Income Taxes Paid to Other States Credit

If you are a Maryland resident and you have income taxed by another state, you may be entitled to a tax credit on your Maryland return. Nonresidents do not qualify for this credit.

Qualifications

To qualify for the credit, you must file a tax return with the other state where you incurred a proper tax liability. If taxes were paid on wages you earned in another state or on certain other income from any other state (such as business or farm income), you may claim a credit on your Maryland return. There are some exceptions to this, as explained below.

If you are treated as a dual resident for income tax purposes - a resident of both Maryland and another state - you must claim a tax credit in your state of domicile.

Pennsylvania, Virginia, West Virginia and Washington, D.C.

No credit may be claimed for tax paid on wages that you, as a Maryland resident, earned in Pennsylvania, Virginia, West Virginia and Washington, D.C., since Maryland shares a reciprocal tax agreement with these jurisdictions allowing residents to pay taxes to the jurisdiction where they reside. You should file a return with these states only if you need to claim a refund of any taxes withheld or paid as estimated taxes in error to that state. NOTE: With the exception of West Virginia, a Maryland resident could be in the other jurisdiction for more than 183 days and be subject to tax on all of the higher income. In that case, Maryland would allow credit for the additional tax paid.

Capital gains

You may be allowed a credit for tax paid to another state when a capital gain is recognized in the current year on the federal return, but was taxed by another state in an earlier year. The gain must have resulted from the sale of a personal residence located in another state or from an installment sale. The credit equals the amount of the gain multiplied by 4.7 percent or the personal income tax rate in the other state in the year in which the state taxes the gain, whichever is less.

States without income tax

No credit is allowed for states that do not levy an income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming.

Claiming the credit

To claim the tax credit:

• Complete the return you're filing for the other state.
• Complete Maryland Form 502 (or Form 504 if you're filing a fiduciary return) through the line labeled "Maryland tax."
• If you're filing Form 502, complete Part A of Form 502CR. If you are claiming credit for taxes paid to more than one state, you must file a separate Form 502CR for each state.
• File Form 502CR with your Maryland Form 502, along with a copy of the other state's return. Fiduciaries need only file Form 504 and include a copy of the other state's return.

If the credit exceeds your tax liability, the unused credit may not be carried forward to any other tax year.