4. Enrolled Agents authorized to practice before the Internal Revenue Service and governed under Circular 230. 5. An individual serving as an employee of or assistant to an individual tax preparer or an individual exempted

under this subsection in the performance of official duties for the individual tax preparer or the individual exempted in 1 to 4 above.

Review Question 1 Which of the following individuals are exempt by law from the requirement to hold a Maryland state individual tax preparer’s registration?

A. Andrea is an attorney in good standing and allowed to practice law in the state of Virginia B. Elizabeth holds a CPA and her registration is current in the state of Pennsylvania C. Leonard is an enrolled agent and is authorized to practice before the Internal Revenue Service D. All of the above


The Board of Individual Tax Preparers requires Maryland registered tax preparers to complete, upon renewal (every two years), at least 16 hours of continuing professional education. The regulations for CPE have been adopted and can be found at COMAR 09.38.02.02. Four of the 16 hours must be in Maryland state tax-related subjects. Maryland law says that the individual must complete the 16-hour requirement every two years, as a condition of renewal. Therefore, the two-year time period would run from the date of registration. If a Maryland tax practitioner is in a year that he or she has a Maryland state requirement, and he or she wants to participate in the IRS AFSP, he or she must also complete the 3-hour Federal Updates course for a total for 15 Hours of Federal CPE credits. A Maryland tax practitioner is exempt from the 6-hour Annual Federal Tax Refresher (AFTR) Course, but if a Maryland tax practitioner wants to earn the AFSP - Record of Completion, he or she must finish 15 hours of Federal CPE credits. The Maryland state requirements only requires a Maryland tax practitioner complete 12 hours of Federal CPE credits. The 4 hours of Maryland state tax law do not qualify as CPE for the AFSP. If a Maryland tax practitioner is in a year that the state of Maryland does not require that he or she complete 16 hours of CPE, and he or she wants to participate in the AFSP, then the tax practitioner needs to complete the Federal 15- hour CPE course. The following link includes access to the CPE Audit Checklist, which can be used to keep a record and a running total of CPE hours. Upon renewal, the "total hours earned" should equal at least 16 and 4-hour must be in Maryland tax related subject material. If asked by the Board to submit proof of CPE hours, this Checklist should be certified with your signature and submitted with course documentation. The Board may accept continuing professional education hours approved by the Internal Revenue Service. Continuing professional education hours earned in excess of the 16 hours for a 2-year registration term shall not be credited towards the continuing professional education requirement for a subsequent 2-year registration term. The following minimum information concerning each continuing professional education course shall be maintained by the renewal applicant for 4 years from the date of renewal:

Sponsoring organization Course location Program title Topical course outline Content description Dates attended


http://www.dsd.state.md.us/comar/getfile.aspx?file=09.38.02.02.htm

http://dllr.state.md.us/license/taxprep/taxprepcpe.shtml



Hours claimed Information regarding the instructor in the subject matter

Code of Professional Conduct As a tax preparer, you need to be aware of both Federal and Maryland code of conduct issues. In terms of Federal guidelines, the Circular 230 is the guiding document defining responsibilities, rules, restrictions, penalties, etc. Always remember, as a tax preparer, you will be preparing tax returns for compensation. The work you do for a client must, by law, be kept strictly confidential. Anything a client tells you, anything you learn of his income or expenses, must remain private between you and the client. We advise you to have a separate file which can be locked in which you keep all papers relating to your tax business. If you use a computer, use confidential access codes and lock your back-up files in a safe place.

A professional tax preparer who uses tax return information for any purpose other than to prepare returns, or who makes an unauthorized disclosure of return information, is subject to a $250 penalty for each disclosure, up to a $10,000 maximum. If the action is undertaken knowingly or recklessly, the tax preparer may be subject to criminal penalties or a fine of up to $1,000 or up to one year in jail, or both, together with the cost of prosecution. (34)

Because tax preparers are trusted by their clients to comply with tax laws, tax preparers are required to comply with the ethical standards of Treasury Department Circular 230 – Rules for Tax Preparers. The Treasury Department Circular 230 contains ethics rules governing the recognition of attorneys, certified public accountants, enrolled agents, enrolled retirement plan agents, IRS designated registered tax return preparers, and other persons representing taxpayers before the Internal Revenue Service. The Circular 230 is divided into five distinct subparts:

Subpart A - sets forth rules relating to the authority to practice before the Internal Revenue Service. Subpart B - prescribes the duties and restrictions relating to such practice. Subpart C - prescribes the sanctions for violating the regulations. Subpart D - contains the rules applicable to disciplinary proceedings. Subpart E - contains general provisions relating to official records.

Maryland Tax Preparer Responsibilities and Practices Regulations issued by the Maryland Board of Individual Tax Preparers became active in 2012. COMAR 09.38.01.05 explains the Code of Professional Conduct which all Maryland Registered Tax Preparers are required to follow. (35)

1. An individual tax preparer may not commit any act that reflects adversely on the individual tax preparer’s fitness to provide individual tax preparation services.

2. An individual tax preparer may not permit others to perform acts on the individual tax preparer’s behalf, either with or without compensation, which, if performed by the individual tax preparer, would constitute a violation of the Code of Professional Conduct.

3. An individual tax preparer may not knowingly misrepresent facts while providing individual tax preparation services. An individual tax preparer may resolve doubt in favor of a client if there is reasonable support for the position.

4. An individual tax preparer who finds that a client has made an error or omitted information or related material required on an income tax return shall promptly advise the client of such error or omission.

5. An individual tax preparer may not permit a client's individual income tax refund check to be made payable to the individual preparer.


http://www.irs.gov/pub/irs-pdf/pcir230.pdf




Review Question 2 Which of the following statements apply to Maryland individual tax preparers?

A. An individual tax preparer who finds that a client has made an error or omitted information or related material required on an income tax return shall promptly advise the client of such error or omission

B. An individual tax preparer may permit a client's individual income tax refund check to be made payable to the individual preparer

C. An individual tax preparer may permit others to perform acts on the individual tax preparer’s behalf regardless of the situation or circumstances

D. All of the above See Review Feedback for answer.

Maryland Client Records An individual tax preparer shall provide, make available, or return to a client or former client his or her tax records, upon written request and within a reasonable time: (35)

A copy of the client’s tax return. Personal papers or source material in the manner furnished by the client. A copy of any depreciation schedule associated with a client’s tax return. An individual tax preparer may charge a fee in connection with the requirements of this regulation.

Maryland Contingent Fees An individual tax preparer may not provide individual tax preparation services under an arrangement where the fee is contingent upon the findings or result of the services rendered. Maryland Conflict of Interest An individual tax preparer shall notify a client or potential client of any conflict of interest known to the individual tax preparer. Also, an individual tax preparer with a conflicting interest to a client may not represent the client without the client's express written consent. Maryland Communications with the Board An individual tax preparer shall respond in writing to any communications from the Board requesting a response within 30 days of the mailing of these communications, by registered or certified mail, to the last address furnished to the Board by the individual tax preparer. An individual tax preparer shall notify the Board in writing within 15 days after any change in the individual tax preparer’s:

Business and/or home address Business and/or home telephone number E-mail address

Maryland Competence and Technical Standards An individual tax preparer shall provide individual tax preparation services in accordance with applicable professional standards. An individual tax preparer may not provide individual tax preparation services to a client if the individual tax preparer cannot reasonably expect to perform the services in accordance with applicable professional standards. Maryland Advertising and Solicitation Maryland tax practitioners are required to following certain guidelines when advertising. These guidelines include the following:

1. An individual tax preparer may not solicit clients by the use of coercion, duress, compulsion, intimidation, threats, overreaching, or vexatious or harassing conduct.




