Maryland is at a fiscal crossroads. Facing a projected $3.3 billion budget deficit, Governor Wes Moore has introduced a comprehensive budget plan to address this shortfall. The proposal includes a mix of targeted tax reforms and strategic spending adjustments designed to stabilize the state’s finances while promoting economic growth. Understanding these changes is crucial for effective financial planning for residents of Montgomery County.
Overview of Governor Wes Moore’s Budget Plan
Governor Moore’s fiscal strategy takes a balanced approach, combining new revenue sources with spending restraint. The plan introduces tax increases for high earners and profitable industries, while providing relief or no change for low- to middle-income households. It also reflects a broader effort to align Maryland’s tax policies with the realities of today’s digital and service-based economy.
Key Tax Proposals
1. Income Tax Adjustments for High Earners: The proposal introduces new tax brackets for high-income individuals:
- A 6.25% tax rate for individuals earning over $500,000
- A 6.5% tax rate for those earning over $1 million.
These adjustments aim to increase contributions from the state’s wealthiest residents to help bridge the budget gap.
2. Capital Gains Surtax: An additional 1% surtax on capital gains income for individuals earning more than $350,000 annually. This measure targets investment income, a key source of wealth for high-income households, to help close the revenue gap.
3. Expansion of Sales Tax to IT Services: A new 3% tax on information technology services such as website development, cloud storage, and data processing. This change reflects the increasing role of digital services in modern commerce and aims to level the playing field between traditional and digital businesses.
4. Increased Taxes on Gambling and Cannabis: The budget includes tax hikes on gambling activities and recreational cannabis sales:
- Sports betting tax increase from 15% to 20%.
- Recreational cannabis tax increase from 9% to 12%
5. Excise Tax Increase on Vehicle Sales: Proposal to raise the vehicle excise tax from 6% to 6.8%. This would apply to selling new and used vehicles, contributing more revenue to transportation infrastructure.
6. Corporate Tax Reform: Combined Reporting: The plan includes phased implementation of combined reporting by 2028. This prevents multi-state corporations from shifting profits to low-tax jurisdictions, promoting tax fairness.
Note: The originally proposed corporate tax rate reduction (from 8.25% to 7.99%) was removed from the plan by legislative committees.
7. Estate and Inheritance Tax Changes
- Estate tax exemption threshold lowered from $5 million to $2 million
- State inheritance tax proposed for elimination
The dual changes are designed to modernize wealth transfer taxation while preserving revenue from estate taxation.
8. Tax Relief for Most Marylanders: Governor Moore’s budget plan offers meaningful relief for everyday earners. Roughly two-thirds of Maryland residents—mainly those in low- to middle-income brackets—will see either a tax cut or no increase at all.
Rather than spreading new taxes across the board, the plan adjusts income brackets to lower the burden on working families, while higher earners and large corporations contribute more. This means more take-home pay for many and a more balanced tax structure overall.
Residents should review their 2025 paystubs or withholdings to see how this tax change could benefit them directly.
Proposed Spending Cuts
The plan includes approximately $2 billion in spending reductions to complement new revenue streams. These cuts target underutilized or inefficient programs to streamline operations without disrupting essential public services.
Impact on Montgomery County Residents
Montgomery County, known for its affluent communities and significant economic contributions, will experience the effects of these tax proposals in various ways.
High-Income Earners
Residents with annual incomes exceeding $500,000 will see increased state income tax rates. For example, an individual earning $600,000 would pay an additional 0.5% on the $100,000 above the $500,000 threshold, resulting in an extra $500 in state taxes. Those earning over $1 million will face a 0.75% increase in income above that level. These changes underscore the need for high earners to reassess their financial strategies.
Middle and Low-Income Residents
Governor Moore’s plan indicates that nearly two-thirds of Marylanders will receive a tax cut or see no change in their tax obligations. This relief is targeted at low and middle-income families, aiming to ease their financial burden. Residents in these income brackets should evaluate how the revised tax structure affects their household budgets.
Digital Consumers
Although not a direct part of this year’s plan, Maryland already expanded sales tax to digital products in 2021. The new 3% IT services tax builds on that foundation.
- Subscribing to cloud-based services or hiring digital consultants will now cost more.
- While seemingly minor per transaction, these taxes can add up for tech-savvy households and small businesses.
Business Owners
Business owners—especially in tech or consulting—should:
- Prepare to collect and remit the new 3% IT services tax
- Monitor changes related to combined reporting and vehicle excise tax, if applicable
- Revisit pricing models and accounting systems for compliance
How Montgomery County Residents Can Take Action
1. Meet with a Fee-Only Financial Advisor
Tax law changes—especially those affecting income brackets, estate planning, and deductions—can have long-term implications on wealth accumulation. High-income earners in Montgomery County should consult a fee-only financial planner or tax advisor to:
- Analyze how new tax brackets affect yearly liabilities
- Explore tax deferral opportunities (e.g., maxing out retirement accounts, donor-advised funds)
- Reassess estate planning under the new $2 million exemption cap
2. Reassess Real Estate and Property Holdings
Montgomery County includes some of the state’s highest property values (e.g., Potomac, Chevy Chase, Bethesda). Estate planning steps may include:
- Creating or updating trusts
- Lifetime gifting strategies
- Leveraging real estate partnerships or valuation tools
3. Understand the Local Political Landscape
Because Montgomery County is one of the most politically engaged counties in the state, residents have influence. Stay connected with local town halls, delegate meetings, and county budget reviews. Advocate for fair implementation and transparency in how tax revenues are allocated—especially if they come from new digital or corporate taxes.
Stay Informed and Plan Proactively
Understanding Maryland’s new tax proposals is not just about numbers—it’s about recognizing a shift in fiscal priorities. Whether you’re a homeowner, a small business owner, a professional, or a retiree in Montgomery County, these changes can affect your budget, your planning, and your future.
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