Maryland is a high-tax state for both businesses and their owners. Corporations pay a flat 8.25%, and individuals pay state rates up to 6.5% plus county income taxes of 2.25% to 3.3%, for combined top rates near 10%. In 2025 the state also added new top brackets, a capital gains surtax and a 3% sales tax on many IT and data services. Annual report fees of $300 are among the highest anywhere.
This guide explains Maryland's business taxes for 2026, from the new rules to the familiar ones, with worked examples and comparisons.
Maryland business taxes at a glance
A C corporation operating only in Maryland pays a flat 8.25% on profit. Pass-through owners pay state income tax at graduated rates, mostly 4.75% for typical small-business incomes, plus a county tax of up to 3.3%. Customers pay 6% sales tax, or 3% on many technology services. Every entity, including inactive LLCs, files an annual report and personal property return for $300. Combined with high labor costs near Washington, D.C., this makes Maryland one of the more expensive places to run a small business, though proximity to federal agencies and contractors attracts many firms.
Corporate income tax
Maryland taxes C corporations at a flat 8.25%.
- Apportionment: Single sales factor for most corporations, with some industries using other formulas.
- Combined reporting: Maryland has considered but not adopted mandatory combined reporting.
- Credits: Job Creation Tax Credit, research and development credits, cybersecurity investment credits and More Jobs for Marylanders incentives.
- Returns: Form 500 is due on the 15th day of the fourth month after year-end.
Personal income tax and pass-through owners
| Taxable income (single, 2026) | State rate |
|---|---|
| $0 to $1,000 | 2% |
| $1,000 to $2,000 | 3% |
| $2,000 to $3,000 | 4% |
| $3,000 to $100,000 | 4.75% |
| $100,000 to $125,000 | 5% |
| $125,000 to $150,000 | 5.25% |
| $150,000 to $250,000 | 5.5% |
| $250,000 to $500,000 | 5.75% |
| $500,000 to $1,000,000 | 6.25% |
| Over $1,000,000 | 6.5% |
County income taxes apply on top, from 2.25% in Worcester County to 3.3% in counties that used the higher cap allowed from 2025. Baltimore City charges 3.2%. Nonresidents pay a special nonresident tax instead of a county tax.
Capital gains surtax: From 2025, individuals with federal adjusted gross income above $350,000 pay an extra 2% on net capital gains.
PTE election: Pass-through entities can pay Maryland tax at the entity level, which is deductible federally.
Sales and use tax
| Item | Rate |
|---|---|
| General sales | 6% |
| Certain IT, data and software services (from July 2025) | 3% |
| Alcoholic beverages | 9% |
| Short-term vehicle rentals | 11.5% |
Maryland has no local sales taxes. The 2025 expansion to technology services applies to services like data processing, hosting, and systems design, so software and IT firms selling to Maryland customers should review their obligations.
Other Maryland business taxes
- Personal property tax: Businesses file a personal property return with the annual report, and counties tax business equipment. Many counties exempt manufacturing equipment, and businesses with property below $20,000 in original cost are exempt from the state-level return requirement for the tax itself, though they still file.
- Unemployment insurance: Employers pay on the first $8,500 of each employee's wages. New employers start at 2.6%.
- Family and Medical Leave Insurance (FAMLI): Contributions have been delayed until 2027, with benefits in 2028.
- Digital advertising tax: Applies only to companies with global revenue above $100 million.
Forming a business in Maryland: fees and ongoing costs
| Item | LLC | Corporation |
|---|---|---|
| Formation filing fee | $100 | $120 |
| Annual report and personal property return | $300 (due April 15) | $300 (due April 15) |
| Expedited processing | Optional | Optional |
| Registered agent | Required | Required |
Worked example: $500,000 of profit
| Step | Amount |
|---|---|
| Taxable income | $500,000 |
| Maryland corporate tax at 8.25% | $41,250 |
| Federal tax at 21% on $458,750 | $96,338 |
| Total income tax | $137,588 (27.5%) |
For a single LLC owner with $150,000 of Maryland taxable income, state tax is about $7,260 before county tax. At $75,000 it is about $3,510. Add county tax: at 3.2% in Baltimore City, that is another $4,800 or $2,400.
How Maryland compares with its neighbors
| State | Corporate rate | Top personal rate | Sales tax |
|---|---|---|---|
| Maryland | 8.25% | 6.5% plus county | 6% |
| Virginia | 6% | 5.75% | 5.3% plus local |
| Delaware | 8.7% | 6.6% | None |
| Pennsylvania | 7.49% | 3.07% plus local | 6% |
| West Virginia | 6.5% | 4.58% | 6% |
Virginia is Maryland's main competitor for businesses serving Washington, D.C. Its corporate rate is more than two points lower, and its annual registration fee is a fraction of Maryland's.
Choosing an entity in Maryland
- LLC: Pays the $300 annual report fee; owners pay state and county income tax.
- S corporation: Same personal taxes, plus federal payroll tax savings.
- C corporation: 8.25% plus 21% federally, about 27.5% combined.
Tax planning tips for Maryland businesses
File the annual report on time. Maryland forfeits entities that fail to file, and late filings carry penalties. The report is due April 15, though an extension to June 15 is available for the personal property portion.
Review IT services for the new 3% tax. If you sell data, IT or software services to Maryland customers, determine whether your services fall within the 2025 expansion and register to collect.
Plan business sales around the capital gains surtax. The 2% surtax applies when federal AGI exceeds $350,000, which almost any business sale will trigger. Installment sales and other timing strategies may reduce the impact.
Local taxes and where you locate
Where you set up in Maryland matters more than in most states, because every county and Baltimore City levies a local income tax and sets its own property tax rate. Montgomery and Prince George's counties near Washington, D.C. charge some of the highest local income and property taxes, while Worcester and Talbot counties on the Eastern Shore are among the lowest. A pass-through owner moving from Baltimore City to Worcester County would save nearly one percentage point on every dollar of profit. Baltimore City also has the highest real property tax rate in the state, roughly double many suburban counties.
Recent changes for 2025 and 2026
- New 6.25% and 6.5% brackets for high earners from 2025.
- 2% capital gains surtax for high-income taxpayers.
- 3% sales tax on IT, data and some software services from July 2025.
- County tax cap raised to 3.3%.
- FAMLI contributions delayed to 2027.
Is Maryland a good state for business?
Advantages
- Proximity to Washington, D.C., federal agencies and contractors
- Highly educated workforce and major research institutions
- No local sales taxes
- Strong biotech, cybersecurity and government services clusters
Drawbacks
- High corporate and combined personal income tax rates
- $300 annual report fee on every entity
- New taxes on IT services and capital gains
- High cost of labor and real estate near D.C.
Compliance checklist
- File Articles of Organization or Incorporation with the State Department of Assessments and Taxation (SDAT).
- Register with the Comptroller for sales tax, withholding and income tax.
- Register with the Maryland Department of Labor for unemployment insurance if you hire.
- File the annual report and personal property return by April 15.
- File sales tax returns, including the 3% rate where applicable.
- File Form 500 or Form 510 each year.
Compare Maryland with its neighbors below or estimate your taxes in the United States calculator. See LLC taxes for more.