2. An individual tax preparer may not use or participate in the use of any form of communication having reference to the individual tax preparer’s services that contains a false, fraudulent, misleading, deceptive, or unfair statement or claim.

3. A false, fraudulent, misleading, deceptive, or unfair statement or claim includes but is not limited to a statement or claim which:

a. Contains a misrepresentation of fact. b. Is likely to mislead or deceive because it fails to make full disclosure of relevant facts. c. Is intended or likely to create false or unjustified expectations of favorable results. d. Implies educational or professional attainments or other recognition not supported in fact. e. Represents that professional services can or will be competently performed for a stated fee when this

is not the case, or makes representations with respect to fees for professional services that do not disclose all variables that reasonably may be expected to affect the fees that will in fact be charged.

f. Contains other representations or implications that in reasonable probability will cause those of ordinary prudence to misunderstand or be deceived.

Form EL101 - e-File Declaration For Electronic Filing Instructions

Form EL101 is the declaration document and signature authorization for an electronically filed return by an electronic return originator (ERO). Complete Form EL101 when the Practitioner PIN method is used or when the taxpayer authorizes the ERO to enter or generate the taxpayer's personal identification number (PIN) on his or her e-filed individual income tax return. The ERO must retain Form EL101 for 3 years from the return due date.

Tax return preparers do not send this form to the State of Maryland unless specifically requested to do so. The Form EL101 has been enhanced and redesigned to facilitate the use of electronic signatures of taxpayers and tax preparers.

Review Question 3 Anders is a current registered Maryland tax preparer. Shelia, a long-time client, has written him requesting a copy of her 2015 and 2016 returns because her copies were lost in a fire. What responsibility does Anders have regarding this request?

A. Anders must provide Shelia only with the most recent return he prepared for her, tax year 2016, as this return is the only one of which he was required to keep a copy

B. Anders must provide Shelia with copies of her 2015 and 2016 returns and all additional information provided by the client to prepare these returns if requested. He must do this free of charge as part of his Maryland tax preparer responsibilities and practices

C. Anders must provide Shelia with copies of her 2015 and 2016 returns and all additional information provided by the client to prepare these returns if requested. He can charge her a fee in connection with providing this to the client

D. Anders has no obligation to provide Shelia with any information of copies of returns once they have been filed


Federal Penalties Several potential penalties may be assessed against tax return preparers. Below is a summary of the Preparer Penalties under Title 26 of Internal Revenue Code, Sections 6694 and 6695. (34) Understatement of Taxpayer’s Liability If the taxpayer does not file his or her return and pay his or her tax by the due date, he or she may have to pay a penalty. The taxpayer may also have to pay a penalty if he or she substantially understates his or her tax, understates a reportable transaction, files an erroneous claim for refund or credit, or files a frivolous tax submission. If the taxpayer provides fraudulent information on his or her return, he or she may have to pay a civil fraud penalty.




Penalties for understatement include:

Due to unreasonable position – a first-tier penalty for an understatement due to unreasonable position is the greater of $1,000 or 50% of income derived with respect to the refund claim.

Due to willful or reckless conduct – a second-tier penalty for an understatement due to willful or reckless conduct is the greater of $5,000 or 75% of income derived with respect to the refund claim.

The Protecting Americans from Tax Hikes Act of 2015 expanded the penalty for tax preparers who engage in willful or reckless conduct, which was the greater of $5,000 or 50% of the preparer’s income with respect to the return, by increasing the 50% amount to 75% (IRC 6694(b)).

Failure to Follow Procedures Penalties assessable for failure to meet the requirements described previously, unless such failure is due to reasonable cause and not to willful neglect, are:

Failure to furnish copy to taxpayer - $50 for each failure to furnish a copy of a return or claim with a maximum penalty of $25,500 in a calendar year.

Failure to sign return - $50 for each failure to sign a return for refund with a maximum penalty of $25,500 in a calendar year.

Failure to furnish identifying number (PTIN) - $50 for each failure to furnish an identifying number on a return with a maximum penalty of $25,500 in a calendar year.

Failure to retain copy or list - $50 for each failure to comply with IRC Section 6107(b) to retain a copy or list of a return or claim for the period ending 3 years after the close of the return. There is a maximum penalty of $25,500 in a return period.

Failure to file correct information - $50 for each failure with a maximum penalty of $25,500 in a return period.

Negotiation of a Taxpayer Check A $510 penalty may be imposed for a tax preparer who endorse or otherwise negotiate any check (including directing or accepting payment by any means, electronic or otherwise into an account owned or controlled by the practitioner or any firm or other entity with whom the practitioner is associated) issued to a client by the government in respect to a Federal tax liability. Failure to Be Diligent in Claiming Earned Income Tax Credit Income tax preparers must comply with due diligence requirements of claims for refunds or returns they prepare claiming the Earned Income Tax Credit. Each failure to observe the requirements regarding the amount of, or eligibility for the credit will result in a penalty of $510 in 2017 (in addition to other penalties). Promoting Abusive Tax Shelters The penalty for promoting abusive tax shelters is generally equal to $1,000 or, if lesser, 100% of income derived from each organization or sale of the abusive plan. IRS, the Office of Chief Counsel and Treasury issue formal guidance on certain tax avoidance transactions that are referred to as listed transactions. Taxpayers are required to disclose their participation in listed transactions. Aiding or Abetting in Tax Liability Understatement Tax return preparers also may be penalized $1,000 for aiding or abetting in an understatement of tax liability on a return. The penalty is $10,000 if conduct relates to a corporation’s tax return. Disclosure or Use of Information Internal Revenue Code Section 7216 is a criminal provision enacted by the U.S. Congress in 1971 that prohibits preparers of tax returns from knowingly or recklessly disclosing or using tax return information. Tax return information consists of all the information tax return preparers obtain from taxpayers or other sources in any form or manner that is used to prepare tax returns or is obtained in connection with the preparation of returns. Tax return information also includes all computations, worksheets, and printouts preparers create; correspondence from IRS during the


http://www.law.cornell.edu/uscode/text/26/6107

http://www.law.cornell.edu/uscode/text/26/7216



preparation, filing and correction of returns; statistical compilations of tax return information; and tax return preparation software registration information.

Unauthorized disclosure - The penalty is $250 for each unauthorized disclosure or use of information furnished in connection with a taxpayer return with a maximum penalty of $10,000 per calendar year.

Knowing or reckless disclosure – Upon conviction of a misdemeanor a fine of up to $1,000 or imprisonment for up to one year or both along with the costs of prosecution.

Willful Preparation of a False or Fraudulent Return Criminality under the statute is not limited to the direct tax preparer of the fraudulent return, but extends to any person participating in the fraudulent preparation in any material capacity. A variety of "indirect" activities have been found to constitute aiding and assisting.

Guilty of a felony – Upon conviction, the practitioner may face a fine of up to $100,000 or imprisonment for up to 3 years or both. The practitioner may also be responsible for costs of prosecution. A fine amount up to $500,000 may be imposed if fraud involves a corporation.

