State Of New York et al v. Mnuchin et al

Filing 1

COMPLAINT against David J Kautter, Steven T. Mnuchin, United States Department of Treasury, United States Internal Revenue Service, United States Of America. (Filing Fee $ 400.00, Receipt Number 0208-15330056)Document filed by State of Maryland, State Of Connecticut, State Of New York, State of New Jersey. (Attachments: #1 Exhibit 1, #2 Exhibit 2, #3 Exhibit 3, #4 Exhibit 4, #5 Exhibit 5)(Olsen, Caroline)

EXHIBIT 4

1

2

3

4

5

EXHIBIT A

Table of Contents
Executive Summary ................................................................................................................................ 1
Disclaimer and General Notes ................................................................................................................ 4
Estimated TCJA Income Tax Impacts on Maryland Tax Revenues ......................................................... 5
TCJA Impact on Federal Tax for Maryland Residents ............................................................................. 6
Discussion of Certain Impactful Provisions on Federal Tax ..................................................................... 8
Repeal of Personal Exemptions .......................................................................................................... 8
Modifications to Deductions............................................................................................................... 10
Child Tax Credit (CTC) ...................................................................................................................... 11
Federal Tax Brackets and Rates ....................................................................................................... 13
Deduction for Qualified Business Income .......................................................................................... 15
Limitation on Business Losses for Individuals (Excess Business Losses) ......................................... 16
State Personal Income Tax Impacts ..................................................................................................... 17
Exemptions ....................................................................................................................................... 19
Itemized Deductions (Shift to State Standard Deduction) .................................................................. 21
Itemized Deductions ($10,000 Cap on State and Local Taxes) ......................................................... 24
Itemized Deductions (Interest for Home Acquisition and Home Equity Debt) ..................................... 25
Itemized Deductions (Temporary Enhancement for Medical Expenses) ............................................ 28
Itemized Deductions (Increased Limitation for Charitable Contributions) ........................................... 29
Itemized Deductions (Personal Casualty and Theft Losses) .............................................................. 30
Itemized Deductions (Miscellaneous Deductions Subject to 2% Floor) .............................................. 30
Itemized Deductions (Overall Limitation “Pease Limitation”) .............................................................. 31
Adjusted Gross Income (Moving Expenses) ...................................................................................... 32
Adjusted Gross Income (Alimony) ..................................................................................................... 32
Adjusted Gross Income (Limitation on Business Losses for Individuals)............................................ 33
Adjusted Gross Income (Modification of Net Operating Losses) ........................................................ 33
State Modification (529 Plans for Elementary and Secondary Schools)............................................. 35
Dynamic Effects .................................................................................................................................... 37
Examples of Federal Tax Impact .......................................................................................................... 39
Methodology ......................................................................................................................................... 41

Executive Summary
The Office of the Comptroller presents this 60 Day Report on the estimated impact on
the State of Maryland by the passage and subsequent enactment of H.R.1 of the 115th
Congress, otherwise known as the Tax Cuts and Jobs Act of 2017 (TCJA).
This report focuses on the changes made by many provisions of TCJA to the personal
income tax. Using tax year 2014 to simulate the federal effects of TCJA results in a $2.75 billion
net federal tax cut for Maryland taxpayers. In this simulation, assuming taxpayers aim to
minimize federal tax, 2.03 million taxpayers, or 71 percent of the Maryland population, saw
reduced federal tax for a total reduction of $3.54 billion; 376,000 taxpayers, 13 percent of the
State’s population, saw increased federal tax of $782 million.

However, because Maryland State and local tax law works in concert with the federal tax
code, there will be major impacts to the way the federal income tax is calculated and the
manner in which it flows through to the State and local tax. Ultimately, taxpayers should aim to
minimize the combined federal-State-local tax owed. In this second simulation, we assumed that
80 percent did just that, while the remaining 20 percent minimized their federal tax. Under these
conditions, almost 2 million taxpayers, or 68 percent of the population, saw no change in State
and local tax owed.

Effects of the Federal Tax Law on the State of Maryland

Page 1 of 41

The major provisions affecting Marylanders federal tax include the suspension of the
federal personal exemptions and the $10,000 limitation on the deduction for State and local
taxes paid. However, much of the effects of these will be more than offset by the enhanced
Child Tax Credit and the increase in the standard deduction.

Notable Impacts

Fiscal Year
2018

Total State & Local Income Tax Increase

Fiscal Year
2019

Fiscal Year
2020

36,814

572,276

450,967

State Income Tax

23,241

361,125

284,383

Local Income Tax

13,573

211,151

166,584

572,630

3,268,444

2,699,119

5,497

31,375

25,910

867

5,095

4,208

Additional Disposable Income
State Sales Tax Increase
Education Trust Fund Increase

The major impact to Maryland income tax revenue comes from the new $10,000
limitation on State and local tax for federal itemized deductions. This will shift many taxpayers
into the substantially increased federal standard deduction.
State law is coupled such that a taxpayer taking the federal standard deduction must
take the State’s much smaller standard deduction. The spread between the two for a married
filer is now $20,000 whereas it used to be $8,700. Others that continue to itemize and have
more than $10,000 in real estate taxes or any of the other repealed deductions will also see a
State tax increase.
Additionally, of particular note is the limitation’s effect on charitable contributions. As
taxpayers shift to the federal standard deduction, they lose the preferential tax treatment of
charitable contributions, which essentially acted as a federal match of a taxpayer’s contribution
amount at the taxpayer’s highest tax rate. If all Maryland taxpayers favored minimizing federal
tax, approximately 575,000 who deducted $1.49 billion in income would no longer receive the
federal match.

Effects of the Federal Tax Law on the State of Maryland

Page 2 of 41

Furthermore, several of TCJA’s provisions will create complex dynamic effects in the
State’s economy, both in terms of macroeconomic impacts as well as on the individual taxpayer
level. For example, taxpayers that have a potential source of business income claimed on their
individual tax return may find it to their benefit to convert their wages or compensation to
qualified business income in order to claim the 20 percent “Qualified Business Income”
deduction.
Similarly, because of the reduction in the corporate income tax rates to 21 percent and
the elimination of the minimum corporate income tax, businesses may find it beneficial to
restructure as a C-corporation. Both of these examples serve to illustrate how TCJA may
ultimately have significant ramifications for the State economy.
In general, the legislation as passed is extensive and complex. There is still a
considerable level of uncertainty regarding the regulations that will be established by the U.S.
Department of the Treasury to ensure clarity of the law. Many business owners will need to
await that regulation or possibly even audits or other enforcement efforts from the Treasury
Department before they have enough understanding to make structural considerations. In
addition, TCJA generates uncertainty at the State level, most notably the State’s coupling to
federal personal exemptions. Our interpretation is that the State’s personal exemptions remain
intact. However, clarifying language for such an important aspect of Maryland tax would be
preferential.

Effects of the Federal Tax Law on the State of Maryland

Page 3 of 41

Disclaimer and General Notes
Tremendous uncertainty remains with regard to administrative procedures that may be
undertaken by the U.S. Internal Revenue Service (IRS) or the U.S. Department of the Treasury
to implement the laws established under TCJA. The enacted legislation frequently lacks detail or
clarity on several complex provisions. There is certain to be a significant number of regulations
drafted and applied by the impacted federal agencies, and those regulations may run contrary to
our understanding of a certain topic or certain assumptions that we have made in our
simulations.
In addition to the uncertainty related to providing estimates for items impacted by certain
provisions that have not yet been fully specified by the federal government, the TCJA will
certainly create dynamic incentives with regard to the classification of various types of income
(i.e., wage and non-wage income), as well as incentives for business restructuring. While the
dynamic impact of this bill is extremely difficult to foresee and model, the lack of clarity,
particularly for business related issues, further complicates our estimating process.
The intent of this document is to provide a general overview of the provisions impacting
Maryland residents. The most significant provisions are included for discussion in this
document; certain esoteric items of limited scope are excluded. Furthermore, the descriptions of
provisions in this document are not meant to be wholly comprehensive; rather, each is intended
to provide an understanding of the provision’s broadest impact.
Finally, all estimates within this document are subject to subsequent adjustments. This
work is solely the product of the Comptroller of Maryland. Official revenue estimates will be
provided by Board of Revenue Estimates through consultation and consensus from the
Revenue Monitoring Consensus Group, which is comprised of officials from the Comptroller’s
Office, the Treasurer’s Office, the Department of Budget and Management, the Department of
Transportation, and the Department of Legislative Services.

Effects of the Federal Tax Law on the State of Maryland

Page 4 of 41

Estimated TCJA Income Tax Impacts on Maryland Tax Revenues
Tables 1 (below) and 2 (next page) show the estimated impact that the TCJA will have
on several of Maryland’s revenue sources. Maryland’s General Fund would increase by $28.7
million and $392.5 million across fiscal years 2018 and 2019, respectively. The Education Trust
Fund would realize an additional $867,000 and $5.1 million, respectively. These estimates
assume that the State’s personal exemptions remain intact.
At times, we include impacts for local income tax; those are cash collections and, when
combined with State tax, are representative of the total impact on taxpayers. The local income
tax is distributed to local governments using a methodology different than strictly cash-basis; the
fiscal year local tax estimates would not be suitable for direct local government use.
With regard to timing, very little impact occurs in the current fiscal year 2018. It is more
likely that tax year 2018’s impact will occur when the year’s tax returns are filed in April 2019,
after taxpayers and businesses have begun to react to the new provisions.
Details of the impacts on the amounts of State and local income tax revenues, as well as
on sales tax and casino revenues, are also shown below. Supporting documentation for these
estimates is contained later in this document.
Table 1. State & Local Personal Income Tax Revenue Impact on Maryland Residents - By Fiscal Year
Dollars in Thousands

Item

Fiscal Year
2018

Fiscal Year
2019

Fiscal Year
2020

Fiscal Year
2021

Fiscal Year
2022

Fiscal Year
2023

State Income Tax - SubTotal

23,241

361,125

284,383

294,339

304,531

314,762

Local Income Tax - SubTotal

13,573

211,151

166,584

172,362

178,281

184,236

36,814

572,276

450,967

466,701

482,812

498,998

Total State & Local Income Tax Impact

Notes:
(1) Fiscal Year 2019 is higher due to the fact that so much uncertainty exists. It is unlikely that estimated taxpayers will greatly affect their payments before
the end of fiscal year 2018 for tax year 2018. Much of the impact is likely to occur later in the year as taxapayers possibly change withholding and then "true
up" upon filing their taxes. Could be substantial refunds for tax year 2018 in fiscal year 2019.
(2) The fiscal years are a cash basis for State purposes, these are not intended for estimating local cash basis distibutions.

Effects of the Federal Tax Law on the State of Maryland

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Table 2. Increase in Resident Disposable Income & Share Spent on Taxable Items and Casinos
Dollars in Thousands

Item

Fiscal Year
2018

Federal Income Tax Changes Impact

609,444

State and Local Income Tax Flow Through Impact

(36,814)

SubTotal - Change in Disposable Income
Amount Spent on Taxable Goods
Share Spent on Taxable Goods
Total State Sales Tax Impact @ 6%
Gross Terminal Revenue From MD Casinos

Fiscal Year
2019
3,840,720
(572,276)

Fiscal Year
2020

Fiscal Year
2021

3,150,086
(450,967)

3,222,901
(466,701)

Fiscal Year
2022
3,297,400
(482,812)

Fiscal Year
2023
3,373,621
(498,998)

572,630

3,268,444

2,699,119

2,756,200

2,814,588

2,874,623

91,614

522,911

431,826

440,959

450,300

459,905

16.0%

16.0%

16.0%

16.0%

16.0%

16.0%

5,497

31,375

25,910

26,458

27,018

27,594

2,944

Share to GTR from MD Casinos

0.5%

Total State Education Trust Fund Share

867

16,805
0.5%
5,095

13,878
0.5%
4,208

14,171
0.5%
4,168

14,471
0.5%
4,256

14,780
0.5%
4,347

Notes:
(1) Fiscal Year 2019 is higher due to the fact that so much uncertainty exists. It is unlikely that estimated taxpayers will greatly affect their payments before
the end of fiscal year 2018 for tax year 2018. Much of the impact is likely to occur later in the year as taxapayers possibly change withholding and then "true
up" upon filing their taxes. Could be substantial refunds for tax year 2018 in fiscal year 2019.
(2) The share spent on taxable goods was determined with a BRE modified version of the Bureau of Labor Statistics' Consumer Expenditure Survey.
(3) Gross terminal revenue (GTR) is net of consumer winnings.

TCJA Impact on Federal Tax for Maryland Residents
We estimate that the TCJA would have resulted in a net federal income tax cut of $2.754
billion for Maryland residents for tax year 2014 (Table 3a, next page). That impact is the result
of a simulation of actual taxpayer data for the majority of provisions. Growing those results and
including several other items that could not be included in the simulation, and incorporating a
dynamic reaction with Maryland’s current deduction system yields an estimated net federal tax
cut of $2.8 billion for tax year 2018. While the final estimate is modified, we do find the
simulation tables for tax year 2014 to be entirely reasonable and representative of the impacts
on taxpayers by various income characterizations.
The impact can be described in terms of those positively impacted (pay less federal tax),
those negatively impacted (pay more federal tax), and those that are not impacted. On a net
basis, 72% of taxpayers will pay less federal tax, 13% will pay more, and 15% will not see their
federal taxes changes. By and large, those that are not impacted were untaxable under either
regime.
Table 3a (next page) summarizes the net impact by various federal adjusted gross
income (AGI) classes. The AGI classes are pre-tax changes to illustrate the estimated impact
relative to the prior law.

