Income Tax “Mixed Bag” – Some Bills Moving, Some Not

A number of bills are moving this session which will affect local income tax revenues to varying degrees. All of these bills are subtraction modification bills – meaning that they create additional deductions in the taxable income base. County’s local income tax is based on total income, after deductions are made at both the Federal and state levels. If all of these bills pass, local income tax revenues decrease by about $6 million in fiscal 2018.

Overall, MACo has urged the general Assembly not to enact tax changes that have substantial carryover effect on county revenues. State tax credits, for example, can effect much the same outcome as a subtraction modification, without implicitly mandating a loss in county revenues. Alternatively, a range of local option tax benefits against the property tax or other local revenues can reach a similar policy goal without the state decision trumping local input.

HB 100/SB 597 – Income Tax Subtraction Modification – Retirement Income of Law Enforcement, Fire, Rescue, and Emergency Services Personnel provides for a subtraction modification for the first $15,000 of retirement income for individuals at least 55 years of age who are retired law enforcement officers or fire, rescue, or emergency services personnel of the United States, the State of Maryland, or local government. MAC opposed this bill because it would cause local revenues to decrease by $2.5 million in FY 2018 and by $2.8 million in FY 2022. HB 100 passed out of the House unanimously and will be heard in the Senate Budget and Taxation Committee on March 21 at 1pm. The crossfile, SB 597, has passed second reading in the Senate.

MACo did not take positions on the following subtraction modification bills which have gained traction, generally for policy reasons or because the fiscal impacts on local income tax revenues are relatively negligible.

HB 3 – Income Tax – Subtraction Modification – Olympic, Paralympic, Special Olympic, and Deaflympic Games Medals and Prizes   exempts from the State and local income tax the value of specified medals and prize money or honoraria received by an individual who competes in the Olympic, Paralympic, Special Olympic, or the Deaflympic Games. The bill passed out of the House and will be heard in the Senate Budget & Taxation Committee on March 22 at 1pm.

HB 83 –   Income Tax – Subtraction Modification – Discharged Student Loan Debt expands the existing subtraction modification for income resulting from the discharge of student loan debt by eliminating the requirement that only student loans that are discharged due to total and permanent disability or death qualify for the exclusion. This subtraction modification only really applies to student loan debt which is canceled in a small number of situations, such as bankruptcy or compliance with certain student loan forgiveness programs.  This has passed second reading in the House.

HB 822 – Income Tax – Subtraction Modification – Police Auxiliaries and Reserve Volunteers increases to $5,000 the value of the income tax subtraction modification for
qualifying police auxiliaries or reserve volunteers. The bill passed out of the House unanimously and will cross over to the Senate Budget & Taxation Committee.

SB 295 – Income Tax – Subtraction Modification – Military Retirement Income – Individuals at Least 65 Years Old expands the existing military retirement income tax subtraction modification by increasing from $10,000 to $15,000 the maximum amount of retirement income that can be excluded from Maryland adjusted gross income for purposes of calculating Maryland income tax liability. In order to qualify for the increased subtraction modification, the individual must be at least 65 years old. The Senate has passed the bill on second reader.

SB 367 – Income Tax – Subtraction Modification – Mortgage Forgiveness Debt Relief continues an existing subtraction modification for forgiven mortgage debt resulting from certain foreclosure proceedings. The maximum amount of the subtraction may not exceed $100,000 ($200,000 if married filing jointly). The bill passed the Senate unanimously and will be heard in the House Ways & Means Committee on March 22 at 1pm.

The following subtraction modification bills have not seen any movement at this time:

HB 0033 – Income Tax – Subtraction Modification – Retirement Account Withdrawals for Higher Education Tuition

SB 238/HB 0195 – Income Tax Subtraction Modification – Retirement Income (Fairness in Taxation for Retirees Act)

HB 0196 – Income Tax – Subtraction Modification – Interest Paid on Student Loans

HB 0230 – Income Tax – Subtraction Modification – First-Time Homebuyer Savings Accounts

SB 3/HB 544 – Income Tax – Subtraction Modification – Military Retirement Income

HB 550 – Income Tax – Subtraction Modification – Military Retirement Income

HB 1033 – Income Tax – Subtraction Modification – Discharged Student Loan Debt

SB 254/HB 1174 – Income Tax – Subtraction Modification – Perpetual Conservation Easements

HB 1235 -Income Tax – Subtraction Modification – Qualified Maryland Toll Expenses

HB 1244 – Income Tax – Subtraction Modification – Military Retirement Income – Individuals Under the Age of 65 Years

SB 0249 -Income Tax – Subtraction Modification – Donation of Rented Equipment

Governor’s Bills:

SB 320/HB 399 – Student Debt Relief Act of 2017

SB 321/HB 375 – Income Tax – Subtraction Modification – Military Retirement Income

Other Helpful Links

All 2017 bills impacting local tax revenues and status