Guilty of a misdemeanor – Upon conviction, the practitioner may face a fine up to $10,000 or imprisonment of up to 1 year or both. A fine amount up to $50,000 may be imposed if fraud involves a corporation.

Please see the Internal Revenue Code, corresponding Treasury Regulations, and other related published guidance for additional information on each penalty section.

Power of Attorney As of July 1, 2016, the Comptroller’s Office began accepting a completed Maryland Form 548 - Power of Attorney or a completed Maryland Form 548P - Reporting Agent Authorization as power of attorney forms for Maryland tax purposes. The Form 548 will replace the Federal Form 2848 - Power of Attorney and Declaration of Representative and the Federal Form 8821 - Tax Information Authorization; whereas, Form 548P creates a Maryland equivalent of the Federal Form 8655 - Reporting Agent Authorization for Maryland withholding and sales and use tax purposes. The Comptroller’s Office accepted a completed Federal Form 2848 or a completed Federal Form 8821 as power of attorney forms for Maryland tax purposes through December 31, 2016. As of January 1, 2017, the Comptroller’s Office no longer accepts the Federal Form 2848 or Federal Form 8821 as power of attorney forms for Maryland tax purposes. The taxpayer should use one of the following forms:

Maryland Form 548 - Power of Attorney Maryland Form 548 Instructions Maryland Form 548P - Reporting Agent Authorization

The Comptroller’s Office will continue to accept a durable power of attorney or any other power of attorney form authorized by Maryland law.

There is no such thing as a “Verbal POA”. If a taxpayer calls and their representative is present, the taxpayer can give permission for the representative to speak to the Comptroller’s Office at that time. However, the approval is for that phone call at that time only.

e-File Software Vendors The Comptroller of Maryland designates e-File Software Vendors’ Maryland products as either Basic or Comprehensive. This applies to both business and individual income tax software packages. The Basic designation is used for simple returns. Software packages designated as Comprehensive support all electronic forms, including Form 500CR, Amended Returns and the transmission of binary attachments (PDFs). This process is designed to help taxpayers and tax professionals determine which software will best fit their needs. Please see the latest updated list of approved e-File software vendors for individuals and businesses.



http://forms.marylandtaxes.com/current_forms/548P.pdf

http://forms.marylandtaxes.gov/current_forms/548.pdf

http://forms.marylandtaxes.gov/current_forms/548_Inst.pdf

http://forms.marylandtaxes.gov/current_forms/548p.pdf



Review Feedback Review feedback provides both the answers to each question and an explanation or feedback as to how we arrived at each answer at the end of the lesson. Review feedback also contains evaluative feedback explaining why incorrect answers are wrong. You are also provided the course topic from which we derived our answer and the external source material we used for verification. If you are using the online version of the course, Ctrl+click on the topic to find the section from which we arrived at the answer for the question. You can also Ctrl+click on the question number to return to the specific review question. Question 1 - D. All of the above The following individuals are exempted by law from the requirement to hold a state individual tax preparers registration:

• A current, active CPA registered by Maryland or any other state. • An individual in good standing and admitted to practice law in any state. • An individual employed by a local, state, or Federal governmental agency but only in performance of official

duties. • Enrolled Agents authorized to practice before the Internal Revenue Service and governed under Circular 230.

In this question, Enrolled Agents are authorized to practice before the Internal Revenue Service and governed under circular 230, so Leonard is exempt from the requirement to hold a Maryland state individual tax preparers registration (Choice C). Andrea is an individual in good standing and admitted to practice law in Virginia, so she too is exempt (Choice A). Elizabeth is a current, active CPA registered by Pennsylvania, so she also is exempt (Choice B). The correct answer is D, all of the above, as all of these individuals are exempt. Topic - Maryland Professional Tax Preparer Requirements Source - Department of Labor, Licensing and Regulation (DLLR) - Registration - Maryland Board of Individual Tax Preparers Question 2 - A. An individual tax preparer who finds that a client has made an error or omitted information or related material required on an income tax return shall promptly advise the client of such error or omission New regulations issued by the Maryland Board of Individual Tax Preparers became effective March 5, 2012. COMAR 09.38.01.05 explains the Code of Professional Conduct which all Maryland Registered Tax Preparers are required to follow:

1) An individual tax preparer may not commit any act that reflects adversely on the individual tax preparer’s fitness to provide individual tax preparation services.

2) An individual tax preparer may not permit others to perform acts on the individual tax preparer’s behalf, either with or without compensation, which, if performed by the individual tax preparer, would constitute a violation of the Code of Professional Conduct.

3) An individual tax preparer may not knowingly misrepresent facts while providing individual tax preparation services. An individual tax preparer may resolve doubt in favor of a client if there is reasonable support for the position.

4) An individual tax preparer who finds that a client has made an error or omitted information or related material required on an income tax return shall promptly advise the client of such error or omission.

5) An individual tax preparer may not permit a client's individual income tax refund check to be made payable to the individual preparer.

Only Choice A is correct as an individual tax preparer may neither permit others to perform acts on the individual tax preparer’s behalf (Choice C) nor permit a client's individual income tax refund check to be made payable to the individual preparer (Choice B). Topic - Maryland Responsibilities and Practices Source - COMAR 09.38.01.05


http://dllr.state.md.us/license/taxprep/taxpreplic.shtml

http://dllr.state.md.us/license/taxprep/taxpreplic.shtml






Question 3 - C. Anders must provide Shelia with copies of her 2015 and 2016 returns and all additional information provided by the client to prepare these returns if requested. He can charge her a fee in connection with providing this to the client An individual tax preparer shall provide, make available, or return to a client or former client his or her tax records, upon written request and within a reasonable time:

• A copy of the client’s tax return. • Personal papers or source material in the manner furnished by the client. • A copy of any depreciation schedule associated with a client’s tax return. • An individual tax preparer may charge a fee in connection with the requirements of this regulation.

Choice C is correct because Anders must provide Shelia with copies of her 2015 and 2016 returns and all additional information provided by the client to prepare these returns if requested. Also, he can charge her a fee in connection with providing this to the client. Choice A contains incorrect time requirement, Choice B contains incorrect fee information and Choice D has incorrect obligation requirements. Topic - Maryland Client Records Source - COMAR 09.38.01.05