Effects of the Federal Tax Law on the State of Maryland

Page 6 of 41

Table 3a. Federal Income Tax - Net Impact of Tax Changes
Tax Year 2014

Federal Adjusted Gross
Income Class

Number of
Taxpayers Not
Impacted

0 or less

Number of
Taxpayers
Impacted

Total Net Tax
Impact

17,783

0 to 25,000

1,463

28,309,007

429,450

499,659

(82,793,869)

25,000 to 50,000

11,412

611,249

(258,435,035)

50,000 to 75,000

2,237

396,739

(283,962,775)

75,000 to 100,000

900

275,162

(307,195,859)

100,000 to 150,000

600

315,389

(474,889,843)

150,000 to 250,000

200

210,033

(495,464,139)

250,000 to 500,000

61

72,547

(682,793,723)

500,000 to 1,000,000

26

17,198

(160,713,876)

Greater than $1M

28

7,756

(35,995,173)

462,697

2,407,195

(2,753,935,285)

Total

There are 2.031 million taxpayers expected to benefit by a total of $3.54 billion, or
$1,741 per taxpayer. As a share of income, the tax cut ranges between 1.6% and 3.3%, with an
average of 2.0%. Table 3b tabulates those that benefit.
Table 3b. Federal Income Tax - Taxpayers Positively Impacted By Tax Changes
Tax Year 2014

Federal Adjusted Gross
Income Class
0 or less

Share of
Number of Taxpayers
Taxpayers by Class
1,193

6%

0 to 25,000

448,319

48%

25,000 to 50,000

487,775

78%

50,000 to 75,000

320,468

75,000 to 100,000

233,228

100,000 to 150,000

Average AGI
for Group

(4,333,428)

(3,632)

#N/A

15,944

(120,265,588)

(268)

-1.7%

36,544

(352,189,414)

(722)

-2.0%

80%

61,621

(360,359,713)

(1,124)

-1.8%

84%

86,896

(355,205,397)

(1,523)

-1.8%

267,877

85%

121,660

(537,709,798)

(2,007)

-1.6%

150,000 to 250,000

183,438

87%

188,408

(550,005,224)

(2,998)

-1.6%

250,000 to 500,000

68,553

94%

327,272

(735,649,893)

(10,731)

-3.3%

500,000 to 1,000,000

14,641

85%

663,304

(230,490,851)

(15,743)

-2.4%

5,809

75%

2,528,429

(289,648,907)

(49,862)

-2.0%

2,031,301

71%

87,939

(3,535,858,213)

(1,741)

-2.0%

Greater than $1M
Total

#N/A

Total Tax
Reduction

Average Tax
Impact Share
Average Tax of Average
Reduction
AGI

Notes:
(1) Average AGI and average impact for those with negative AGI are generally distortive and meaningless. In general, for those with
negative AGI that get a tax reduction, they benefit from the elimination of the alternative minimum tax (AMT).

Effects of the Federal Tax Law on the State of Maryland

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There are approximately 376,000 taxpayers expected to be negatively impacted by a
total of $782 million, or $2,080 per taxpayer. As a share of income, the tax increase ranges
between 1.1% and 4.6%, with an average of 2.3%. Table 3c below tabulates those that will see
an increase in federal taxes.
Table 3c. Federal Income Tax - Taxpayers Negatively Impacted By Tax Changes
Tax Year 2014

Federal Adjusted Gross
Income Class
0 or less
0 to 25,000

Share of
Number of Taxpayers
Taxpayers by Class
270

Average AGI
for Group

1%

#N/A

Total Tax
Increase

Average Tax
Impact Share
Average Tax
of Average
Increase
AGI

32,642,435

120,898

#N/A

51,340

6%

15,836

37,471,719

730

4.6%

25,000 to 50,000

123,474

20%

36,861

93,754,379

759

2.1%

50,000 to 75,000

76,271

19%

61,687

76,396,937

1,002

1.6%

75,000 to 100,000

41,934

15%

86,298

48,009,538

1,145

1.3%

100,000 to 150,000

47,512

15%

121,957

62,819,955

1,322

1.1%

150,000 to 250,000

26,595

13%

183,163

54,541,085

2,051

1.1%

250,000 to 500,000

3,994

6%

344,599

52,856,170

13,234

3.8%

500,000 to 1,000,000

2,557

15%

707,643

69,776,976

27,289

3.9%

Greater than $1M

1,947

25%

3,260,343

253,653,734

130,279

4.0%

375,894

13%

89,641

781,922,928

2,080

2.3%

Total

Notes:
(1) Average AGI and average impact for those with negative AGI are generally distortive and meaningless. In general, for those with
negative AGI that get a tax increase, they are negatively impacted from the limitation on excessive business losses.

Discussion of Certain Impactful Provisions on Federal Tax
The following broad-based changes made to federal tax law by the TCJA are the
principle drivers of the major shift in federal tax owed by Maryland taxpayers. Each of the
provisions discussed below accounts for a significant impact when taken in isolation. However,
the interaction of the provisions must be accounted for to determine the true impact of the bill.
This interaction is especially important with regard to several of the most significant changes to
the law: (1) the increase in the standard deduction; (2) the general reduction to itemized
deductions; (3) the loss of exemptions; and (4) the increase and expansion of the child tax credit
(CTC). Some of the provisions have effects that will reinforce each other, while some have
effects that will counter each other.

Repeal of Personal Exemptions
The personal exemptions serve to reduce a taxpayer’s adjusted gross income (AGI) to
their federal taxable income. This reduction is part of the calculation of the amount of income

Effects of the Federal Tax Law on the State of Maryland

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on which federal tax is owed. If the exemptions cover the taxpayer’s AGI, that taxpayer owes
no federal taxes.
Under prior law, a personal exemption was generally allowed for each member of the
taxpayer’s family. Each personal exemption reduced a taxpayer’s taxable income by $4,050.
Unlike the State’s personal exemptions, the federal exemption amounts were indexed for
inflation. Personal exemptions included phase-out limitations: for taxpayers filing as marriedfiling-jointly, the phase-out began at $313,800; for those filing as head-of-household, it began at
$287,650; for those filing as married-filing-separately, $156,900; and for all others, $261,500.
Those too were indexed for inflation.
Under the TCJA, all deductions for personal exemptions are suspended through tax year
2025, at which point they will be reinstated. It is important to note that the exemption language
remains in federal statute; the value of the exemptions is simply set to zero for the applicable
years. The 2014 impact is shown below in Table 4a.
Table 4a. Impact of Repeal of Personal Exemptions

Federal Adjusted Gross
Income Class

Tax Year 2014
Total Exemption
Number of
Dollars
Taxpayers
Lost

Average
Amount

0 to 25,000

556,500

2,576,576,370

4,630

25,000 to 50,000

614,458

4,484,195,572

7,298

50,000 to 75,000

396,950

3,075,882,036

7,749

75,000 to 100,000

275,311

2,433,730,014

8,840

100,000 to 150,000

315,481

3,252,605,488

10,310

150,000 to 250,000

209,749

2,430,936,452

11,590

250,000 to 500,000

64,299

635,317,491

9,881

500,000 to 1,000,000

-

-

-

Greater than $1M

-

-

-

Total

2,432,748

18,889,243,423

7,765

Because of the phase-out limitations under the previous law, the impact of the repeal is
limited to the taxpayers that fall below the AGI at which the exemption is completely phased out
– generally, this means taxpayers with AGI below $385,000. The impact of this repeal lands
squarely on those taxpayers who would have taken large numbers of personal exemptions
under the prior law; that is, taxpayers with many family members, particularly those with
qualifying dependents older than 17 years old.
The doubled Child Tax Credit (“CTC”), discussed in this section on page 11, will help
offset the increase in taxable income resulting from the repeal of the personal exemptions. The
roughly $4,000 personal exemption that was available for each child under the previous law is

Effects of the Federal Tax Law on the State of Maryland

Page 9 of 41

generally equal to the $1,000 increase in the new CTC. In all, an additional $18.9 billion in AGI
will now be federally taxable as a result of the repeal of the deduction for personal exemptions.

Modifications to Deductions
As with the personal exemptions, the federal standard and itemized deductions serve to
reduce a taxpayer’s (AGI) to his or her federal taxable income. This reduction is part of the
calculation of the amount of income on which federal tax is owed.
The TCJA almost doubles the previous amount of the standard deduction for each filing
status. For taxpayers filing as single or as married-filing-separately, the standard deduction is
increased from $6,350 to $12,000; for those filing as head-of-household, the deduction is
increased from $9,350 to $18,000; and for those married-filing-jointly, it is increased from
$12,700 to $24,000. These amounts take effect beginning with tax year 2018 and are in effect
through tax year 2025. Assuming no federal tax law changes going forward, the amounts of the
deduction will revert to inflation-adjusted tax year 2017 amounts for tax years 2026 and beyond.
Under prior law, individuals were permitted a deduction for, among other things, State
and local taxes (SALT) paid, regardless of whether those taxes were incurred in a trade or
business. Under the TCJA, deductions for SALT have been generally capped at $10,000. The
most common taxes deducted were taxes paid on property and income. A summary of the
taxpayers impacted is illustrated in Table 4b below, with the dollar amounts detailed
representing the lost deduction amounts.
Table 4b. Impact of Repeal of SALT Deductions

Federal Adjusted Gross
Income Class

Tax Year 2014
Number of
Total Deduction
Impacted
Amount Exceeding
Taxpayers
Cap

Average Deduction
Amount
Exceeding Cap

0 or less

1,048

25,774,012

24,594

0 to 25,000

1,804

22,563,756

12,508

25,000 to 50,000

4,758

22,862,465

4,805

50,000 to 75,000

15,823

53,578,259

3,386

75,000 to 100,000

49,620

119,153,345

2,401

100,000 to 150,000

197,299

636,646,006

3,227

150,000 to 250,000

191,188

1,622,756,081

8,488

250,000 to 500,000

69,075

1,540,972,621

22,309

500,000 to 1,000,000

16,651

884,306,449

53,108

7,480

1,617,292,035

216,216

554,746

6,545,905,030

11,800

Greater than $1M
Total

Additionally, although each smaller in singular impact relative to SALT, several other
aspects of itemized deductions were either eliminated or reduced in value, some with significant

Effects of the Federal Tax Law on the State of Maryland

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impacts. As in the case of the personal exemptions, these changes take effect for tax year
2018 and expire after tax year 2025, at which point the rules regarding itemized deductions
revert to those in effect in tax year 2017.
The combination of the changes to itemized deductions will shift many Maryland
taxpayers into the federal standard deduction, as itemizing deductions may no longer be
financially beneficial to a taxpayer. While a minority of these taxpayers will benefit from this
shift, most will be forced to claim a lower deduction. Thus, the limitation and various repeals will
likely result in a rise in federal taxable income for these taxpayers. Meanwhile, those taxpayers
that were already receiving the standard deduction will see a generous increase in untaxable
income at the federal level. Table 4c below summarizes the impacts for Maryland’s filing
population, excluding those with income below zero.

Impact of
Changes t

Table 4c. Impact of Changes to Standard and Itemized Deductions
Tax Year 2014

Tax Year 20

Negatively Impacted
Federal Adjusted
Gross Income Class

Number of MD
Taxpayers

Taxpayers

Total Deductions
Lost

Positively Impacted

Taxpayers

Total Deductions
Gained

0 to 25,000

929,109

9,124

28,638,068

602,186

2,904,501,235

25,000 to 50,000

622,661

51,079

249,478,755

546,455

3,660,058,024

50,000 to 75,000

398,976

60,801

320,062,934

289,066

1,903,817,322

75,000 to 100,000

276,062

66,703

324,509,146

169,834

1,156,174,911

100,000 to 150,000

315,989

148,228

768,031,062

150,730

925,879,213

150,000 to 250,000

210,233

165,787

1,530,735,035

42,571

237,451,869

250,000 to 500,000

72,608

67,744

1,441,890,023

4,713

34,127,220

500,000 to 1,000,000

17,224

16,276

747,488,047

945

8,145,415

7,784

7,161

1,338,515,346

622

13,097,021

Greater than $1M

Total
2,850,646
592,903
6,749,348,417
1,807,122
10,843,252,230
Notes:
(1) Taxpayers in the income class below $0 represent an insignificant share of those taxpayers affected; in addition, their calculation of
AGI is so extraordinary as to be misrepresentative of the average taxpayer. Thus, they have been excluded from most tables.
(2) AGI means taxpayer AGI prior to any changes in the tax code.

