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Maryland

Maryland payroll taxes: Your 2026 guide to staying compliant

By QuickBooks
Published on March 6, 2026

Maryland’s dynamic economy and strategic location on the East Coast make it an attractive place for businesses to grow. With nearly 700,000 small businesses operating across the state as of 2025, Maryland’s entrepreneurs play a crucial role in its workforce and economic vitality. With these opportunities, business owners must also navigate a range of payroll tax responsibilities. Maryland’s payroll tax regulations are designed to support key state programs while ensuring employees are paid and protected fairly. Whether your business is based in Maryland or you employ workers within the state, understanding how these taxes work is essential to staying compliant.

Let’s take a closer look at the key components of Maryland payroll taxes so you can manage your responsibilities with confidence.

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What are payroll taxes?

Payroll taxes are taxes based on wages, salaries, or other compensation that both employers and employees must pay. While income taxes are also withheld through payroll, payroll taxes specifically fund programs like Social Security, Medicare, and unemployment insurance.

Understanding Maryland state payroll taxes

When starting a business in Maryland, you'll need to understand both federal and state payroll taxes.

Federal payroll taxes

Payroll taxes are mandatory and encompass both federal and state requirements. 

Federal payroll taxes include:

  • Federal income tax: This is withheld from each employee's paycheck based on their W-4 form and the current IRS tax brackets. You'll be responsible for calculating the correct amount, withholding it, and then sending it to the IRS.
  • Social Security and Medicare taxes: Both of these taxes have a portion paid by the employee and a matching portion paid by you, the employer. For Social Security, the combined rate is 12.4% on the first $176,100 of wages in 2025. For Medicare, it's 2.9% on all wages, with an extra 0.9% for higher earners. You'll withhold the employee's portion and match it.
  • Federal Unemployment Tax (FUTA): This is paid solely by you at a rate of 6% on the first $7,000 of each employee's wages. However, most employers get a 5.4% credit, reducing the rate to 0.6%. The graphic below lists some best practices for managing your FUTA obligations.
Futa best practices for small businesses

Maryland state payroll taxes

Along with federal payroll taxes, Maryland employers must also manage state-level payroll obligations.

  • Maryland state income tax (SIT): Employers must withhold state income tax from employee wages. Maryland uses a progressive tax structure, with rates ranging from 2% to 5.75%. 
  • Unemployment Insurance (UI): This is an employer-paid tax used to fund benefits for workers who lose their jobs. In 2025, Maryland UI tax rates range from 1.0% to 10.5% on the first $8,500 of each employee’s wages. New employers typically start at a standard rate, which is subject to change annually.
  • Paid Family and Medical Leave Insurance (PFML): Beginning October 1, 2024, Maryland’s Family and Medical Leave Insurance (FAMLI) program requires both employers and employees to contribute. For 2025, the total contribution rate is 0.9% of wages, split evenly at 0.45% each. Contributions must be reported and remitted to the Maryland Department of Labor.

Maryland local payroll taxes

In addition to federal and state payroll taxes, some Maryland cities and counties impose their own local payroll taxes. These local income tax rates vary across that state’s 23 counties, ranging from 2.25% to 3.20% in 2025. 

As an employer, you’re responsible for determining the correct local tax rate and withholding the appropriate amount from each employee’s paycheck. Here are ways to determine any local payroll taxes you may be liable for:

  • Check with your local government or visit the Maryland Comptroller’s website to determine the appropriate local income tax rates and withholding requirements. These resources provide the most accurate and up-to-date information on local tax rates, residency rules, and reporting procedures. 
  • Consult a tax professional if you're unsure which local tax rates apply or how to manage withholding for employees in multiple counties. An accountant specializing in Maryland payroll taxes can help you interpret the rules and maintain compliance, especially if your workforce spans more than one jurisdiction.

Other important tax considerations

Multiple locations

If your business has employees working in multiple cities or counties, you may be subject to different local payroll taxes for each location.

Changing rates

Local payroll tax rates can change over time, so it's important to stay informed about any updates that may affect your business.

Employer responsibilities for payroll taxes in Maryland

As a Maryland employer, you're responsible for managing a complex array of federal and state payroll taxes, which involves careful calculation, timely withholding, and accurate reporting to various government agencies. Here’s an overview of what you should know.

Registering for payroll taxes

Before you can pay employees in Maryland, you’ll need to register for state and federal payroll tax accounts. Here are the steps to get started:

  • Obtain a Federal Employer Identification Number (EIN): Before registering with the state, apply for a Federal Employer Identification Number (EIN) through the IRS website. This number is used to identify your business for federal tax purposes and is required for all businesses that pay employees.
  • Register with the Maryland Department of Assessments and Taxation (SDAT): To do business in Maryland, you must first register your entity with the Maryland Business Express portal. This process ensures your business is officially recognized by the state and sets up your account for income tax and other filings. Be prepared to provide your EIN, business structure, and ownership information during registration.
  • Sign up for a Combined Registration Application (CRA): After your business is registered, complete the Maryland Combined Registration Online Application through the Comptroller of Maryland. This form allows you to register for employer withholding (state income tax) and other accounts, such as sales and use tax, if applicable. You will receive your withholding account number once your application is processed.
  • Register for Unemployment Insurance (UI): You’ll also need to register separately with the Maryland Department of Labor for unemployment insurance. Visit the Maryland BEACON One-Stop Portal to create an account and complete your UI registration. Once registered, you'll receive an employer account number and be able to file UI wage reports online.
  • Report new hires: Maryland employers are required to report all new hires and rehires within 20 days of their start date. Use the Maryland State Directory of New Hires to submit the New Hire Reporting Form either online or by mail.