© 2018 Golden State Tax Training Institute, Inc. I

Glossary

Board: The Governor’s Workforce Investment Board established by the Governor under the Maryland Workforce Investment Act. Business entity: A person conducting or operating a trade or business in Maryland, and includes an individual proprietorship, a partnership, a corporation or S corporation, a limited liability company and a business trust or an organization operating in Maryland that is exempt from taxation under Section 501 (c)(3) or (4) of the Internal Revenue Code. Credit: A dollar-for-dollar reduction in the tax. A credit can be deducted directly from taxes owed. Deduction: An amount (often a personal or business expense) that reduces income subject to tax. Designated distributions: The periodic or non-periodic payments or distributions from or under an employer deferred compensation plan, an individual retirement plan or a commercial annuity. Domicile: Domicile is not defined by statute, but has been defined by the appellate courts of this State to mean “…that place where a man [or woman] has his [or her] true, fixed, permanent home, habitation and principal establishment, without any present intention of removing therefrom, and to which place he [or she] has, whenever ... absent, the intention of returning.” The courts have also held that once domicile is established, it continues until superseded by a new domicile. Eligible rollover distribution: A designated distribution in which all of any portion of the balance of a plan is taken in one lump-sum and is not directly rolled over into another eligible retirement plan. Employee retirement systems: Retirement plans established and maintained by an employer for the benefit of its employees and qualified under Sections 401(a), 403, or 457 of the Internal Revenue Code. These include defined benefit and defined contribution pension plans, 401(k) plans, 403(b) plans, and 457(b) plans. However, Individual Retirement Arrangements (IRAs), Keogh plans, and simplified employee pension plans (SEPs) are not considered employee retirement systems. Federal taxable income: Federal Taxable income is adjusted gross income less personal exemptions and itemized deductions. Gross-up: A practice usually in reference to an employer reimbursing a worker for the taxes paid on some portion of their income, usually from a one-time payment such as relocation expenses. In other words, if an employee is promised $5,000 for relocation expenses, the actual check might be issued for $6,500. This would leave the promised $5,000 after the required taxes had been deducted. Resident: An individual is a resident of Maryland if the individual is domiciled in Maryland on the last day of the taxable year or if the individual maintains a place of abode in Maryland for more than six months of the taxable year and is physically present in the State for 183 days or more during the taxable year. Payee: The recipient of a designated distribution or an eligible rollover distribution. Payor: A person responsible to make withholding on a designated distribution or eligible rollover distribution. Person: A natural person, partnership, limited partnership, trust, estate, association, limited liability, or a corporation. Resident fiduciaries and personal representatives are subject to Maryland income tax. Small business: A for-profit corporation, limited liability company, partnership or sole-proprietorship with net book value assets totaling at the beginning or the end of the tax year for which the Maryland qualified research and development expenses are incurred, as reported on the balance sheet, less than $5,000,000. State: Any state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, any territory or possession of the United States, and any foreign country or political subdivision thereof. Strict scrutiny: A form of judicial review that courts use to determine the constitutionality of certain laws. To pass strict scrutiny, the legislature must have passed the law to further a "compelling governmental interest," and must have narrowly tailored the law to achieve that interest. Tax forgiveness: For U.S. military personnel who die while serving in a combat zone or as a result of wounds, disease, or injury incurred while so serving, any unpaid tax liability is waived and any forgiven tax liability that has already been paid is refunded. Tax home: The country in which the taxpayer is permanently or indefinitely engaged to work as an employee or self-employed individual, regardless of where the taxpayer maintains his or her family home. For taxpayers who work abroad, but do not have a regular place of business because of the nature of the work, their tax home is the place where they regularly live. Tax liability: The amount of tax after nonrefundable credits have been subtracted. Taxpayers meet (pay) their Federal income tax liability through withholding, estimated tax payments, and payments made with the income tax return. Taxable income: Any income subject to Federal income tax. Tax-exempt interest: Interest that is exempt from Federal income tax such as bonds issued by state and political subdivisions (county or city), District of Columbia, and U.S. possessions and political subdivisions.


© 2018 Golden State Tax Training Institute, Inc. II

Bibliography

1. Maryland Comptroller of the Treasury. What's New for the 2018 Tax Filing Season (2017 Tax Year). marylandtaxes.com. [Online] http://taxes.marylandtaxes.gov/Tax_Professionals/General_Information/Whats_New_for_the_Tax_Filing_Season.shtml. 2. —. Form 502 - Resident Income Tax Return Instructions. http://forms.marylandtaxes.com/. [Online] http://forms.marylandtaxes.com/13_draft_forms/Resident_Instructions.pdf. 3. IRS. The Premium Tax Credit. irs.gov. [Online] http://www.irs.gov/uac/The-Premium-Tax-Credit. 4. —. The Individual Shared Responsibility Provision. irs.gov. [Online] http://www.irs.gov/uac/Individual-Shared-Responsibility-Provision. 5. Maryland Comptroller of the Treasury. Form 500CR - Business Income Tax Credits Instructions. [Online] 6. Maryland Department of Commerce. Research and Development Tax Credit (R&D). commerce.maryland.gov. [Online] http://commerce.maryland.gov/fund/programs-for-businesses/research-and-development-tax-credit. 7. Maryland Comptroller of the Treasury. Business Personal Property Taxes. marylandtaxes.com. [Online] http://taxes.marylandtaxes.com/Business_Taxes/Business_Tax_Types/Business_Personal_Property_Tax/. 8. —. Determine Your Filing Status. taxes.marylandtaxes.com. [Online] http://taxes.marylandtaxes.com/Individual_Taxes/Individual_Tax_Types/Income_Tax/Filing_Information/Determine_Your_Filing_Status/. 9. —. What is my Residency Status? taxes.marylandtaxes.com. [Online] http://taxes.marylandtaxes.com/Individual_Taxes/Individual_Tax_Types/Income_Tax/Filing_Information/Determine_Residency_Status/. 10. —. If You are a Nonresident Filer. taxes.marylandtaxes.com. [Online] http://taxes.marylandtaxes.com/Individual_Taxes/Individual_Tax_Types/Income_Tax/Filing_Information/Determine_Residency_Status/If_You_are_a_Nonresident_Filer.shtml. 11. —. Personal Tax Tip #56 - When you live in one state and work in another. taxes.marylandtaxes.com. [Online] http://taxes.marylandtaxes.com/Resource_Library/Tax_Publications/Tax_Tips/Personal_Tax_Tips/tip56.pdf. 12. —. Maryland Income Tax Rates and Brackets. taxes.marylandtaxes.com. [Online] http://taxes.marylandtaxes.com/Individual_Taxes/Individual_Tax_Types/Income_Tax/Tax_Information/Tax_Rates/. 13. —. Personal Tax Tip #53 - Figuring Maryland's local income tax. taxes.marylandtaxes.com. [Online] http://taxes.marylandtaxes.com/Resource_Library/Tax_Publications/Tax_Tips/Personal_Tax_Tips/tip53.pdf. 14. —. Form 515 - Nonresident Local Tax Return. forms.marylandtaxes.com. [Online] http://forms.marylandtaxes.com/current_forms/515.pdf. 15. —. Choose the Right Income Tax Form. taxes.marylandtaxes.com. [Online] [Cited: ] 16. —. Mandatory Income Tax Return Preparer Requirements. taxes.marylandtaxes.com. [Online] http://taxes.marylandtaxes.com/Tax_Professionals/Tax_Law_and_Regulations/State_Regulations/Legislative_Summaries/bills/2009/HB810.shtml. 17. —. Poverty Level Credit. taxes.marylandtaxes.com. [Online] http://taxes.marylandtaxes.com/Individual_Taxes/Individual_Tax_Types/Income_Tax/Filing_Information/Determine_Tax_Credits_and_Deductions/Poverty_Level_Credit.shtml. 18. —. Income Taxes Paid to Other States Credit. taxes.marylandtaxes.com. [Online] http://taxes.marylandtaxes.com/Individual_Taxes/Individual_Tax_Types/Income_Tax/Filing_Information/Determine_Tax_Credits_and_Deductions/Income_Taxes_Paid_to_Other_States_Credit.shtml. 19. —. Quality Teacher Incentive Credit. taxes.marylandtaxes.com. [Online] http://taxes.marylandtaxes.com/Individual_Taxes/Individual_Tax_Types/Income_Tax/Filing_Information/Determine_Tax_Credits_and_Deductions/Quality_Teacher_Incentive_Credit.shtml. 20. —. Long-Term Care Insurance Credit. taxes.marylandtaxes.com. [Online] http://taxes.marylandtaxes.com/Individual_Taxes/Individual_Tax_Types/Income_Tax/Filing_Information/Determine_Tax_Credits_and_Deductions/Long-Term_Care_Insurance_Credit.shtml. 21. Maryland Comptroller of the Treasurer. Form 502CR - Income Tax Credits for Individuals Instructions. forms.marylandtaxes.com. [Online] http://forms.marylandtaxes.com/current_forms/502cr.pdf. 22. Maryland Department of Assessments and Taxation. What is the Homeowners' Property Tax Credit Program? dat.state.md.us. [Online] http://www.dat.state.md.us/sdatweb/htc.html. 23. —. Renters' Tax Credits. dat.state.md.us. [Online] http://www.dat.state.md.us/sdatweb/rtc.html. 24. Maryland Comptroller of the Treasury. Job Creation Tax Credit. taxes.marylandtaxes.com. [Online] http://taxes.marylandtaxes.com/Business_Taxes/General_Information/Business_Tax_Credits/Job_Creation_Tax_Credit.shtml. 25. —. Form 500DM - Maryland Decoupling Modification. forms.marylandtaxes.com. [Online] http://forms.marylandtaxes.com/current_forms/500dm.pdf. 26. —. Adminstrative Release No. 13 - Tax Status of Interest Received From Federal, State and Local Obligations. taxes.marylandtaxes.com. [Online] http://taxes.marylandtaxes.com/Resource_Library/Tax_Publications/Administrative_Releases/Income_and_Estate_Tax_Releases/ar_it13.pdf. 27. —. Marlyand State and Local Tax Forms and Instructions. forms.marylandtaxes.com. [Online] http://forms.marylandtaxes.com/current_forms/Resident_booklet.pdf. 28. —. Maryland Instructions for Filing Corporation Income Tax Returns. forms.marylandtaxes.com. [Online] http://forms.marylandtaxes.com/current_forms/Corporate_Booklet.pdf. 29. —. Administrative Release No. 38 - Decoupling from Federal Income Tax Laws. marylandtaxes.com. [Online] http://taxes.marylandtaxes.com/Resource_Library/Tax_Publications/Administrative_Releases/Income_and_Estate_Tax_Releases/ar_it38.pdf. 30. —. Administrative Release No. 18 - Net Operating Losses and Associated Maryland Addition and Subtraction Modifications. marylandtaxes.com. [Online] http://taxes.marylandtaxes.com/Resource_Library/Tax_Publications/Administrative_Releases/Income_and_Estate_Tax_Releases/ar_it18.pdf. 31. —. Maryland Pass-Through Entity Income Tax Returns Instructions. forms.marylandtaxes.com. [Online] http://forms.marylandtaxes.com/12_forms/PTE_booklet.pdf. 32. —. Nexus Information for Corporations. taxes.marylandtaxes.com. [Online] http://taxes.marylandtaxes.com/Business_Taxes/Business_Tax_Types/Income_Tax/Tax_Information/Corporations/Nexus_Information.shtml. 33. Maryland Department of Labor, Licensing and Regulation. Registration - Maryland Board of Individual Tax Preparers. dllr.state.md.us. [Online] http://dllr.state.md.us/license/taxprep/taxpreplic.shtml. 34. IRS. Summary of Preparer Penalties under Title 26. irs.gov. [Online] http://www.irs.gov/Tax-Professionals/Summary-of-Preparer-Penalties-under-Title-26.