Child Tax Credit (CTC)
Under prior law, the CTC allowed an individual to claim a credit in the amount of $1,000
for each qualifying child under age 17. The phase-out of the credit was dependent upon filing
status: for taxpayers filing as single or head-of-household, the phase-out began at an AGI of
$75,000; for those filing as married-filing-separately, the phase-out began at $55,000 and for
those married-filing-jointly, and the phase-out began at $110,000. If the credit exceeded the
taxpayer’s federal tax liability, a refundable CTC capped at $1,000 was made available.
Under the TCJA, beginning in Tax Year 2018, the amount of the credit doubles to $2,000
per qualifying child, and a non-refundable credit is extended to qualifying dependents in an
amount of $500. The phase-out limits have also been significantly increased. For those

Effects of the Federal Tax Law on the State of Maryland

Page 11 of 41

married-filing-jointly, the phase-out now begins at an AGI of $400,000; and for all other filing
statuses, it begins at $200,000. The cap on the refundable portion of the credit is raised to
$1,400 per qualifying child. The TCJA also requires that a Social Security number be provided
for each qualifying child for whom the credit is claimed. If the child does not have a Social
Security number, the child may still qualify for the non-refundable $500 credit.
The enhanced CTC will benefit all Maryland taxpayers with qualifying children and/or
dependents. “Negatively Impacted,” as defined in Tables 5a and 5b, are the result of the effects
of other provisions, with the enhanced CTC being more generous in both amount and eligibility
requirements. The changes in the phase-out limits will have significant impacts on Maryland’s
middle class taxpayers. In particular, those living in central Maryland, where the cost-of-living is
significantly higher than in other parts of the State and country, will see substantial benefits from
the enhanced CTC as the AGI of middle class families settled in the suburbs of the Washington
metro area can extend well beyond $150,000.
Previously, credits were phased out completely around $130,000 of AGI. Under the
TCJA, the credit only begins to phase-out at $400,000 of AGI and extends up to $440,000 of
AGI. This will result in approximately 275,000 newly-eligible taxpayers and a federal tax
reduction of almost $900 million for these taxpayers, or approximately $3,250 per newly-eligible
family.
Table 5a shows the impact of the changes to the non-refundable CTC.
Table 5a. Impact of Changes to Non-Refundable Child Tax Credit
Tax Year 2014
Federal Adjusted
Gross Income Class

Negatively Impacted

Credit Increase

Average Increase

0 to 25,000

19,044

3,314,911

37,764

11,120,400

294

25,000 to 50,000

19,879

4,454,437

142,793

103,469,730

725

50,000 to 75,000

1,621

1,245,643

92,742

126,855,100

1,368

75,000 to 100,000

1,445

1,473,683

85,004

167,307,611

1,968

100,000 to 150,000

1,058

1,115,471

132,698

370,932,035

2,795

150,000 to 250,000

114

122,520

108,569

396,618,682

3,653

250,000 to 500,000

47

65,275

33,562

125,223,597

3,731

500,000 to 1,000,000

24

23,439

-

-

-

9

10,776

-

-

-

43,241

11,826,153

Greater than $1M
Total

Taxpayers

Credit Reduction

Positively Impacted
Taxpayers

633,132

1,301,527,155

2,056

Table 5b (next page) shows the impact of the changes to the refundable CTC.

Effects of the Federal Tax Law on the State of Maryland

Page 12 of 41

5b. Impact of Changes to Refundable Child Tax Credit
Tax Year 2014
Federal Adjusted
Gross Income Class

Negatively Impacted

Credit Increase

Average Increase

0 to 25,000

16,784

21,485,513

185,742

61,809,626

333

25,000 to 50,000

18,802

24,659,190

123,296

112,793,841

915

50,000 to 75,000

5,576

5,532,362

24,782

27,338,861

1,103

75,000 to 100,000

1,150

1,139,010

5,383

6,603,812

1,227

100,000 to 150,000

282

304,133

1,751

2,745,134

1,568

150,000 to 250,000

59

83,238

422

808,652

1,916

250,000 to 500,000

30

51,297

201

464,470

2,311

500,000 to 1,000,000

20

33,990

-

-

-

Greater than $1M

14

18,730

-

-

-

42,717

53,307,462

Total

Taxpayers

Credit Reduction

Positively Impacted
Taxpayers

341,577

212,564,396

622

The approximately 43,000 taxpayers “negatively impacted” in the non-refundable table
would generally have zero tax liability under the TCJA, and these taxpayers would “lose” the
non-refundable credit and shift to the refundable CTC. Similarly, the 43,000 “negatively
impacted” in the refundable table that will be newly-ineligible for the refundable credit would no
longer have the entirety of their tax liability wiped out by the non-refundable CTC, as they likely
will have moved up in tax brackets as a result of the other provisions.
As a result of TCJA’s changes to the CTC, approximately $1.3 billion in additional
nonrefundable CTC and $213 million in additional refundable CTC will be awarded to Maryland
taxpayers. Following the expiration of this provision at the close of tax year 2025, the rules
regarding the CTC revert to those in effect in tax year 2017.

Federal Tax Brackets and Rates
Under the TCJA, the progressive tax rate regime remains. Tax rates will generally be
lower for all income brackets. The exceptions are illustrated in Table 6a and Table 6b on the
next page, which show each difference in the TCJA versus the prior law. As was the case in
prior law, there are seven brackets under the TCJA. There are several ranges of income where
the marginal change is substantial. It is worth noting that the reduction in the top bracket
generates the largest and broadest based gain for those taxpayers.

Effects of the Federal Tax Law on the State of Maryland

Page 13 of 41

6a. Married Joint Rates and Brackets
Prior Law
Begin

End

Tax Cuts and Jobs Act
Rate

Begin

End

Rate

TCJA
vs
Prior Law

$0

$18,650

10.0%

$0

$18,650

10.0%

Same

$18,650

$19,050

15.0%

$18,650

$19,050

10.0%

Decrease

$19,050

$75,900

15.0%

$19,050

$75,900

12.0%

Decrease

$75,900

$77,400

25.0%

$75,900

$77,400

12.0%

Decrease

$77,400

$153,100

25.0%

$77,400

$153,100

22.0%

Decrease

$153,100

$165,000

28.0%

$153,100

$165,000

22.0%

Decrease

$165,000

$233,350

28.0%

$165,000

$233,350

24.0%

Decrease

$233,350

$315,000

33.0%

$233,350

$315,000

24.0%

Decrease

$315,000

$400,000

33.0%

$315,000

$400,000

32.0%

Decrease

$400,000

$416,700

33.0%

$400,000

$416,700

35.0%

Increase

$416,700

$470,700

35.0%

$416,700

$470,700

35.0%

Same

$470,700

$600,000

39.6%

$470,700

$600,000

35.0%

Decrease

37.0%

Decrease

Greater than $600,000

39.6%

Greater than $600,000

6b. Single Rates and Brackets
Prior Law
Begin

End

Tax Cuts and Jobs Act
Rate

Begin

End

Rate

TCJA
vs
Prior Law

$0

$9,325

10.0%

$0

$9,325

10.0%

Same

$9,325

$9,525

15.0%

$9,325

$9,525

10.0%

Decrease

$9,525

$37,950

15.0%

$9,525

$37,950

12.0%

Decrease

$37,950

$38,700

25.0%

$37,950

$38,700

12.0%

Decrease

$38,700

$82,500

25.0%

$38,700

$82,500

22.0%

Decrease

$82,500

$91,900

25.0%

$82,500

$91,900

24.0%

Decrease

$91,900

$157,500

28.0%

$91,900

$157,500

24.0%

Decrease

$157,500

$191,650

28.0%

$157,500

$191,650

32.0%

Increase

$191,650

$200,000

33.0%

$191,650

$200,000

32.0%

Decrease

$200,000

$416,700

33.0%

$200,000

$416,700

35.0%

Increase

$416,700

$418,400

35.0%

$416,700

$418,400

35.0%

Same

$418,400

$500,000

39.6%

$418,400

$500,000

35.0%

Decrease

37.0%

Decrease

Greater than $500,000

39.6%

Greater than $500,000

Effects of the Federal Tax Law on the State of Maryland

Page 14 of 41

Deduction for Qualified Business Income
Under the TCJA, an individual taxpayer may, in general, deduct 20% of qualified
business income (QBI) from a partnership, S corporation, or sole proprietorship, as well as 20%
of other certain business-related income. QBI is allowed to be taken as a loss and carried
forward, but only against other QBI. The manner in which these losses will interact with other
losses is uncertain; this provision may create extraordinary complexity.
There is a limitation on this deduction for service-related companies. For these
companies, the deduction for any business income above the $315,000 threshold (marriedfiling-jointly) or $157,000 threshold (all other filing statuses) is gradually phased out. At the
$415,000 limit (married-filing-jointly) or $207,000 limit (all other filing statuses), the deduction is
completely phased out; that is, the business income from these service-related companies
above the phase-out limits does not qualify for the QBI deduction.
The Office of the Comptroller has no reliable information regarding the amount of
Maryland business income that is service-related. To simulate the impact of this deduction, we
took the total amount of Maryland business income and randomly assigned it in a 70% - 30%
service - nonservice business income ratio.
The assignment is based on classifications of businesses in Maryland according to
various federal reporting sources; however, there are certainly limitations to the existing industry
classification reporting and its relation to this tax provision. All business income below the
phase-out limits received the appropriate deduction.
Nonservice business income above the phase-out limits continued to receive the
deduction; service income above the phase-out limits received no deduction. Table 7 displays
the results.
Table 7. Impact of Deduction For Qualified Business Income
Tax Year 2014
Federal Adjusted
Gross Income Class
0 to 25,000

Number of
Taxpayers

Total
Deductions
Gained

Average
Amount

3,237

2,459,248

760

25,000 to 50,000

10,534

18,919,874

1,796

50,000 to 75,000

10,805

31,969,307

2,959

75,000 to 100,000

10,593

39,520,555

3,731

100,000 to 150,000

17,350

86,730,577

4,999

150,000 to 250,000

20,300

164,473,311

8,102

250,000 to 500,000

15,218

224,345,345

14,742

500,000 to 1,000,000

3,105

81,936,586

26,389

Greater than $1M

2,109

253,339,216

120,123

93,251

903,694,020

9,691

Total

Effects of the Federal Tax Law on the State of Maryland

Page 15 of 41

Limitation on Business Losses for Individuals (Excess Business Losses)
Under prior law, a taxpayer that is an active participant in a non C-Corp business could
utilize all of a current year’s business losses to offset other types of income and then turn any
additional excess loss amounts into a net operating loss for use in other tax years (carry-back or
carry-forward). The effect was to render that taxpayer as untaxable for the current year and
generate refunds for prior years and/or reduced tax in future years.
Under the TCJA, excess business losses above the specified limitations ($500,000 for
married-filing-jointly, $250,000 for single) will no longer be allowed in a current taxable year,
except in the case of corporations. However, these excess business losses will be allowed to
be carried forward and treated as part of the taxpayer’s net operating loss (NOL) carryforward.
This provision will have the effect of raising the federal taxable income of those
taxpayers with excess business losses above the specified limitations. Under the prior law,
these taxpayers could have used the full amount of their business loss to reduce their federal
taxable income to zero. Under the TCJA, these taxpayers will be forced to spread the amount
of losses above the limit over multiple years. For federal tax revenue purposes, assuming
average business losses in the aggregate, this provision will serve to immediately increase
federal taxable income. In theory, the provision would result in a net-zero effect, as excess
business losses would serve to reduce future taxable income. Table 8 shows the first-year,
one-year impact.
Table 8. Impact of Deduction For Excess Business Losses
Tax Year 2014
Federal Adjusted
Gross Income Class
0 or less

Number of
Taxpayers

Total Deductions
Lost

Average
Amount

369

395,385,252

1,071,505

0 to 25,000

21

16,417,613

781,791

25,000 to 50,000

29

22,680,560

782,088

50,000 to 75,000

40

18,008,348

450,209

75,000 to 100,000

32

9,780,027

305,626

100,000 to 150,000

18

9,947,220

552,623

150,000 to 250,000

28

20,657,532

737,769

250,000 to 500,000

61

59,122,368

969,219

500,000 to 1,000,000

58

81,076,736

1,397,875

Greater than $1M

124

332,332,733

2,680,103

Total

780

965,408,389

1,237,703

Effects of the Federal Tax Law on the State of Maryland

Page 16 of 41

State Personal Income Tax Impacts
The following tables and sections detail the TCJA’s flow-through to Maryland’s income
taxes. Throughout, we seek to identify the income and tax impacts of singular provisions or
items. This is done to support policy analysis; however, it must be stressed that most of the
provisions work together and one change can have impacts to other items. Any policy package
that seeks to decouple the State from one or several of the federal changes should be run
through our simulation to determine the most definitive impacts.
Table 9 (next page) summarizes the impact from our simulation of actual taxpayer data
as well as items for significant provisions that we had to estimate outside of our tax database.
We simulate the tax base with tax year 2014 records (most recent completed database) and
extrapolate forward. Our baseline simulation assumes that all taxpayers prioritize the reduction
of their federal tax.
However, approximately 12% of all taxpayers (333,552 taxpayers) would pay relatively
more combined tax (federal plus State and local) if they only prioritized their federal tax. This
inter-play is dependent on their decision of whether or not to itemize at the federal level. They
may pay a little more at the federal level (may still benefit overall at federal level) but will save
more in State and local taxes than they lost in federal taxes. The line item in the table below
titled “Adj for State Deduction Favor” reflects our assumption that 80% of those taxpayers would
make the correct decision for their bottom lines.

