Maryland closed fiscal 2026 ahead of forecast, but much of the strength came from capital gains and other non-wage income rather than a stronger labor market. The latest numbers look better than the economy underneath them, with slower withholding growth and continued job losses raising questions about how much of that strength will hold.
Maryland finished fiscal 2026 $563.5 million above the official revenue estimate. Bureau of Revenue Estimates Director Robert Rehrmann told the MACo Budget and Finance Officers Affiliate that roughly $400 million of that overperformance was tied to capital gains, while wage withholding landed much closer to forecast.
Capital gains can swing sharply from year to year, making them a much less reliable source of ongoing revenue growth than wage withholding.
The broader closeout shows personal income taxes finishing $254.9 million above estimate, with corporate income, sales taxes, and other revenues also coming in above forecast.
As previously reported on Conduit Street, the latest Board of Revenue Estimates forecast then raised the fiscal 2027 forecast by $319.9 million from the previous estimate, bringing expected General Fund revenues to $27.44 billion. The Board set its first fiscal 2028 estimate at $28.35 billion, or 3.3 percent growth in ongoing revenues.
The MACo Budget and Finance Officers Affiliate met this week with Rehrmann and Chief Deputy Comptroller Erica Roach to discuss the latest State and local revenue picture. The discussion largely affirmed the September forecast, including the continued gap between stronger tax collections and a softer labor market.
The labor market tells a much weaker story. Maryland remains below its pre-downturn employment level after federal and private-sector job losses that began in 2025, and withholding growth has slowed during 2026.
Federal government withholding fell about 10 percent in the second quarter. Private-sector withholding has slowed too, including continued weakness in professional, scientific, and technical services.
Capital gains have helped offset some of that weakness. The Bureau of Revenue Estimates no longer expects the decline it previously built into tax year 2026 and now assumes 5 percent growth, followed by an 18 percent decline in tax year 2027.
Counties will not see all of the same growth as the State. Higher State income tax rates and the capital gains surcharge apply only at the State level, so recent gains from high-income taxpayers are showing up more strongly in State collections than in local income tax revenue.
Other tax changes do affect counties. Changes to standard and itemized deductions flow through to local taxable income, but the impact will vary by county and should become clearer as additional tax year 2025 returns come in.
County finance officers are also watching the timing of upcoming distributions. November should provide a better read on tax year 2025 collections, while another adjustment to county shares is expected in late February, when many county budget offices will already be well into work on their next budgets.
Recent distributions have also been harder to read because the Comptroller’s Office transitioned to Maryland Tax Connect. Processing slowed during August and September, and some of that activity is expected to show up in later distributions.
Chief Deputy Comptroller Erica Roach also said the Comptroller’s Office is looking at ways to make more county-level revenue data directly available to local governments, potentially through a dedicated portal.
The stronger fiscal 2026 closeout and higher fiscal 2027 forecast do not solve the State’s budget problem. The Department of Legislative Services projects a structural shortfall of more than $2.5 billion in fiscal 2028.
Counties will head into the next budget cycle watching both their own income tax collections and how the State addresses those shortfalls during the 2027 legislative session.
Stay tuned to Conduit Street for more information on the State and local revenue outlook.
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