Bibliography

© 2018 Golden State Tax Training Institute, Inc. III

35. Maryland Office of the Secretary of State. COMAR 09.38.01.05. dsd.state.md.us. [Online] http://www.dsd.state.md.us/comar/getfile.aspx?file=09.38.01.05.htm.


© 2018 Golden State Tax Training Institute, Inc. IV

Index

A Achieving a Better Life Experience (ABLE) ................................. 2-5 Addition Modifications ..................................................... 2-2, 3-13 Advertising ................................................................................ 4-4 Affordable Care Act ................................................................... 1-5 Age and Blindness Exemption ................................................. 2-13 Alcohol Fuels Credit ................................................................... 3-1 Alimony ..................................................................................... 2-4 Alternative Minimum Tax (AMT) ........................................ 3-2, 3-3

B Biotechnology Company .......................................................... 1-11 Business Personal Property Taxes ........................................... 1-13

C Certified Public Accountants (CPA) ............................................ 4-1 Chesapeake Bay and Endangered Species Fund ...................... 2-13 Circuit Breaker Program .......................................................... 1-34 Circular 230 ............................................................................... 4-3 Civil Air Patrol Members ............................................................ 1-9 Community Assistance Program .............................................. 1-12 Conservation Tillage Equipment .............................................. 1-12 Corporate Lodging Facilities ...................................................... 1-9 County Hotel Taxes .................................................................... 1-9 CPE Audit Checklist .................................................................... 4-2 Cybersecurity Investment Incentive Tax Credit (CIITC) ........... 1-41

D Deferred Deduction for Original Issue Discount (OID) .............. 3-3 Department of Housing and Community Development (DHCD) . 1-

12, 1-33 Dependent Taxpayer ............................................................... 1-16 Depreciation .............................................................................. 2-2 Disaster Related Work ............................................................. 1-12 Disclosure or Use of Information ............................................... 4-6 Dividends ................................................................................... 2-2 Domicile ................................................................................... 1-17 Dual Residency ........................................................................ 1-30

E Electricity ................................................................................. 1-10 Electronic Funds Transfer Automated Clearinghouse (EFT ACH). 1-

13 Eligible Apprentice..................................................................... 1-3 Eligible Food Dona�on .............................................................. 1-4 Employee Retirement System ................................................... 2-7 Employer Social Security Credit ................................................. 3-2 Employer-provided Child Care Credit ........................................ 3-2 Enhanced Agricultural Management Equipment .................... 1-12

Enrolled Agents (EA) .................................................................. 4-1

F Failure to File Correct Information ............................................ 4-6 Failure to Furnish Copy to Taxpayer .......................................... 4-6 Failure to Furnish Identifying Number ....................................... 4-6 Failure to Retain Copy or List ..................................................... 4-6 Failure to Sign Return ................................................................ 4-6 Fiduciaries ................................................................................ 1-19 Foreign Tax Credit ...................................................................... 3-1 Forms

Form 1045 - Application for Tentative Refund ..................... 3-4 Form 1065 - U.S. Return of Partnership Income ................... 3-8 Form 1099G - Certain Government Payments .................... 2-10 Form 1120S - U.S. Income Tax Return for an S Corporation . 3-8 Form 2441 - Child and Dependent Care Expenses ................ 2-6 Form 2848 - Power of Attorney and Declaration of

Representative ................................................................. 4-7 Form 6251- Alternative Minimum Tax - Individuals .............. 2-5 Form 8655 - Reporting Agent Authorization ......................... 4-7 Form 8821 - Tax Information Authorization ......................... 4-7

Foster Child ................................................................................ 2-9 Fuel from Nonconventional Source Credit ................................ 3-2

G Gambling Winnings .................................................................. 2-11 Gross Income ............................................................................. 2-1

H Health Enterprise Zone Hiring Tax Credit ................................ 1-10 Historic Structure Restoration and Preservation ..................... 1-12 Homestead Credit .................................................................... 1-12