Effects of the Federal Tax Law on the State of Maryland

Page 17 of 41

Table 9. State & Local Personal Income Tax Revenue Impact on Maryland Residents - Bringing It All Together - By Tax Year
Dollars in Thousands

Item

Tax Year 2014 Tax Year 2018 Tax Year 2019 Tax Year 2020 Tax Year 2021 Tax Year 2022

State Income Tax - Simulation

415,945

464,828

480,251

496,186

512,649

529,659

(178,090)

State Income Tax - Adj for State Deduction Favor

(199,020)

(205,623)

(212,446)

(219,495)

(226,777)

State Income Tax - $750k Mortgage Indebt Cap

915

State Income Tax - Lost NOL Carryback

1,739

2,481

3,148

3,749

11,374

State Income Tax - HELOC Repeal

11,374

11,374

11,374

11,374

12,530

Local Income Tax - Simulation

12,530

12,530

12,530

(20,322)

(20,322)

(20,322)

(20,322)

276,558

State Income Tax - SubTotal

12,530

(14,069)

State Income Tax - Expanded 529 Plan Use

279,948

289,802

299,884

310,212

242,904

271,451

280,457

289,763

299,377

309,311

(104,001)

Local Income Tax - Adj for Local Deduction Favor

(116,224)

(120,080)

(124,064)

(128,181)

(132,434)

Local Income Tax - $750k Mortgage Indebt Cap

487

925

1,320

1,675

1,994

Local Income Tax - HELOC Repeal

6,050

6,050

6,050

6,050

6,050

Local Income Tax - Lost NOL Carryback

7,470

7,470

7,470

7,470

7,470

(7,485)
-

(10,811)
-

(10,811)
-

(10,811)
-

(10,811)
-

161,750

164,012

169,728

175,581

181,581

438,308

443,961

459,530

475,465

491,792

Local Income Tax - Expanded 529 Plan Use
Local Income Tax - SubTotal

Total State & Local Income Tax Impact

Notes:
(1) Not all items could be simulated with taxpayer data, the other items represent estimates developed with separate data sources
(2) All estimates have documentation in other areas of the paper
(3) The "Adj for State Deduction Favor" is an adjustment after the simulation to account for taxpayers that would pay more in State and local taxes than if they
would gain in decreased federal taxes by shifting to the standard deductions. We assume that 80% of those that would benefit under this scenario would
exercise that option. There is further description later in the paper.
(4) This estimate excludes any impact from State and local exemptions; it is our opinion that they would be allowed, though clarifying language would be
beneficial.

Table 9a is a break down by impact for Maryland residents, assuming all prioritize their
federal income tax. Under this scenario, the State would collect $659 million more in combined
state and local taxes, $416 million more for the general fund, and $243 million more in local
income taxes.
Table 9a. Maryland Resident - State & Local Tax Impact - Assumes 100% Federal Tax Priority
Tax Year 2014
No Change
Federal Adjusted Gross
Income Class
0 or less

Number of
Taxpayers

Pay More State & Local Tax
Average
Number of Total Change
Change in
Taxpayers
in S&L Tax
S&L Tax

Pay Less State & Local Tax
Average
Number of Total Change
Change in
Taxpayers
in S&L Tax
S&L Tax

All
Net Change in
S&L Tax

18,955

277

9,484,903

34,242

14

(4,428)

(316)

9,480,475

0 to 25,000

733,393

184,385

51,082,217

277

11,331

(913,979)

(81)

50,168,237

25,000 to 50,000

448,362

149,505

92,558,650

619

24,794

(3,150,400)

(127)

89,408,250

50,000 to 75,000

224,013

153,233

98,305,399

642

21,730

(4,402,514)

(203)

93,902,885

75,000 to 100,000

135,756

125,322

83,993,144

670

14,984

(4,348,859)

(290)

79,644,285

100,000 to 150,000

126,917

174,947

122,680,822

701

14,125

(5,524,294)

(391)

117,156,528

150,000 to 250,000

79,572

121,491

96,047,773

791

9,170

(5,482,748)

(598)

90,565,025

250,000 to 500,000

15,830

43,356

51,524,374

1,188

13,422

(4,130,296)

(308)

47,394,078

500,000 to 1,000,000

414

11,093

27,028,736

2,437

5,717

(3,128,571)

(547)

23,900,165

Greater than $1M

182

4,400

68,315,307

15,526

3,202

(11,089,480)

(3,463)

57,225,827

1,783,394

968,009

701,021,324

724

118,489

(42,175,570)

(356)

658,845,754

Total

Effects of the Federal Tax Law on the State of Maryland

Page 18 of 41

Table 9b is a breakdown by impact for Maryland residents, assuming all 333,552
prioritize their combined federal and state and local income taxes. Approximately 219,403
move into the “No Change” category with the others paying more or less for another item.
Under this scenario, the State would collect $300 million more in combined State and local
taxes, $193 million more for the general fund, and $107 million more in local income taxes.
Table 9b. Maryland Resident - State & Local Tax Impact - Assumes 100% Favor Impact of Fed&State&Local Combined
Tax Year 2014
No Change
Federal Adjusted Gross
Income Class
0 or less

Number of
Taxpayers

Pay More State & Local Tax
Average
Number of Total Change
Change in
Taxpayers
in S&L Tax
S&L Tax

Pay Less State & Local Tax
Average
Number of Total Change
Change in
Taxpayers
in S&L Tax
S&L Tax

All
Net Change in
S&L Tax

18,955

277

9,484,903

34,242

14

(4,428)

(316)

9,480,475

0 to 25,000

737,975

179,803

46,043,215

256

11,331

(913,979)

(81)

45,129,236

25,000 to 50,000

470,657

127,210

62,463,259

491

24,794

(3,150,400)

(127)

59,312,859

50,000 to 75,000

258,683

118,563

47,832,019

403

21,730

(4,402,514)

(203)

43,429,506

75,000 to 100,000

174,528

86,550

23,381,690

270

14,984

(4,348,859)

(290)

19,032,830

100,000 to 150,000

193,213

108,651

11,218,248

103

14,125

(5,524,294)

(391)

5,693,954

150,000 to 250,000

122,043

79,020

20,663,489

261

9,170

(5,482,748)

(598)

15,180,741

250,000 to 500,000

25,086

34,100

31,003,633

909

13,422

(4,130,296)

(308)

26,873,337

1,366

10,141

22,931,977

2,261

5,717

(3,128,571)

(547)

19,803,406

291

4,291

67,531,068

15,738

3,202

(11,089,480)

(3,463)

56,441,588

2,002,797

748,606

342,553,502

458

118,489

(42,175,570)

(356)

300,377,932

500,000 to 1,000,000
Greater than $1M
Total

Exemptions
The most significant flow-through revenue impact could come from the loss of the
federal exemption. Maryland is coupled to federal statute. The uncertainty of the manner in
which the existing State coupling language will interact with the TCJA leaves the status of the
State exemption ambiguous. Our estimates assumed the State’s exemptions remain intact. For
such a significant tax impact, it would be beneficial to ensure an explicit interpretation of the
State’s policy. The State’s exemption for fiduciaries is explicit and therefore not impacted by the
TCJA.
Maryland Tax General Section 10-211 reads:

There are two schools of thought surrounding the federal exemption as enacted in
TCJA. First, some believe that the TCJA does not eliminate the federal exemption and instead
sets the amount to zero until tax year 2026. This interpretation of TCJA would not conflict with
current Maryland statute, which states “the individual may deduct in the taxable year to
determine federal taxable income.” The second interpretation is that no exemption exists under
TCJA because mathematically, while a taxpayer can deduct zero from any number, there would

Effects of the Federal Tax Law on the State of Maryland

Page 19 of 41

be no actual deduction. This would also impact Maryland’s “special” exemptions for filers or
dependents that are over the age of 64 or blind.
These conflicting interpretations underscore the need for legislative clarification at the
state level. The ambiguous nature surrounding the federal deduction has vast implication on
Marylanders. For example, in our simulation, the federal exemption impacted 90% of Maryland
resident tax returns and saved taxpayers approximately $490 million in State taxes and $310
million in local taxes. Table 10a below shows exemptions claimed on Maryland resident tax
returns from tax year 2014:
Table 10a. Impact - State and Local Personal Exemptions
Tax Year 2014
Regular Exemptions

Federal Adjusted Gross
Income Class
0 or less

Number of
Taxpayers

Total Exempted
Income

Average
Exempted
Amount

Special Exemptions

Total State &
Local Tax
Savings

Average
State &
Local Tax
Savings (1)

Number of
Taxpayers

Total Exempted
Income

Average
Exempted
Amount

Total State &
Local Tax
Savings

Average
State &
Local Tax
Savings (1)

16,880

98,978,600

5,864

76,256

465

5,408

7,258,000

1,342

2,453

91

1,395,962

7,735,079,864

5,541

230,884,006

301

194,055

240,040,669

1,237

6,336,819

79

50,000 to 100,000

674,394

4,299,154,341

6,375

316,027,707

479

130,398

174,200,939

1,336

11,449,228

96

100,000 to 250,000

442,668

2,882,013,650

6,511

218,604,813

496

93,409

141,202,637

1,512

10,566,325

115

0 to 50,000

250,000 to 500,000

-

-

-

-

-

6,161

10,035,311

1,629

769,167

125

500,000 to 1,000,000

-

-

-

-

-

1,703

2,674,624

1,571

202,938

119

Greater than $1M

-

-

-

-

-

1,056

1,633,972

1,547

120,185

114

432,190

577,046,151

1,335

29,447,114

98

Total

2,529,904

15,015,226,455

5,935

765,592,783

410

Notes:
(1) For many, particularly in the lower brackets, lost exemption amounts would be offset by currently unused earned income credits. After taking unused credits into account, only 1.9 million
taxpayers are actually impacted by lost regular State exemptions. Almost 300,000 are impacted by the special exemptions. The average dollar amounts in the table are amended to only
account for those that are impacted.

Table 10b shows the State revenue impact by fiscal year if the State’s exemptions are
eliminated:
Table 10b. Revenue Impact - Lost Personal Exemptions
Dollars in Thousands

Item

Fiscal Year
2018

Fiscal Year
2019

Fiscal Year
2020

Fiscal Year
2021

Fiscal Year
2022

Fiscal Year
2023
475,803

Regular State Personal Exemptions

-

699,025

468,736

471,080

473,436

Special State Personal Exemptions

-

30,479

20,747

21,121

21,501

21,888

-

729,504

489,483

492,201

494,937

497,691

Regular Local Personal Exemptions

-

469,495

314,823

316,397

317,979

319,569

Special Local Personal Exemptions

-

20,607

14,027

14,280

14,537

14,798

-

490,102

328,850

330,677

332,516

334,367

-

1,219,606

818,333

822,878

827,453

832,058

Subtotal - State Fiscal Impact

Subtotal - Local Fiscal Impact
Total - Combined Impact for Taxpayer

Notes:
(1) Majority of exemption dollars are claimed through withholding and are therefore dependent on the State's withholding tables.
The withholding tables for tax year 2018 have not been changed; any changes are pending clarification from the 2018 Legislative
Session. This impacts timing, and shifts the cost of lost exemptions for tax year 2018 into early 2019 with the filing of tax returns.

Effects of the Federal Tax Law on the State of Maryland

Page 20 of 41

Itemized Deductions (Shift to State Standard Deduction)
Prior to the TCJA, the federal standard deduction was $6,350 for taxpayers filing as
single and $12,700 for those filing as married-filing jointly. Unlike the Maryland standard
deduction, the federal standard deduction is indexed to inflation so as to not annually reduce its
value and, in effect, raise taxes. There is also an additional standard deduction permitted for an
individual that is blind or elderly.
The TJCA increases the federal standard deduction to $24,000 for married individuals
filing a joint return, $18,000 for head-of-household filers, and $12,000 for all other individuals.
Those amounts are indexed for inflation. The increased amounts expire after tax year 2025, at
which point they will revert to tax year 2017 amounts.
Maryland statute is clear that a taxpayer may only itemize their deductions in Maryland if
they did so at the federal level. Maryland Tax General Section 10-218 reads:

As the federal standard deduction becomes more valuable and other provisions reduce
or eliminate certain components of pre-existing itemized deductions, more Maryland taxpayers
will take the federal standard deduction. This will force these taxpayers into the State’s
standard deduction which is not indexed and is capped at $4,000 for married individuals and
$2,000 for individuals.
Table 11a (next page) illustrates the impact to Maryland taxpayers if they were to
choose their deduction method solely based on their federal tax. In general, the only major
provisions that might increase a Maryland deduction are the temporary increase in medical
deductions and the removal of the limitation on overall deductions (Pease limitation).

Effects of the Federal Tax Law on the State of Maryland

Page 21 of 41

Table 11a. Impact to Maryland Deductions -- All Changes -- Assumes Preferred Federal Tax Reduction
Tax Year 2014
Taxpayers Positively Impacted

Federal Adjusted
Gross Income Class
0 or less

Number of
Taxpayers

Total Deduction
Impact

Average
Deduction
Change

Taxpayers Negatively Impacted

Estimated
Exclusive
State Tax
Impact

Estimated
Exclusive
Local Tax
Impact

Number of
Taxpayers

Total Deduction
Impact

Estimated
Exclusive
State Tax
Impact

Average
Deduction
Change

Estimated
Exclusive
Local Tax
Impact

308

2,204,873

7,159

(7,333)

(1,244)

176

(2,079,066)

(11,813)

6,915

1,173

0 to 25,000

77,567

35,542,193

458

(1,474,630)

(759,103)

109,125

(372,237,847)

(3,411)

15,443,983

7,950,181

25,000 to 50,000

44,497

51,366,029

1,154

(2,285,788)

(1,476,600)

174,333

(1,328,055,490)

(7,618)

59,098,469

38,177,113

50,000 to 75,000

30,486

49,441,279

1,622

(2,339,194)

(1,483,238)

156,226

(1,247,475,851)

(7,985)

59,021,298

37,424,276

75,000 to 100,000

21,616

43,417,327

2,009

(2,062,268)

(1,302,520)

126,665

(1,054,042,167)

(8,321)

50,065,661

31,621,265

100,000 to 150,000

19,356

55,593,140

2,872

(2,731,769)

(1,667,794)

173,939

(1,527,135,599)

(8,780)

75,041,290

45,814,068

150,000 to 250,000

11,273

53,780,746

4,771

(2,804,487)

(1,613,422)

115,325

(1,104,010,204)

(9,573)

57,570,469

33,120,306

250,000 to 500,000

17,268

44,116,717

2,555

(2,425,680)

(1,323,501)

40,589

(469,072,302)

(11,557)

25,791,117

14,072,169

500,000 to 1,000,000

6,239

36,691,514

5,881

(2,086,974)

(1,100,745)

10,596

(185,110,813)

(17,470)

10,528,904

5,553,324

Greater than $1M

3,585

154,396,369

43,067

(8,855,340)

(4,631,891)

4,001

(361,021,309)

(90,233)

20,706,229

10,830,639

232,195

526,550,188

2,268

(27,073,464)

(15,360,059)

910,975

(7,650,240,647)

(8,398)

373,274,335

224,564,515

Total

Notes: (1) 1.7 million Marylanders have no change in their deduction

It is important to note here that we have assumed that, with regard to the $10,000 cap
on State and local taxes, taxpayers will prioritize their real estate taxes because they already do
not receive a benefit on the Maryland return for income taxes paid.
Assuming all taxpayers prioritize reducing federal tax liability, as opposed to limiting
State-local liability or combined federal-State-local liability, 700,198 taxpayers would be forced
from Maryland’s itemized deduction into Maryland’s standard deduction. The shifting between
deduction types is sure to create a dynamic impact for charitable contributions. It is worth noting
that of those shifting, 574,415 made charitable contributions totaling $1.5 billion.
Table 11b below summarizes that impact:
Table 11b. Impact to Maryland Deductions -- Shifting -- Assumes Preferred Federal Tax Reduction
Tax Year 2014
Taxpayers Switching From Itemized to Standard

Federal Adjusted Gross
Income Class
0 or less

Number of
Taxpayers

Total Deduction
Impact

Average
Deduction
Change

Estimated
Exclusive
State Tax
Impact

Deducting Charitable Contribution
Estimated
Exclusive
Local Tax
Impact

Number of
Taxpayers

Total Deducted
Amount

Average
Deducted
Amount

2,088

(1,241,129)

(594)

4,128

700

154

487,512

3,166

62,550

(365,658,970)

(5,846)

15,171,028

7,809,671

37,249

77,372,782

2,077

25,000 to 50,000

146,798

(1,261,385,492)

(8,593)

56,131,654

36,260,576

113,881

302,570,221

2,657

50,000 to 75,000

130,334

(1,112,275,958)

(8,534)

52,624,643

33,368,279

107,369

291,222,044

2,712

75,000 to 100,000

102,877

(914,084,921)

(8,885)

43,417,870

27,422,548

86,937

227,106,900

2,612

100,000 to 150,000

139,462

(1,291,046,110)

(9,257)

63,440,185

38,731,383

122,139

298,293,751

2,442

150,000 to 250,000

86,820

(879,381,630)

(10,129)

45,856,834

26,381,449

79,273

213,304,563

2,691

250,000 to 500,000

24,264

(311,717,591)

(12,847)

17,139,245

9,351,528

22,713

71,745,072

3,159

4,047

(74,731,940)

(18,466)

4,250,672

2,241,958

3,807

13,055,854

3,429

958

(56,906,590)

(59,401)

3,263,854

1,707,198

893

3,716,463

4,162

700,198

(6,268,430,332)

(8,952.37) 301,300,114

183,275,289

574,415

1,498,875,162

2,609

0 to 25,000

500,000 to 1,000,000
Greater than $1M
Total

However, we cannot assume that all taxpayers will prioritize their federal tax. Table 11c,
on the next page, is a summary of the impact if taxpayers were to minimize the combined
federal-State-local liability but pay more in federal tax. If all taxpayers were to follow that

Effects of the Federal Tax Law on the State of Maryland

Page 22 of 41

strategy, they would pay an estimated $143 million more in federal tax in order to pay $358
million less in State and local income taxes ($223 million less in State and $135 million less in
local). The amounts in Table 11c would offset amounts in Table 11b. While not all will weigh
their net impact, some surely will.
Table 11c. Taxpayers That May Elect to Pay More Federal Taxes to Minimize All Taxes
Tax Year 2014

Federal Adjusted Gross
Income Class

Number of
Taxpayers

0 or less

Average
Deduction
Change

Total Deduction
Impact

Estimated
Exclusive
State Tax
Impact

Estimated
Exclusive
Local Tax
Impact

10

130,656

13,066

9,953

80,178,412

8,056

(3,326,567)

(1,712,434)

25,000 to 50,000

42,936

410,877,511

9,570

(18,284,049)

(11,811,342)

50,000 to 75,000

58,557

652,848,227

11,149

(30,887,933)

(19,585,447)

75,000 to 100,000

57,162

782,096,134

13,682

(37,148,570)

(23,462,884)

100,000 to 150,000

90,704

1,408,447,810

15,528

(69,209,139)

(42,253,434)

150,000 to 250,000

56,266

917,678,987

16,310

(47,853,914)

(27,530,370)

250,000 to 500,000

14,625

241,468,078

16,511

(13,276,698)

(7,244,042)

2,804

47,154,804

16,817

(2,682,115)

(1,414,644)

535

8,977,650

16,781

(514,909)

(269,330)

333,552

4,549,858,270

13,641

0 to 25,000

500,000 to 1,000,000
Greater than $1M
Total

-

-

(223,183,895) (135,283,927)

Analyzing which taxes a taxpayer will prioritize presents challenges as the calculations
of both federal and State taxes feed into each other. The remainder of the tables that detail
isolated impacts from various changes to itemized deductions assume that all taxpayers
prioritize their federal tax bills. One method had to be chosen, as the analysis gets circular if
certain components are isolated. This approach provides the most information for decision
makers. Table 11d details specific deductions that would be increased relative to the tables for
individual provisions (following this section) should some share of those 333,552 taxpayers elect
to itemize. While not affecting the table below, it is worth noting that 86% of the 333,552
taxpayers had charitable contributions totaling $846 million.
Table 11d. Taxpayers That May Elect to Pay More Federal Taxes to Minimize All Taxes -- Offsets
Tax Year 2014
Total

Federal Adjusted Gross
Income Class
0 or less

Real Estate Taxes Over $10k

Number of
Taxpayers

-

Real Estate
Taxes Lost
Over $10k
-

State & Local
Tax Impact

Number of
Taxpayers

Number of
Taxpayers

Total Misc
Deductions

State & Local
Tax Impact

-

-

6

46,025

179

94,457

5,936

2,151

6,765,805

425,213

1,084,146

79,410

66

470,378

34,454

11,106

59,744,779

4,376,103

2,002,049

154,784

64

577,387

44,639

14,639

87,136,869

6,736,776

517

2,378,655

184,343

43

994,414

77,066

11,744

71,529,554

5,543,449

90,704

1,171

4,254,268

336,677

70

1,021,490

80,839

17,285

109,122,699

8,635,817

150,000 to 250,000

56,266

2,005

7,594,817

623,889

30

818,113

67,205

9,060

67,671,670

5,559,003

250,000 to 500,000

14,625

2,353

12,998,464

1,104,652

46

2,837,903

241,174

2,170

22,131,925

1,880,843

2,804

1,166

9,294,295

807,478

14

1,873,082

162,731

444

7,509,926

652,454

535

258

6,273,018

547,977

14

8,181,853

714,722

80

1,959,509

171,172

333,552

8,255

46,349,192

3,868,715

364

16,869,077

1,428,768

68,685

433,618,761

33,981,010

84

469,480

25,000 to 50,000

42,936

274

50,000 to 75,000

58,557

427

75,000 to 100,000

57,162

100,000 to 150,000

500,000 to 1,000,000
Greater than $1M
Total

Effects of the Federal Tax Law on the State of Maryland

-

State & Local
Tax Impact

17

9,953

-

Total C&T
Losses

Misellanous Deductions

29,506

0 to 25,000

10

Number of
Taxpayers

Personal Casualty & Theft Losses

Page 23 of 41

Itemized Deductions ($10,000 Cap on State and Local Taxes)
The TCJA limits the amount of SALT that can be included in itemized deductions to
$10,000. For federal purposes, SALT includes income taxes as well as property taxes.
Maryland, under Tax General Section 10-218 (b)(3), has always required taxpayers to add back
their State and local income taxes, therefore only allowing the deduction for property taxes.
It remains unclear how the federal government will choose to administer this new cap.
We assume that they will maintain the pre-existing reporting requirement (taxpayer notes full
amounts) and then a summary line that limits the total to $10,000. If that is the case, then a
Maryland taxpayer would want to define every dollar possible up to the cap as property taxes
which would ensure that they limit the federal tax added back for Maryland tax purposes.
Of those taxpayers that would still itemize their deductions, 56,885 would be limited by
the federal cap for Maryland purposes. This would subject $562 million more in income to State
and local income taxes, generating approximately $31 million for the State and $17 million for
local governments. It is worth noting that these amounts are prior to the property tax rate
increase in Montgomery County.
Table 12. Real Estate Taxes Exceeding the $10K Cap
Tax Year 2014

Federal Adjusted Gross
Income Class

Number of
Taxpayers

Total Amount
Over Cap

Average
Amount Over
Cap

Estimated
Exclusive
State Tax
Impact

Estimated
Exclusive
Local Tax
Impact

0 or less

482

5,625,952

11,672

18,712

3,173

0 to 25,000

711

5,956,922

8,378

247,150

127,227

25,000 to 50,000

1,510

7,904,809

5,235

351,764

227,237

50,000 to 75,000

2,428

14,588,990

6,009

690,243

437,670

75,000 to 100,000

3,071

13,598,305

4,428

645,902

407,949

100,000 to 150,000

6,553

27,545,812

4,204

1,353,562

826,374

150,000 to 250,000

11,813

50,825,270

4,302

2,650,369

1,524,758

250,000 to 500,000

16,314

101,525,132

6,223

5,582,181

3,045,754

500,000 to 1,000,000

9,064

98,584,163

10,876

5,607,361

2,957,525

Greater than $1M

4,939

235,394,297

47,660

13,500,943

7,061,829

56,885

561,549,652

9,872

30,648,188

16,619,495

Total

Other Technical Considerations: Maryland Tax General Section 10-218 (b)(3) requires
taxpayers to addback the State and local taxes “claimed.” This addback only applies to income
taxes; it does not include other State and local taxes (i.e., property taxes). We do not know how
the IRS will administer the $10,000 cap. We assume that they will require a taxpayer to report
all of their State and local taxes and have a subsequent field that limits the amount. For
example, a taxpayer is required to report $14,000 in State and local income taxes and $12,000
in property taxes. The federal form limits the deduction to $10,000; that is the only amount of
deduction that concerns the federal government. However, the taxpayer has technically

Effects of the Federal Tax Law on the State of Maryland

Page 24 of 41

claimed $14,000. Under this scenario, it would benefit the taxpayer to describe their $10,000
cap as being fully composed of property taxes; technically, they would not have an addback.
Whether or not they would addback the $14,000 seems clearly to violate the intent of the
Maryland statute, but the TCJA and possible federal application of that law leave the wording of
Maryland statute ambiguous.

Itemized Deductions (Interest for Home Acquisition and Home Equity Debt)
The TCJA reduces the amount of interest that can be deducted for home indebtedness.
Prior law permitted taxpayers to deduct interest paid for home acquisition loans up to $1.0
million of indebtedness; that threshold is reduced to $750,000 for indebtedness incurred
between tax years 2018 and 2025. After 2025, the threshold is restored to $1.0 million,
regardless of date of occurrence. For homes with indebtedness larger than the thresholds, the
amount of interest that can be deducted is the total paid multiplied by a factor of the threshold
divided by the average indebtedness for that year. All of the above indebtedness provisions
exclude related debt incurred prior to October 12, 1987; that debt is grandfathered in with no
limitation.
Interest for the indebtedness of a second home is also deductible if that home is not
rented out or if the taxpayer uses that home for the larger of the following: 14 days or 10% of the
days that the property is rented out at fair-market value. The combined indebtedness for the
principal residence and the second home, assuming they meet the prior requirements, are
capped by the aforementioned thresholds.
Reduced home related interest deducted will increase State and local income tax
revenues. We do not have data to simulate the revenue impact as we have for other provisions.
Only total interest is reported on tax returns. Hypothetical taxpayer impact examples are
provided below. Under those scenarios, taxpayers that would have already been limited (above
$1M) would see a federal tax increase of $4,000 and a State and local tax increase of $1,000.
For those between the new and old thresholds, the increases in taxes are smaller. It is worth
noting that this does reduce the value of a housing incentive; dynamic impacts to house prices
for this provision will likely be minimal, except for those between the thresholds.