I Incremental Research Expenditures Credit ............................... 3-1 Individual Shared Responsibility Provision ................................ 1-7 Interest ...................................................................................... 2-2 Internet/Electronic Commerce ................................................ 3-10 Itemized Deductions ................................................................ 2-11

K Knowing or Reckless Disclosure ................................................. 4-7

L Limited Liability Companies ....................................................... 3-8 Listed Transactions .................................................................... 4-6 Local Income Tax Rates ............................................................ 1-21 Low Income Housing Credit ................................................ 3-1, 3-2


Index

© 2018 Golden State Tax Training Institute, Inc. V

M Maryland ABLE Program ................................................... 2-5, 2-10 Maryland Additions

Capital Losses ....................................................................... 2-5 Education Expenses and Savings Plans ................................. 2-4 Federal Tax-exempt Income ................................................. 2-5 Non-Licensed Child Care Expenses ....................................... 2-5 Non-Maryland State Bonds .................................................. 2-2 Retirement Benefits .............................................................. 2-4 State Retirement Pickups ..................................................... 2-3 Tax Preference Items ............................................................ 2-5

Maryland Cancer Fund ............................................................ 2-13 Maryland College Investment Plan ............................................ 2-4 Maryland Department of Commerce (DOC) ............................ 1-10 Maryland Health Benefit Exchange (MHBE) .............................. 1-8 Maryland Health Connection (MHC) .................................. 1-6, 1-8 Maryland Income Taxes .......................................................... 1-15

Contributions ...................................................................... 2-13 Corporate Income ............................................................... 3-11 Corporate Taxes .................................................................... 3-1 Electronic Filing .................................................................. 1-25 Employer Withholding ........................................................ 2-14 Estimated Tax Payments ..................................................... 2-14 Filing Status ........................................................................ 1-16 Forms .................................................................................. 1-23 iFile ..................................................................................... 2-14 Income .................................................................................. 2-1 Military Personnel ....................................................... 1-19, 2-8 Minimum Filing Levels ........................................................ 1-23 Pass-through Entity Returns ................................................. 3-9 Personal Exemption ................................................... 1-26, 2-12 Reporting Federal Changes ................................................. 1-25 Returns ............................................................................... 1-22 Tax Rates ............................................................................ 1-20

Maryland Prepaid College Trust ................................................ 2-4 Maryland Subtractions

Adoption Expenses ............................................................... 2-8 Child Care Expenses .............................................................. 2-6 College Savings Plans Deductions ......................................... 2-9 Donations ........................................................................... 2-10 Military Pay ........................................................................... 2-8 Nonresident Income ............................................................. 2-8 Pension Exclusion ................................................................. 2-7 Relocation Benefits ............................................................... 2-8 Social Security or Railroad Retirement Benefits ................... 2-7 Solar Energy Grant .............................................................. 2-10 State Tax Refunds ................................................................. 2-6 Two-income Household Deduction .................................... 2-10 Unreimbursed Volunteer Travel Expenses ........................... 2-8

Maryland Tax Credits Apprentice Employee Tax Credit .......................................... 1-3 Biotechnology Investment Incentive Tax Credit . 1-4, 1-14, 1-38 Child and Dependent Care Tax Credit ................................. 1-30 Clean Energy Incentive Tax Credit ............................. 1-14, 1-40 Community Investment Income Tax Credit ........................ 1-33 Commuter Tax Credit ......................................................... 1-40 Credit for Aquaculture Oyster Floats .................................. 1-32 Credit for Preservation and Conservation Easements ........ 1-32 Credit for Registration of Certain Tractors ......................... 1-11

Cybersecurity Investment Incentive Tax Credit (CIITC) ....... 1-41 Earned Income Tax Credit ................................................... 1-27 Employees with Disabilities Tax Credit ............................... 1-11 Endow Maryland Tax Credit ....................................... 1-33, 1-39 Film Production Tax Credit ......................................... 1-10, 1-14 Homeowners' Property Tax Credit ...................................... 1-34 Income Taxes Paid to Other States and Localities .............. 1-29 Job Creation Tax Credit .............................................. 1-10, 1-37 Local Earned Income Tax Credit .......................................... 1-27 Long-term Care Insurance Credit ........................................ 1-32 Maryland Disability Employment Tax Credit ....................... 1-39 Nurse Practitioner Preceptorship Tax Credit ...................... 1-36 One Maryland Economic Development Tax Credit ... 1-14, 1-37,

3-2 Oyster Shell Recycling Tax Credit ........................................ 1-35 Physician Preceptorship Tax Credit ..................................... 1-36 Poverty Level Credit ............................................................ 1-28 Preceptors in Areas with Health Care Workforce Shortages Tax

Credit ............................................................................. 1-36 Qualified Farms Tax Credit .................................................... 1-3 Qualified Veteran Employees Tax Credit .............................. 1-4 Quality Teacher Incentive Credit ........................................ 1-31 Refundable Earned Income Tax Credit (REITC) ................... 1-27 Renters' Tax Credits ............................................................ 1-34 Research and Development Tax Credit ............................... 1-11 Small Business Research and Development Tax Credit....... 1-13 Wineries and Vineyards Tax Credit ..................................... 1-11

Maryland Tax Deductions College Savings Plans ............................................................ 2-9 Two-income Household Deduction .................................... 2-10

Maryland Tax Forms Form 500CRW - Waiver Request For Electronic Filing of Form

500CR ............................................................................... 1-4 Form 500D - Maryland Declaration of Estimated Corporation

Income Tax ..................................................................... 3-12 Form 500DM - Decoupling Modification ..... 2-2, 2-12, 3-1, 3-14 Form 502 - Maryland Resident Income Tax Return ..... 1-24, 2-4 Form 502B - Dependents’ Information ...... 1-1, 1-24, 1-26, 2-13 Form 502CR - Maryland Income Tax Credits for Individuals ... 1-

23, 1-29 Form 502D - Personal Declaration of Estimated Income Tax.. 2-

11, 2-14 Form 502LC - State and Local Tax Credit for Income Taxes Paid

to Other States and Localities ........................................ 1-30 Form 502V - Use of Vehicle for Charitable Purposes ............ 2-8 Form 502X - Amended Maryland Tax Return ..................... 1-25 Form 504 - Fiduciary Income Tax Return .............................. 1-5 Form 505 - Maryland Nonresident Income Tax Return . 1-18, 1-

19 Form 505NR - Maryland Nonresident Income Tax Calculation

....................................................................................... 1-18 Form 510 - Pass-Through Entity Income Tax Return ...... 3-8, 3-9 Form 510E - Application for Extension of Time to File Pass-

Through Entity Income Tax Return .................................. 3-9 Form 515 - Nonresident Local Tax Return .......................... 1-20 Form 548 - Power of Attorney .............................................. 4-7 Form 548P - Reporting Agent Authorization ......................... 4-7 Form 588 - Direct Deposit of Maryland Income Tax Refund to

More than One Account .................................................. 1-5 Form EL101 - e-File Declaration For Electronic Filing


Index

© 2018 Golden State Tax Training Institute, Inc. VI

Instructions ...................................................................... 4-5 Form IND PV - Income Tax Payment Voucher ...................... 1-5 Form MW506 - Employer’s Return of Income Tax Withheld .. 3-

12 Form MW507 - Employee’s Maryland Withholding Exemption

Certificate ...................................................................... 1-19 Form MW508 - Annual Employer Withholding Reconciliation

Return ............................................................................ 3-12 Maryland Tax Publications

Administrative Release No. 16 ............................................ 1-20 Administrative Release No. 21 .............................................. 2-4 COMAR 09.38.01.05 ............................................................. 4-3 COMAR 09.38.02.02 ............................................................. 4-2

Military Personnel ................................................................... 1-19 Minimum Essential Coverage .................................................... 1-7 Motorcycles ............................................................................... 1-9

N Negotiation of Taxpayer Checks ................................................ 4-6 Neighborhood and Community Assistance Program ........ 1-12, 3-2 Net Operating Loss (NOL) .......................................................... 3-4 Net Operating Loss Deduction ................................................... 2-4 New Markets Credit .................................................................. 3-2 Nexus ....................................................................................... 3-10 Nexus Limitation for Out-of-State Businesses ......................... 1-12 Nonprofit Health Insurers .......................................................... 1-9 Nonresident Owners ................................................................. 3-9 Nonresidents ........................................................................... 1-18

O Original Issue Discount (OID) ..................................................... 3-3 Orphan Drug Credit ................................................................... 3-2

P Partnerships .............................................................................. 3-8 Part-year Residents ................................................................. 1-17 Pass-through Entities .......................................................... 3-8, 3-9 Pension Exclusion ...................................................................... 1-2 Personal Exemption ........................................................ 1-26, 2-12 Personal Representatives ........................................................ 1-19 Preceptorship Program ........................................................... 1-36 Premium Tax Credit ................................................................... 1-6 Property Taxes ......................................................................... 1-13 Protecting Americans from Tax Hikes Act of 2015 (PATH) ........ 4-6

Q Qualified Farms ......................................................................... 1-3 Qualified Maryland Biotechnology Company (QMBC) ............ 1-38 Qualified Maryland Cybersecurity Companies (QMCC) ........... 1-41

Qualified Veteran Employee ...................................................... 1-4

R Reforestation Deduction ......................................................... 1-12 Residents ................................................................................. 1-16 Return Information .................................................................... 4-3

S S Corporations ........................................................................... 3-8 Sales and Use Tax ............................................................. 1-9, 1-13 Security Clearances .................................................................. 1-11 Small Business Pension Start-up Credit ..................................... 3-2 Solicitation ................................................................................. 4-4 Special Nonresident Tax Rate .................................................. 1-22 Standard Deduction ................................................................. 2-11 State Department of Assessments and Taxation (SDAT) ......... 1-10 State of Maryland

Ethics..................................................................................... 4-1 Statutory Resident ................................................................... 1-18 Subtraction Modifications ................................................ 2-6, 3-15

T Tax Calendar ............................................................................ 1-14 Tax Credit Evaluation Process .................................................. 1-13 Tax Fraud ................................................................................... 1-3 Tax Rates ................................................................................. 1-20 Tax Return Preparer Penalties ................................................... 4-5

Aiding or Abetting ................................................................. 4-6 Earned Income Tax Credit ..................................................... 4-6 Failure to File Correct Information ....................................... 4-6 Fraudulent Return

Guilty of a Felony ............................................................. 4-7 Guilty of a Misdemeanor ................................................. 4-7

Knowing or Reckless Disclosure ............................................ 4-7 Negotiation of Taxpayer Checks ........................................... 4-6 Promoting Abusive Tax Shelters ........................................... 4-6 Reasonable Cause ................................................................. 4-6 Unauthorized Disclosure or Use of Information ................... 4-7 Understatement of Taxpayer’s Liability ................................ 4-5

Tax-exempt Organizations ....................................................... 3-12 Treasury Department Circular 230 ............................................ 4-3 TreasuryDirect Account ............................................................. 1-5

U Unauthorized Disclosure ........................................................... 4-7 Understatement of Taxpayer's Liability

Due to Unreasonable Position .............................................. 4-6 Due to Willful or Reckless Conduct ....................................... 4-6

Unlawful Discrimination ............................................................ 1-9


© 2018 Golden State Tax Training Institute, Inc. EX-1

Examination Instructions - 4 Hour Maryland Tax Law

Earning your CPE credits from a self-study course is contingent upon scoring 70% or higher on the exam questions related to the course material. This examination covering Maryland Tax Law consists of 20 multiple-choice questions, meaning you must correctly answer 14 in order to pass. The exam has no time limit, and is open book, so you are allowed to look up answers in the text we provide. You do not need to finish the exam in one continuous sitting as all of the answers you enter online are automatically saved. After you submit the online exam to us you will receive a pass/fail message. If you should fail the exam on your first attempt, you will have the option to re-take the exam at no additional cost. If you score less than 70%, a message will be displayed at the bottom of the page along with a list of incorrect questions. You have unlimited attempts to pass an exam. Upon successful completion, we will email a Certificate of Completion and the Maryland Continuing Education Audit Checklist that you can use to self-report your credits to the Department of Labor, Licensing and Regulation (DLLR). We wish you every success and thank you for choosing Golden State Tax Training Institute, Inc. Submit your exam:

How To: • Log into www.GSTTI.com. • Enter your email address and your password. • Click link to take online exam. • Answer questions. • Submit answers and completed survey. • Get certificate and the Maryland Continuing

Education Audit Checklist by email within 24 hours.




Examination Questions - 4 Hour Maryland Tax Law

All questions pertain to Tax Year 2017 unless noted.

Lesson 1

1. All of the following statements are true regarding the Apprentice Employee Tax Credit except: A. Eligible apprentices must have been employed by the taxpayer for at least 7 full months of the taxable

year B. Excess credit may not be carried forward to future tax years C. This credit is not refundable and is applied against only the Maryland State income tax D. A copy of the proof of enrollment for each eligible apprentice in a registered apprenticeship program and

proof of the duration of the eligible apprentice’s employment by the taxpayer must be included with income tax return

2. Maryland has a reciprocal agreement for wages, salaries, tips and commission income with which of the following states?

A. Pennsylvania B. Florida C. Nevada D. Washington

3. Charles Davis, a single filing taxpayer, can be claimed as a dependent on his parent's Federal tax return. During

2017 he earned $10,700 working at SportsCo Inc. What filing status should Charles use when completing his Maryland State income tax return?

A. Single taxpayer B. Dependent taxpayer C. Head of household D. Charles is not required to file a Maryland State income tax return

4. In 2017, Joyce Robinson, a 32-year-old single, Maryland resident, earned $65,500 and had a Federal adjusted gross income (AGI) of $57,000. During the year Joyce paid $1,800 in childcare expenses and was eligible for a Child and Dependent Care Credit on her Federal income tax return. What amount can Joyce claim on her Maryland income tax return for the Child and Dependent Care Tax Credit?

A. $0 B. $410 C. $500 D. $600

5. Brianna Salazar, a Maryland resident, makes a $4,000 cash donation to a qualified permanent endowment fund

at an eligible community foundation. She also applies for and receives as certification for the donation from the Maryland Department of Housing and Community Development (DHCD). Brianna is not a pass-through entity (PTE) member so she may elect to claim what amount for the Endow Maryland Income Tax Credit on Part 1 or her Form 502CR?

A. $0 B. $1,000 C. $2,000 D. $4,000

6. George and Robin Smith, ages 34 and 33, have two dependents under the age of 18. The total household income

for 2017 was $16,200. In 2017 they paid $500 per month rent and they paid all their own utilities. Mr. and Mrs. Smith should apply for the Renters’ Tax Credit because their income is below what amount?