Effects of the Federal Tax Law on the State of Maryland

Page 25 of 41

Table 13a. Revenue Impact Example - $750k Mortgage Indebtedness Cap
Taxpayer A

Taxpayer B

Taxpayer C

Item

$1M Cap

$750k Cap

$1M Cap

$750k Cap

(a) Mortgage Indebtedness

1,332,825

1,332,825

7,000,000

7,000,000

(b) Threshold

1,000,000

750,000

1,000,000

750,000

1,000,000

750,000

62,000

62,000

331,000

331,000

41,000

41,000

(c) Interest Paid
(d) Ratio - If above threshold ((b)/(a))

75.0%

(e) Deductable Interest ((c)*(d))

56.3%

14.3%

$1M Cap
850,000

10.7%

100.0%

$750k Cap
850,000

88.2%

46,518

34,888

47,286

35,464

41,000

36,176

(f) Federal Cap Tax Increase ((c)-(e))*32%

5,109

8,947

93,626

97,527

-

1,592

(g) S&L Cap Tax Increase ((c)-(e))*8.5%

1,316

2,304

24,116

25,121

-

410

To complement the above and estimate the tax impact, the Maryland Department of
Assessments and Taxation provided the quantity and value of home sales over $1 million. The
assumption is that taxpayers would put down roughly 20%, especially in this low interest rate
environment, therefore subjecting those homes to the cap. We found a relatively stable volume
and average price for applicable home sales between 2015 and 2017.

In general, approximately 1,700 home transactions occur annually in Maryland for an
average of $1.5 million. We inflated that number by 10% annually to account for homes owned
that are outside of Maryland as well as to support the fact that second homes can sum to the
total threshold. Each year, the revenue gain gets larger; for example, a new $1 million home
purchase is impacted in 2018 and then again in 2019, while new transactions come on board.
The tax impact pyramids, though we do have each succeeding year diminishing by 10% as
homes are re-sold and principal is reduced. See Tables 13b (below) and 13c (next page) with
assumptions and estimated revenue impacts for the federal tax and combined State and local
taxes increases.

Table 13b. Federal Tax Revenue Impact - $750 Thousand Mortgage Indebtedness Cap
Dollars in Thousands

Base Assumptions

Tax
Year

Cumulative Tax Increase

Count of Average Annual
Impacted Increase
Tax
Taxpayers in Tax Increase

Tax Year
2018 Tax
Increase

Tax Year
2019 Tax
Increase

Tax Year
2020 Tax
Increase

Tax Year
2021 Tax
Increase

Tax Year
2022 Tax
Increase

2018

1,870

3.500

6,545

6,545

5,891

5,301

4,771

4,294

2019

1,870

3.500

6,545

-

6,545

5,891

5,301

4,771

2020

1,870

3.500

6,545

-

-

6,545

5,891

5,301

2021

1,870

3.500

6,545

-

-

-

6,545

5,891

2022

1,870

3.500

6,545

-

-

-

-

6,545

6,545

12,436

17,737

22,508

26,802

Total

Effects of the Federal Tax Law on the State of Maryland

Page 26 of 41

Table 13c. State & Local Tax Revenue Impact - $750 Thousand Mortgage Indebtedness Cap
Dollars in Thousands

Base Assumptions

Tax
Year

Cumulative Tax Increase

Count of Average Annual
Impacted Increase
Tax
Taxpayers in Tax Increase

Tax Year
2018 Tax
Increase

Tax Year
2019 Tax
Increase

Tax Year
2020 Tax
Increase

Tax Year
2021 Tax
Increase

Tax Year
2022 Tax
Increase

2018

1,870

0.750

1,403

1,403

1,262

1,136

1,022

920

2019

1,870

0.750

1,403

-

1,403

1,262

1,136

1,022

2020

1,870

0.750

1,403

-

-

1,403

1,262

1,136

2021

1,870

0.750

1,403

-

-

-

1,403

1,262

2022

1,870

0.750

1,403

-

-

-

-

1,403

1,403

2,665

3,801

4,823

5,743

Total

Home equity indebtedness, including home equity lines of credit (HELOC), was limited to
$100,000. Under TCJA, that deduction is eliminated. This provision also applies only to tax
years 2018 through 2025. A survey of consumer finances by the Federal Reserve Board finds
that, nationally, 4.4% of households have an open HELOC for an average balance of
approximately $50,000. Applying these statistics to Maryland’s households, assuming a 5.5%
interest rate and that 90% of those households itemize their deductions, results in $217.8 million
in lost itemized deductions. See Tables 13d and 13e for estimated revenue impacts for the
federal tax and combined State and local tax increases.
Table 13d. Federal - Eliminate Deduction For HELOC Interest
Dollars in Thousands
Tax Year
Tax Year
Tax Year
Tax Year
Tax Year
2018
2019
2020
2021
2022
Tax Increase Tax Increase Tax Increase Tax Increase Tax Increase
Total

65,340

65,340

65,340

65,340

65,340

Table 13e. State & Local - Eliminate Deduction For HELOC Interest
Dollars in Thousands
Tax Year
Tax Year
Tax Year
Tax Year
Tax Year
2018
2019
2020
2021
2022
Tax Increase Tax Increase Tax Increase Tax Increase Tax Increase
Total

17,424

17,424

17,424

Effects of the Federal Tax Law on the State of Maryland

17,424

17,424

Page 27 of 41

The total general fund impact for this section is as follows:
Table 13f. General Fund Revenue Impact
$750k Indebtedness Cap & Eliminated HELOC Interest
Dollars in Thousands
Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year
2018
2019
2020
2021
2022
2023
750k
HELOC

-

1,339
12,251

1,908
10,890

2,625
10,890

3,270
10,890

3,894
10,890

Total

-

13,590

12,798

13,515

14,160

14,784

Itemized Deductions (Temporary Enhancement for Medical Expenses)
Under prior law, taxpayers could deduct unreimbursed medical expenses to the extent
that those expenses exceeded 10% of adjusted gross income. For tax years 2016 and prior,
taxpayers with either the primary or secondary filer aged 65 or older could deduct to the extent
that those expenses exceeded 7.5% of adjusted gross income.
The TCJA temporarily expands the 7.5% threshold to all taxpayers for tax years 2017
and 2018. The temporarily reduced floor will result in a tax cut for both federal and State and
local taxes for those tax years. Table 14 (next page) is a summary of the amount by which those
deductions would have increased in tax year 2014.
Table 14. Enhancement of Threshold for Medical Expenses
Tax Year 2014

Federal Adjusted Gross
Income Class
0 or less

Number of
Taxpayers
2,320

Total Increase
in Deductions
(2,504,238)

Average
Deduction
Increase
(1,079)

Estimated
Exclusive
State Tax
Impact
130,539

Estimated
Exclusive
Local Tax
Impact
75,127

0 to 50,000

91,410

41,455,758

454

(1,802,491)

(1,138,479)

50,000 to 100,000

77,785

73,051,972

939

(3,426,131)

(2,070,795)

100,000 to 250,000

37,183

55,637,010

1,496

(2,960,639)

(1,669,110)

250,000 to 500,000

1,879

13,046,308

6,943

(736,690)

(391,389)

226

3,745,408

16,573

(215,093)

(112,362)

61

4,097,322

67,169

(235,596)

(122,920)

210,864

188,529,539

894

(9,246,102)

(5,429,928)

500,000 to 1,000,000
Greater than $1M
Total

Effects of the Federal Tax Law on the State of Maryland

Page 28 of 41

Itemized Deductions (Increased Limitation for Charitable Contributions)
Under prior law, there were various caps, limitations, and rules regarding different forms
of charitable contributions (e.g., cash, capital gain property); those caps differed based on the
type of charity or foundation.
In general, under the TCJA, much of that complexity remains, though three substantive
changes have been made:
1. The limitation on cash contributions to most charitable organizations is increased
from 50% of adjusted gross income to 60%;
2. A donation made in exchange for college athletic seating rights is no longer
considered a charitable contribution; and
3. Certain substantiation requirements for the charitable organizations themselves have
been simplified.
Items 1 and 2 will directly impact State and local tax revenues, though the impact will be
minimal in the aggregate. We do not have data on the amount of contributions that are over the
current threshold, nor do we have data on how much is donated for college seating rights.
We know that very few taxpayers are currently bumping up against the current 50%
threshold, and we assume that the amount donate for college seating rights is minimal. In tax
year 2014, more than 1.1 million Marylanders deducted just over $5.3 billion in charitable
contributions. Only 0.3% of those making contributions were at or above the current threshold.
Table 15 illustrates the number of donations by the share of that donation relative to
income.
Table 15. 2014 Frequency Distribution of Charitable Deductions
Share of Contribution Relative to Income

Charitable Contribution as a Share of
Federal Adjusted Gross Income
Negative AGI

Number of Cumulative
Taxpayers
Share
609

0.1%

>0% and <1%

355,742

30.6%

>=1% and <25%

780,755

97.5%

>=25% and <40%

18,264

99.1%

>=40% and <50%

6,926

99.7%

>=50% and <75%

2,412

99.9%

>=75% and <100%

476

99.9%

>=100%

829
-

100.0%

Total

Effects of the Federal Tax Law on the State of Maryland

1,166,013

Page 29 of 41

Itemized Deductions (Personal Casualty and Theft Losses)
Under prior law, a taxpayer could claim a deduction for property lost or stolen for which
the taxpayer was not compensated by an insurer. This generally included personal property
with a value greater than $100 or property of a pass-through business. The losses were only
deductible to the extent that they exceeded 10% of federally adjusted gross income.
The TCJA eliminates the deduction for all losses except for those attributable to a
disaster declared by the President. This limitation is in effect for tax years 2018 through 2025.
For purposes of our estimate, we have assumed that all losses reported by our taxpayers did
not occur in disaster areas. Table 16 is a summary of the amounts that were deducted in tax
year 2014:
Table 16. Repeal of Most Personal Casualty & Theft Losses
Tax Year 2014

Federal Adjusted Gross
Income Class
0 or less

Number of
Taxpayers

Total Lost
Deductions

Average Lost
Deduction

Estimated
Exclusive
State Tax
Impact

Estimated
Exclusive
Local Tax
Impact

21

367,676

17,508

19,166

11,030

0 to 50,000

700

6,932,164

9,903

301,410

190,375

50,000 to 100,000

583

9,383,630

16,095

440,091

265,997

100,000 to 250,000

439

8,906,741

20,289

473,959

267,202

250,000 to 500,000

257

12,561,985

48,879

709,342

376,860

500,000 to 1,000,000

120

12,935,628

107,797

742,872

388,069

96

122,697,505

1,278,099

7,055,107

3,680,925

2,216

173,785,329

78,423

9,741,946

5,180,457

Greater than $1M
Total

Itemized Deductions (Miscellaneous Deductions Subject to 2% Floor)
Prior law permitted a deduction for myriad miscellaneous expenses that generally relate
to the production or collection of income. Those deductions were permitted to the extent that
they exceeded 2% of federally adjusted gross income. Examples of these types of deductions
include expenses for: investment fees and expenses; appraisal fees for charitable contributions;
tax preparation fees; unreimbursed dues to professional societies; job search expenses.
The TCJA eliminates the deduction for tax years 2018 through 2025. Table 17 (next
page) is a summary of the amounts that were deducted in tax year 2014.

Effects of the Federal Tax Law on the State of Maryland

Page 30 of 41

Table 17. Repeal of Miscellaneous Deductions Subject to 2% Floor
Tax Year 2014

Federal Adjusted Gross
Income Class
0 or less

Number of
Taxpayers

Total Lost
Deductions

Average Lost
Deduction

Estimated
Exclusive
State Tax
Impact

Estimated
Exclusive
Local Tax
Impact

2,036

12,722,688

6,249

663,197

381,681

0 to 50,000

122,371

928,590,467

7,588

40,375,004

25,501,416

50,000 to 100,000

121,620

874,091,100

7,187

40,994,800

24,777,751

100,000 to 250,000

97,535

736,790,086

7,554

39,207,171

22,103,703

250,000 to 500,000

11,503

133,134,150

11,574

7,517,729

3,994,025

500,000 to 1,000,000

2,922

61,961,739

21,205

3,558,360

1,858,852

Greater than $1M

1,486

125,853,844

84,693

7,236,596

3,775,615

359,473

2,873,144,074

7,993

139,552,857

82,393,042

Total

Itemized Deductions (Overall Limitation “Pease Limitation”)
Prior law limited the aggregate amount of most itemized deductions allowed to $313,000
(married-filing-joint) and $261,000 (single). Other filing statuses had similar thresholds. While
calculations for the limitation did not apply to all components, it did include the most substantive
provisions, including: mortgage interest; property taxes; state and local income taxes; and
charitable contributions. The forced reduction to itemized deductions was the lesser of 3% of
income over the threshold or 80% of the pre-limited applicable deductions.
The TCJA eliminates the limitation for tax years 2018 through 2025. Table 18 is a
summary of the amount that those deductions would have increased in tax year 2014.
Table 18. Repeal of Limitation on Itemized Deductions
Tax Year 2014

Federal Adjusted Gross
Income Class

Average
Deduction
Increase

Estimated
Exclusive
State Tax
Impact

Estimated
Exclusive
Local Tax
Impact

Number of
Taxpayers

Total Increase
in Deductions

0 or less

21

452,956

21,569

(23,611)

(13,589)

0 to 50,000

12

120,078

10,006

(5,221)

(3,298)

50,000 to 100,000

16

156,762

9,798

(7,352)

(4,444)

100,000 to 250,000

1,689

2,141,562

1,268

(113,960)

(64,247)

250,000 to 500,000

36,194

81,278,718

2,246

(4,589,591)

(2,438,362)

500,000 to 1,000,000

16,780

181,214,562

10,799

(10,406,853)

(5,436,437)

7,568

389,108,576

51,415

(22,373,743)

(11,673,257)

62,280

654,473,213

10,509

(37,520,332)

(19,633,633)

Greater than $1M
Total

Effects of the Federal Tax Law on the State of Maryland

Page 31 of 41

Adjusted Gross Income (Moving Expenses)
Prior law effectively permitted a taxpayer to exclude most moving expenses related to
changing a job. This was accomplished through two mechanisms: (1) an exclusion from income
of any reimbursements from a taxpayer’s employer for moving expenses paid by the taxpayer;
or (2) a deduction from income of any expenses not reimbursed by the employer, providing
those expenses met certain conditions.
Except for members of the Armed Forces, the TCJA repeals the exclusion and the
deduction for all taxpayers. The repeals are in effect from tax year 2018 through tax year 2025.
We do not have data on the amount of income that has been excluded; however, we believe it
to be minimal in the aggregate. Table 19 shows the amount of income excluded from taxation
through the deduction.
Table 19. Moving Expenses Deduction from Income
Tax Year 2014

Federal Adjusted Gross
Income Class
0 or less

Estimated
Exclusive
State Tax
Impact

Estimated
Exclusive
Local Tax
Impact

Number of
Taxpayers

Total Lost
Deductions

Average Lost
Deduction

146

736,454

5,044

7,365

3,682

0 to 25,000

4,726

9,840,638

2,082

344,422

196,813

25,000 to 50,000

7,344

16,200,096

2,206

745,204

453,603

50,000 to 75,000

5,647

15,860,965

2,809

753,396

475,829

75,000 to 100,000

3,798

13,077,694

3,443

620,763

392,331

100,000 to 150,000

3,961

16,211,666

4,093

775,481

486,350

150,000 to 250,000

2,750

14,092,977

5,125

723,646

422,789

250,000 to 500,000

915

5,972,973

6,528

320,223

179,189

500,000 to 1,000,000

162

1,735,232

10,711

95,438

52,057

30

523,744

17,458

28,806

15,712

Greater than $1M
Total

29,479

94,252,439

3,197

4,414,745

2,678,355

Adjusted Gross Income (Alimony)
Under prior law, alimony payments from the payor were deductible, with the payee
including those payments as income. The TCJA flips the relationship, specifying that the
income must be included for taxation by the payor, rather than the payee. The new provision
applies to divorce or separation instruments executed or modified after 2018. The intent of the
provision is to conform to the United States Supreme Court’s ruling in Gould v. Gould. While
not a perfect cancellation because of variable brackets, income thresholds, and residency, there
is essentially no revenue effect. In tax year 2014, 10,264 tax returns deducted $220 million in
alimony, while 7,302 tax returns added $180 million.

Effects of the Federal Tax Law on the State of Maryland

Page 32 of 41

Adjusted Gross Income (Limitation on Business Losses for Individuals)
Under prior law, a taxpayer that is an active participant in a non C-Corp business could
utilize all of a current year’s business losses to offset other types of income and then turn any
additional excess loss amounts into a net operating loss (NOL) for use in other tax years (carryback or carry-forward). This often reduced that taxpayer’s tax to zero for the current year and
generated refunds for prior year and/or reduced tax in future years.
The TCJA limits the amount of losses that can be used to offset other income in the
current year to $250,000 for individuals and $500,000 for joint filers. The excess amounts can
then be translated into NOLs. NOLs are also changed in the TCJA (see section on NOLs on the
next page). This provision impacts a small number of taxpayers. However, for those that it does
impact, the change is meaningful. In theory, the impact is a net zero over the course of history
as it essentially creates additional net operating losses. It will pull money forward. Separately,
and likely of little impact, those thresholds are also applied to farm income, which had a lower
threshold. Table 20 illustrates the impact. The amounts in the table are income that would be
subject to taxation in the current year and then turned to net operating losses for future tax
years.
Table 20. Limitation on Excessive Business Losses from Income
Tax Year 2014

Federal Adjusted Gross
Income Class
0 or less

Number of
Taxpayers

Total Lost
Deductions

Average Lost
Deduction

Estimated
Exclusive
State Tax
Impact

Estimated
Exclusive
Local Tax
Impact

369

395,385,252

1,071,505

21,069,472

11,861,558

0 to 25,000

21

16,417,613

781,791

878,012

492,528

25,000 to 50,000

29

22,680,560

782,088

1,231,292

680,417

50,000 to 75,000

40

18,008,348

450,209

979,897

540,250

75,000 to 100,000

32

9,780,027

305,626

513,132

293,401

100,000 to 150,000

18

9,947,220

552,623

500,181

298,417

150,000 to 250,000

28

20,657,532

737,769

1,102,038

619,726

250,000 to 500,000

61

59,122,368

969,219

3,347,035

1,773,671

500,000 to 1,000,000

58

81,076,736

1,397,875

4,656,508

2,432,302

Greater than $1M

124

332,332,733

2,680,103

19,109,132

9,969,982

Total

780

965,408,389

1,237,703

53,386,700

28,962,252

Adjusted Gross Income (Modification of Net Operating Losses)
A NOL occurs when a taxpayer’s business deductions exceeds income. Myriad special
treatments occur; however, those losses can generally be carried-back two years and carriedforward for twenty years. When carried back, the NOL results in an amended tax return and a
refund. When carried forward, the NOL serves to reduce or eliminate taxable income, and
therefore tax, in future years. Maryland has effectively decoupled from some of the special NOL
provisions, but permits the general circumstances above.

Effects of the Federal Tax Law on the State of Maryland

Page 33 of 41

For losses incurred after tax year 2017, the TCJA eliminates the carry-back provision
and limits the deduction to 80% of taxable income therefore reducing a taxpayer’s ability to fully
reduce income in future years. Losses incurred in tax year 2017 and prior can be used to
eliminate up to 100% of taxable income until exhausted. For losses incurred after tax year
2017, the carry-forward provision is allowed indefinitely. Certain special treatments are made,
particularly for property and casualty insurance companies.
The elimination of the carry-back and the 80% limitation work to pull revenue forward.
Similar to the limitation on business losses, this provision in theory is roughly revenue neutral
over a long period of time. We estimate that we process between 8,000 and 10,000 NOL carryback refunds for individual taxpayers, totaling refunds of between $18 million and $30 million.
The volume and amounts are volatile, but generally dependent on proximity to recession; the
recession triggers losses that enable the taxpayer to go back to a boom year and claim a
refund.
To the extent that a taxpayer creates a NOL and has an applicable prior year for which
to apply, they would almost certainly do so, meaning that the inventory of existing NOLs for
carry-back is likely very small. On the other hand, we have no data on the amount of carryforwards available from prior years, meaning that the 80% limitation on losses created in 2018
and thereafter are likely to “sit on the shelf” for years before coming into use. Therefore, the
near-term revenue gain is almost exclusively the lost carry-backs.
As we are in an expansion, we estimate that NOL carry-backs will be reduced by $20
million per tax year for tax years beginning after 2017. The first decline in carry-backs would
generally not occur until after April 2019, when the first return is due for tax year 2018, creating
the NOL, and would have then permitted an amended return for tax years 2017 or 2016.
Additionally, as those amended returns are generally complicated and often require
dialogue with the taxpayer, processing can take longer than normal. As such, that would push
the first year of impact into fiscal year 2020.
The estimate revenue change is outlined in Table 21.
Table 21. Personal Income Tax Revenue Impact - Lost Carry-Back NOLs
Dollars in Thousands

Item
Total Carry-Back NOLs Saved

Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year
2018
2019
2020
2021
2022
2023
-

-

20,000

20,000

20,000

20,000

State Income Tax Share

-

-

12,530

12,530

12,530

12,530

Local Income Tax Share

-

-

4,680

4,680

4,680

4,680

Effects of the Federal Tax Law on the State of Maryland

Page 34 of 41

State Modification (529 Plans for Elementary and Secondary Schools)
In general, a 529 plan functions similar to a Roth IRA, with the contributions to the
account not deductible at the federal tax level. However, the gains accumulated in the account
are not taxable when withdrawn under qualified conditions. The State allows a subtraction from
income for up to $2,500 of contributions made per beneficiary and per account holder to
qualified 529 plans. This essentially caps the annual subtraction at $5,000 per child on a joint
return. Contributions in excess of the subtraction can be carried-forward to offset future income.
The State also excludes the gains when withdrawn for qualified conditions. In the case of a
529, the qualified conditions are generally referred to as “qualified higher education expenses”.
For 529 accounts established after 2016, the State offers a matching contribution of $250 per
beneficiary if the account holder had income less than $112,500 for an individual or $175,000
for a joint filer. In years where a match is received, the tax subtraction is not permitted.
The TCJA expands the definition of “qualified higher education expense” to include
expenses for tuition and certain other related school expenditures at an “elementary or
secondary public, private, or religious school.” The amount of distributions for the new
broadened provision cannot exceed $10,000 per beneficiary. This should greatly increase
demand for 529 plans, resulting in more demand for the State subtraction, and possibly the
match as well. Even if the taxpayer generally funds those expenditures with current cash, they
could contribute monthly tuition amounts to a 529 account and then withdraw those amounts
almost immediately. It could be the case that the parents max out their tax benefited
distributions at $5,000 per child and then a set of grandparents does the same for the same
child, enabling $10,000 in subtractions for income and $10,000 in tuition.
We do not know how many beneficiaries that might benefit from the broadened
treatment already have an existing account, or of those that do, how many are already maxing
out their tax benefit. We do know that in tax year 2016, 52,641 tax returns claimed a subtraction
for contributions to the related Maryland Investment Plans. In total, $232 million in income was
subtracted for State and local tax savings of $11.1 million and $7.0 million, respectively.
Additionally, an annual report from the Maryland 529 detailed that there were investment plan
accounts for 169,617 beneficiaries in fiscal year 2016.
A report from the Maryland State Department of Education details that 96,763 children
were enrolled in non-public schools grades K-12 in 2016. Table 22 (next page) was created
based on various shares of that population that might be incentivized and assumptions about
the average amount that would be subtracted from income. It seems highly likely that most
families would take advantage and would do so through the subtraction, not only because of the
income limitations for the cap, but because a $5,000 income subtraction at a combined State
and local tax rate of 8.25% is worth more than $400. For purposes of the initial estimate, we will
assume a State revenue decrease of $20 million per year. While there may be investment
gains that go untaxed, we assume that most of the impact is current cash and therefore the
untaxed investment gains are minimal.

Effects of the Federal Tax Law on the State of Maryland

Page 35 of 41

Table 22. Expansion of 529 Subtraction

Impacted
Student
Population

% of
Incentivized
Number of
Beneficiaries Beneficiaries

Average
Subtraction
Per Beneficiary

Subtracted
Income

State Tax
Decrease @
5.25%

Local Tax
Decrease @
3.0%

96,763

10%

9,676

6,000

58,056,000

3,047,940

1,741,680

96,763

20%

19,353

6,000

116,118,000

6,096,195

3,483,540

96,763

30%

29,029

6,000

174,174,000

9,144,135

5,225,220

96,763

40%

38,705

6,000

232,230,000

12,192,075

6,966,900

96,763

50%

48,382

6,000

290,292,000

15,240,330

8,708,760

96,763

60%

58,058

6,000

348,348,000

18,288,270

10,450,440

96,763

70%

67,734

6,000

406,404,000

21,336,210

12,192,120

96,763

80%

77,410

6,000

464,460,000

24,384,150

13,933,800

96,763

90%

87,087

6,000

522,522,000

27,432,405

15,675,660

Effects of the Federal Tax Law on the State of Maryland

Page 36 of 41

Dynamic Effects
While we do share the estimated net tax impacts to determine additional taxable
spending for sales tax purposes, our results do not include other macroeconomic
consequences. Additionally, other than taxpayers shifting between deduction types, we do not
make any assumptions regarding shifting taxpayer behavior. Various possible dynamic impacts
are itemized below. Surely, as the TCJA is so broad in nature and because taxes have
extraordinary impacts on macroeconomic and financial decisions, there are destined to be
currently unidentifiable consequences.
1. A component of the preferential rate for qualified business income seeks to limit that
treatment to non-wage income. It is highly likely that some taxpayers will find
mechanisms to shift currently defined wage income to into business income. To the
extent that this occurs, State income tax withholding will decrease, as will unemployment
insurance and federal payroll taxes. Some of that withholding would likely be recouped
through other tax payments, though redefining that income as business income permits
business reductions to it that are not afforded to wage earners.
2. The preferential treatment of qualified business income has a tremendous number of
qualifications. Those qualifiers are likely to incentivize reorganization by certain
businesses. Before identifying those opportunities, we must note that business
reorganization requires the consideration of a multitude of factors in addition to taxation.
Furthermore, based on input from highly respected private tax attorneys, we have
learned that the proper information does not yet exist for those attorneys to advise their
clients on such an important decision. Proper decisions will require forthcoming
regulation and rules from the federal government; some fine points may not be known
until after completed future audits or litigation. Organization decisions tend to be sticky,
meaning that a business cannot restructure each year as they see fit. Possible dynamic
impacts include:
a. Pass through businesses that elect to separate the existing business into multiple
businesses. For example, over a certain income threshold, lawyers cannot claim
the tax break due to the requirement that service businesses are not applicable.
A legal firm was quoted as saying that they would consider separating a side of
its business that produces documents and tangible products which might create
qualified business income. This would likely have limited effect on State and
local revenues, though it is a terribly inefficient use of economic resources.
b. Due to the complexity and qualifiers surrounding qualified business income,
some pass-through businesses may elect to reorganize as C-Corps to benefit
from an even lower tax rate and greater certainty. Assuming that the
reorganization resulted in comparable amounts of taxable income in Maryland,
the result would likely be an increase in State tax revenues, as the corporate tax