A. $16,337 B. $18,871 C. $24,563 D. $28,714




7. An individual or business may claim a credit in what amount for each bushel of oyster shells recycled during the taxable year with a maximum credit of $750?

A. $1 B. $5 C. $7 D. $10

8. A nurse practitioner or licensed physician who served as a preceptor in a preceptorship program approved by the

Maryland Board of Nursing may claim a credit on Form 502CR. The credit is what amount for each nurse practitioner student for whom the nurse practitioner or licensed physician served as a preceptor without compensation?

A. $500 B. $750 C. $1,000 D. $1,500

Lesson 2

9. While it is clear that interest from United States (Federal) obligations is not taxable by Maryland, there are many obligations issued under various designations which do not clearly indicate whether they are United States obligations. For example, interest received from which of the following entities is subject to Maryland tax?

A. Federal Home Loan Corporation (Freddie Mac) B. Federal Deposit Insurance Corporation (FDIC) C. Federal Home Loans Banks D. Federal Savings and Loan Insurance Corporation (FSLIC)

10. A subtraction cannot be taken for unreimbursed automobile travel expenses if the vehicle is used for which of the

following purposes? A. For a charitable organization whose principal purpose is to provide medical care B. For a nonprofit volunteer fire company C. To provide assistance to a handicapped individual who is enrolled as a student in a Maryland community

college D. To take a child to a public elementary school

11. A grandmother established one Maryland Prepaid College Trust account for a child and made contributions of

$5,000. The father owned another separate Maryland Prepaid College Trust account for the same child and made contributions of $5,000. Both the grandmother and the father would be entitled to a subtraction modification for what amount on their respective Maryland State income tax returns?

A. $0 B. $1,250 C. $2,500 D. $5,000

12. Veronica received a grant under Maryland's Residential Clean Energy Grant Program to install a qualifying solar energy system. The $500 grant was reported to her on a Form 1099G - Certain Government Payments and included in her Federal adjusted gross income. Veronica’s total income for the year was $45,000. Veronica can subtract what amount of the qualified grant she received from her taxable income on the Maryland income tax return?

A. $0 B. $250 C. $350 D. $500




13. Tracy Sherwood is a resident of Maryland. She won $10,000 from a lottery game during 2017. What amount of Maryland income tax will automatically be withheld from her winnings?

A. $0 B. $700 C. $875 D. $1,000

14. Which of the following statements is incorrect regarding Maryland Personal Exemptions?

A. A taxpayer is permitted the same number of exemptions on the Maryland State income tax return which he or she is permitted on his or her Federal income tax return

B. The exemption amount is the same on the Maryland State income tax return and the Federal income tax return

C. If the taxpayer is not required to file a Federal return but he or she must file a Maryland return, he or she may still claim the exemptions permitted under Federal law

D. The Maryland Personal Exemption is reduced once the taxpayer’s Federal adjusted gross income exceeds $100,000 ($150,000 if filing Joint, Head of Household, or Qualifying Widow(er) with Dependent Child)

Lesson 3

15. Corporation ABC is a Maryland company doing business in Maryland. Corporation XYZ is a company formed in Florida and is doing business in Florida. Corporation XYZ has net operating loss (NOL) totals of $50,000. Corporation ABC acquires Corporation XYZ in a tax-free transaction under Federal income tax law. Corporation ABC may use what amount of Corporation XYZ’s NOLs as a deduction to offset its Maryland income?

A. $0 B. $5,000 C. $25,000 D. $50,000

16. For 2017, Husky Industries, a Maryland corporation, had $100,000 of net income. The corporation will owe a

Maryland corporation income tax of what amount? A. $0 B. $8,250 C. $10,000 D. $16,500

17. A tax-exempt organization can qualify for the tax credit for Employment Opportunity, the tax credit for Qualifying Employees with Disabilities, the tax credit for Cost of Providing Commuter Benefits to Employees, and the tax credit for Long-Term Employment of Qualified Ex-Felons. The credits can apply against the Maryland State income tax due on unrelated business taxable income as defined under the Internal Revenue Code and the income tax required to be withheld from the wages of employees and remitted to the Comptroller of Maryland. However, which of the credits excess amounts may not be carried over and applied to succeeding taxable years?

A. Employment Opportunity B. Qualifying Employees with Disabilities C. Cost of Providing Commuter Benefits to Employees D. Long-Term Employment of Qualified Ex-Felons




Lesson 4

18. The Board of Individual Tax Preparers requires Maryland registered tax preparers to complete the following requirement(s):

A. Complete 16 hours of IRS approved Continuing Professional Education every year B. Complete 16 hours of IRS approved Continuing Professional Education every two years covering various

Federal tax law subjects C. Complete 16 hours of IRS approved Continuing Professional Education every two years with four hours

covering Maryland State tax related subjects D. Complete 16 hours of IRS approved Continuing Professional Education every three years with four hours

covering Maryland State tax related subjects 19. An individual tax preparer shall notify the Board in writing within 15 days after any change in the individual tax

preparer’s following information except: A. Business and/or home address B. Business and/or home telephone number C. E-mail address D. Business name

20. As a Maryland tax preparer, there are specific guidelines regarding how a practitioner advertises his or her

services and solicits his or her business. Identify the statement below that best describes an allowable form of advertisement and/or solicitation.

A. The practitioner takes out an ad on a bus stop bench that claims he or she is a registered Maryland tax preparer who performs both personal and business returns for a fee

B. A Maryland tax preparer advertises that he or she will guarantee a tax refund for all returns they prepare C. The practitioner only indicates in his or her advertisement that he or she charges a flat fee for preparing

a tax return when in fact the practitioner charges additional fees if tax schedules need to be included or the return involves itemized deductions

D. All of the above


© 2018 Golden State Tax Training Institute, Inc. CE-1

GOLDEN STATE TAX TRAINING INSTITUTE, INC.

IRS Provider Number: P619F

4 Hour Maryland Tax Law Continuing Professional Education Course Evaluation

Course Number: P619F-M04-18-S

Instructions: Please comment on all of the following evaluation points for this course and select a number grade, using the 1-5 scale, with 5 being the highest. Were the stated learning objectives met?........................................................... 5 4 3 2 1 Were the course materials accurate and relevant, and did they contribute to the achievement of the learning objectives?.................................................... 5 4 3 2 1 Was the time allocated to learning adequate?..................................................... 5 4 3 2 1 Were the facilities/equipment appropriate (if applicable)?.................................... 5 4 3 2 1 Was the course syllabus or handout materials satisfactory?................................ 5 4 3 2 1 Were the audio and visual materials effective (if applicable)?.............................. 5 4 3 2 1 If applicable, were individual instructors knowledgeable and effective? Instructor (enter name) ..................................................................................... 5 4 3 2 1 Instructor (enter name) ..................................................................................... 5 4 3 2 1 Number of Hours/Minutes it took you to study and complete course. Additional comments: ____________________________________________________________________________________________ ____________________________________________________________________________________________ Part of the course you found most beneficial: ____________________________________________________________________________________________ ____________________________________________________________________________________________ Part of the course you found least beneficial: ____________________________________________________________________________________________ ____________________________________________________________________________________________ Would you like us to contact you about your comments after the course? YES NO Name: _____________________________________________ Phone: __________________________________ Please complete and include with exam at the conclusion of the course.


Documents

4 Hour Maryland - gstti.com