Effects of the Federal Tax Law on the State of Maryland

Page 37 of 41

rate is 8.25% compared to the top personal rate of 5.75%; however, that income
would no longer be taxable by local governments.
3. There will be a reduced amount of charitable contributions. The significantly increased
federal standard deduction in concert with reductions to other components of itemized
deductions incentivizes a tremendous number of taxpayers to take the shift into the
standard deduction, effectively eliminating the tax benefit of a charitable contribution.
We do not mean to insinuate that taxpayers only make contributions for tax purposes;
certainly many taxpayers that do not get any tax benefit make charitable contributions.
Rather, the lost tax benefit reduces the marginal benefit of each contributed dollar. That
benefit may have functioned in two ways; (1) to incentivize donations all together; or (2)
as a sort of match by the federal government, encouraging increased donations relative
to what might have been donated otherwise. In effect, if we assume a marginal tax rate
of 35%, the taxpayer only has to “pay” for 65% of their contribution. While we cannot
estimate the impact that this will have on charitable giving by Marylanders, we can report
that, of the 700,000 Marylanders that are expected to shift into the standard deduction,
574,000 claimed contributions totaling $1.5 billion.
4. Similar to charitable deductions, fewer taxpayers will find benefit from deducting
mortgage interest, both in terms of no longer itemizing, but also due to the lower
indebtedness threshold. While the taxpayer’s bottom line may improve, specifically from
a larger standard deduction, a benefit is no longer gained from home ownership. This
may have an impact on home prices. The United Kingdom phased out a significant
mortgage interest deduction beginning in 1988 and concluded the phase out in 2000.
Surprisingly, we have not yet found empirical research on the event.
5. It is possible that macroeconomic activity could increase as a result of a large national
tax cut. There will be more money in the hands of consumers and investors, which will
create positive economic impacts. However, there is no free lunch. For now, this is
deficit spending (~$1.5 trillion over 10 years), meaning that the U.S. Treasury will have
to borrow funds, driving up the cost of borrowing for all entities. Increased interest rates
are a drag on economic growth. Alternatively, the federal government may in the future
elect to reduce government spending. Should that reduction come in the form of
reduced discretionary spending, Maryland will be disproportionately impacted relative to
the nation as a whole, in a manner similar to sequestration.
6. Additionally, it is worth noting that the nation is steamrolling towards extraordinary
funding requirements for existing entitlement obligations, most notably Social Security
and Medicare. Should the tax cut not actually pay for itself, the federal fiscal situation
will be even more dire as decisions to shore up those programs are finally made. To put
this in perspective, the Congressional Budget Office expects mandated Medicare
expenditures to increase from $692 billion in 2016 to $1.2 trillion in 2025. Assuming
steady and reasonable economic growth (i.e., no recession), the share of Medicare

Effects of the Federal Tax Law on the State of Maryland

Page 38 of 41

spending relative to gross domestic product will increase form 3.8% to 4.6%. Similarly,
Social Security outlays are projected to increase from $916 billion in 2016 to $1.5 trillion
in 2025; the account will then have negative current cash flow of $250 billion (drawing
from “trust” fund).

Examples of Federal Tax Impact

Law

Wages,
salaries, tips,
etc.
(a)

Business
Income/
Loss
(b)

Adjusted
Gross
Income
(c)

Standard/
Itemized
Deduction
(d)

Personal
Exemptions
(e)

Taxable Inc
(f)

Tax
(g)

CTC Credits
(h)

Federal Net
Tax
(i)

(f * Rates)

(h)

(g - h)

Single filer, no qualifying children, AGI $20,000, itemized deductions of $9,000
(a)

(b)

(a+b)

(d)

(e)

(c - d - e)

Prior Law

20,000

-

20,000

9,000

4,050

6,950

695

-

695

TCJA

20,000

-

20,000

12,000

-

8,000

800

-

800

Single filer, no qualifying children, AGI $35,000, standard deduction

Taxable Income < $25,000

(a)

(b)

(a+b)

(d)

(e)

(c - d - e)

(f * Rates)

(h)

(g - h)

Prior Law

35,000

-

35,000

6,350

4,050

24,600

3,224

-

3,224

TCJA

35,000

-

35,000

12,000

-

23,000

2,570

-

2,570

Single filer, one qualifying child, AGI $25,000, standard deduction
(a)

(b)

(a+b)

(d)

(e)

(c - d - e)

(f * Rates)

(h)

(g - h)

Prior Law

25,000

-

25,000

6,350

8,100

10,550

1,116

1,000

TCJA

25,000

-

25,000

12,000

-

13,000

1,370

2,769

116
(1,400)

Married Joint filer, one qualifying child, AGI $33,000, itemized deductions of $21,000
(a)

(b)

(a+b)

(d)

(e)

(c - d - e)

(f * Rates)

(h)

(g - h)

Prior Law

46,000

-

46,000

21,000

16,200

8,800

880

1,400

(520)

TCJA

46,000

-

46,000

24,000

-

22,000

2,259

2,000

259

Married Joint filer, one qualifying child, AGI $49,000, standard deduction
(a)

(b)

(a+b)

(d)

(e)

(c - d - e)

(f * Rates)

(h)

(g - h)

49,000

-

49,000

12,700

12,150

24,150

2,690

1,000

1,690

TCJA

Taxable Income $25,000 - $50,000

Prior Law

49,000

-

49,000

24,000

-

25,000

2,619

2,000

619

Single filer, one qualifying child, AGI $55,000, itemized deductions of $9,000
(a)

(b)

(a+b)

(d)

(e)

(c - d - e)

(f * Rates)

(h)

(g - h)

Prior Law

55,000

-

55,000

9,000

8,100

37,900

5,219

1,000

4,219

TCJA

55,000

-

55,000

12,000

-

43,000

5,400

2,000

3,400

Single filer, no qualifying children, AGI $65,000, itemized deductions of $25,000
(a)

(b)

(a+b)

(d)

(e)

(c - d - e)

(f * Rates)

(h)

(g - h)

Prior Law

65,000

-

65,000

25,000

12,150

27,850

3,711

-

3,711

TCJA

65,000

-

65,000

22,400

-

42,600

5,312

-

5,312

Married Joint filer, no qualifying children, AGI $70,000, standard deduction
(a)

(b)

(a+b)

(d)

(e)

(c - d - e)

(f * Rates)

(h)

(g - h)

Prior Law

70,000

-

70,000

12,700

8,100

49,200

6,448

-

6,448

TCJA

70,000

-

70,000

24,000

-

46,000

5,139

-

5,139

Effects of the Federal Tax Law on the State of Maryland

Page 39 of 41

Law

Wages,
salaries, tips,
etc.
(a)

Business
Income/
Loss
(b)

Adjusted
Gross
Income
(c)

Standard/
Itemized
Deduction
(d)

Personal
Exemptions
(e)

Taxable Inc
(f)

Tax
(g)

CTC Credits
(h)

Federal Net
Tax
(i)

(f * Rates)

(h)

(g - h)

Married Joint filer, one qualifying child, AGI $85,000, itemized deductions of $24,500
(a)

(b)

(a+b)

(d)

(e)

(c - d - e)

Taxable Income $50,000 - $100,000

Prior Law

85,000

-

85,000

27,500

12,150

45,350

5,870

1,000

4,870

TCJA

85,000

-

85,000

24,000

-

61,000

6,939

2,000

4,939

Married Joint filer, one qualifying child, AGI $85,000, itemized deductions of $24,500
(a+b)

(d)

Prior Law

105,000

(a)

(b)
-

105,000

15,000

(e)
12,150

(c - d - e)
77,850

(f * Rates)
10,940

(h)
1,000

(g - h)
9,940

TCJA

105,000

-

105,000

24,000

-

81,000

9,699

2,000

7,699

Single filer, two qualifying children, AGI $85,000, itemized deductions of $15,000
(a)

(b)

(a+b)

(d)

(e)

(c - d - e)

(f * Rates)

(h)

(g - h)

Prior Law

85,000

-

85,000

15,000

12,150

57,850

10,201

1,000

9,201

TCJA

85,000

-

85,000

12,000

-

73,000

12,000

4,000

8,000

Married Joint filer, two qualifying children, AGI $115,000, itemized deductions of $17,000
(a+b)

(d)

Prior Law

115,000

(a)

(b)
-

115,000

17,000

(e)
16,200

(c - d - e)
81,800

(f * Rates)
11,928

(h)
1,500

(g - h)
10,428

TCJA

115,000

-

115,000

24,000

-

91,000

11,899

4,000

7,899

Married Joint filer, two qualifying children, AGI $140,000, itemized deductions of $22,000
(a+b)

(d)

Prior Law

140,000

(a)

(b)
-

140,000

22,000

(e)
16,200

(c - d - e)
101,800

(f * Rates)
16,928

(h)
-

(g - h)
16,928

TCJA

140,000

-

140,000

24,000

-

116,000

17,399

4,000

13,399

Taxable Income $100,000 - $350,000

Married Joint filer, three qualifying children, AGI $195,000, itemized deductions of $33,000
(a)

(b)

(a+b)

(d)

(e)

(c - d - e)

(f * Rates)

(h)

(g - h)

Prior Law

195,000

-

195,000

33,000

16,200

145,800

27,928

-

27,928

TCJA

195,000

-

195,000

24,000

-

171,000

29,619

6,000

23,619

Married Joint filer, two qualifying children, AGI $285,000, itemized deductions of $40,000
(a+b)

(d)

Prior Law

285,000

(a)

(b)
-

285,000

40,000

(e)
16,200

(c - d - e)
228,800

(f * Rates)
50,949

(h)
-

(g - h)
50,949

TCJA

285,000

-

285,000

24,000

-

261,000

51,219

4,000

47,219

Married Joint filer, three qualifying children, AGI $365,000, itemized deductions of $50,000
(a+b)

(d)

Prior Law

365,000

(a)

(b)
-

365,000

50,000

(e)
11,325

(c - d - e)
303,675

(f * Rates)
75,430

(h)
-

(g - h)
75,430

TCJA

365,000

-

365,000

24,000

-

341,000

72,499

6,000

66,499

Married Joint filer, no qualifying children, AGI $750,000, business loss $675,000, itemized deductions of $60,000
(for TCJA sim, taxpayer takes standard deduction plus $11,000 of other deductions still allowed under TCJA)
(a)

(b)

(a+b)

(d)

(e)

(c - d - e)

750,000

(675,000)

75,000

60,000

16,200

TCJA

TI $1M+

Prior Law

750,000

(500,000)

250,000

35,000

-

215,000

(f * Rates)

(h)

(g - h)

-

-

-

40,179

-

40,179

Married Joint filer, two qualifying children, AGI $1,150,000, itemized deductions of $90,000
(for TCJA sim, taxpayer takes standard deduction plus $15,000 of other deductions still allowed under TCJA)
(a)

(b)

(a+b)

(d)

(e)

(c - d - e)

(f * Rates)

(h)

(g - h)

Prior Law

1,150,000

-

1,150,000

90,000

-

1,060,000

364,991

-

364,991

TCJA

1,150,000

-

1,150,000

39,000

-

1,111,000

350,449

-

350,449

Effects of the Federal Tax Law on the State of Maryland

Page 40 of 41

Methodology
These estimates are the result of statistical modeling using the Comptroller’s Statistics of
Income (SOI) database. The SOI database is a taxpayer level database that is housed within
the Bureau of Revenue Estimates (BRE). More detail is available in the annual reports as
published on the Comptrollers website, www.marylandtaxes.gov.
In summary, the SOI database consists of actual individual tax returns; it is not the result
of sampling. Those records are combined from federal tax records and State tax records. The
data is cleansed to ensure that underlying data is reliable for decision making criteria. Sampling
is done with the actual data to verify that cleansing is completed properly.
The actual data from the returns is modeled based on the new policy and then compared
to the policy in place prior to the bill. The base year for the analysis is tax year 2014. Tax year
2014 is the most recent year for which the SOI is available. The federal data significantly lags
the availability of State data; in addition, the preparation of the database elongates the process
time. With that said, tax year 2014 provides a sound basis for comparison as recent tax years
have been impacted by extraordinary economic and policy items; tax year 2014 may be as
close to a “normal” year as we have on record.

Effects of the Federal Tax Law on the State of Maryland

Page 41 of 41