By completing these steps, you’ll be set up to handle Maryland payroll tax requirements from day one. Be sure to keep all account numbers and login credentials in a secure location for ongoing reporting and payments.

Calculating payroll taxes

Accurate payroll tax calculations are essential for staying compliant and avoiding penalties. In Maryland, payroll taxes include federal withholdings, state income tax, local income tax, and employer-paid contributions like unemployment insurance. To ensure precision, you’ll need to use the correct tax rates, wage limits, and employee information for each pay period.

  • Check government websites: Maryland agencies provide online tools and rate tables to help you calculate payroll taxes correctly. The Maryland Comptroller’s website offers state and local income tax withholding guides, while the Maryland Department of Labor publishes current unemployment insurance rates and wage bases. 
  • Payroll software: Some small business software payroll programs have built-in Maryland tax tables that automate calculations, saving you time and minimizing the chance for errors.
  • Professional services: If you prefer to outsource payroll, a professional payroll service can handle everything for you.

Whichever method you choose, make sure you stay updated on the current tax rates and wage limits, as these can change every year.

Withholding state payroll taxes

Once you’ve calculated the correct payroll taxes, the next step is to withhold the appropriate amounts from your employees’ paychecks. In Maryland, this includes state income tax and local income tax. You’ll need to apply the correct rates based on each employee’s earnings, filing status, and county of residence or principal employment.

Maryland state income tax: Maryland uses a progressive income tax system with rates ranging from 2% to 5.75%. Employers are responsible for withholding the correct amount based on the employee’s wages and the current withholding tables provided by the state. Maryland also requires that employers withhold local income tax as part of the same process. These rates vary by county and range from 2.25% to 3.20% in 2025. 

  • Example: If an employee earns $1,500 biweekly and lives in Montgomery County (local tax rate of 3.2%), the employer must use the state tables to calculate the appropriate amount of state and local tax to withhold. The local portion would be $1,500 × 3.2% = $48 withheld for county tax.

Unemployment Insurance (UI): Employers must also account for unemployment insurance tax, which is not withheld from employee wages but paid entirely by the employer. In 2025, the UI taxable wage base in Maryland is $8,500. Rates range from 0.30% to 7.50% for experienced employers, and new employers typically start at 2.60%. These rates are assigned annually based on your business’s experience rating. You can find more information through the Maryland Department of Labor.

  • Example: If you pay an employee $4,000 in January and $4,500 in February, you’ll owe UI tax on both months. At a 2.60% rate, the total tax would be $221 (2.6% of $8,500). Any additional wages paid in the year are not subject to UI tax for that employee.

By applying these calculations to each paycheck, you ensure accurate withholdings and compliance with state requirements.

Remitting state payroll taxes

After withholding the proper amounts from employee paychecks, you must remit those taxes to the appropriate state agencies on time. In Maryland, this primarily involves submitting state income tax and local income tax withholdings to the Comptroller of Maryland and unemployment insurance (UI) contributions to the Maryland Department of Labor.

Filing payroll tax returns in Maryland

In Maryland, employers are required to comply with both quarterly and annual payroll tax filing requirements to stay in good standing with state and federal agencies. These filings ensure that withheld taxes and employer contributions are accurately reported and paid. Here's a breakdown of the 2025 filing requirements you need to know:

Quarterly requirements

Annual requirements

Penalties for late filing or non-compliance and tips for staying organized

Failing to file or pay Maryland payroll taxes on time can result in costly penalties, interest charges, and even the loss of your good standing as an employer. The Comptroller of Maryland and the Maryland Department of Labor enforce strict deadlines and reporting requirements, so it’s important to stay organized and proactive.

Set reminders

Mark all payroll tax deadlines on your calendar, set reminders on your phone or computer, and use task management or payroll software tools to stay on top of due dates.

Use online portals

Take advantage of Maryland’s electronic filing systems. You can submit withholding reports and payments through the bServices Online Service Center and unemployment insurance filings through the BEACON portal. These platforms offer confirmation receipts, reduce the risk of errors, and make it easier to track your submission history.

Consider payroll software

Invest in reliable payroll software that automatically calculates taxes and reminds you of upcoming deadlines. You’ll minimize calculation mistakes and missed payments.

Keep thorough records

Maryland recommends retaining all payroll records, including wage data, tax filings, and payment confirmations, for at least four years. Organized records will help you respond quickly and effectively to audits, notices, or discrepancies.

Seek professional help

If you have any questions or concerns about payroll taxes, don't hesitate to consult with a tax professional or accountant. They can provide expert guidance and help you tackle the complexities of payroll tax compliance.

Pre-tax vs post-tax payroll deductions

Payroll tax credits and incentives

While most Maryland payroll tax credits are tied to hiring and employer expenses rather than deductions on withholdings, these state-level incentives can help reduce overall tax burdens and support workforce development:

Federal Research and Development (R&D) Payroll Tax Credit

Eligible startups and small businesses can apply up to $500,000 per year of the federal R&D tax credit toward their employer portion of Social Security payroll taxes. This offset supports continued investment in research and innovation during early growth stages.

Federal Unemployment Tax Act (FUTA) Credit

Employers who pay their state unemployment insurance (SUI) taxes on time and in full may receive a FUTA credit of up to 5.4%, reducing the effective federal FUTA rate from 6.0% to 0.6% on the first $7,000 of wages per employee.

Work Opportunity Tax Credit (WOTC)

The WOTC allows you to reduce your federal tax liability by up to $9,600 for each new hire from certain targeted groups. This credit encourages employers to hire individuals who face significant barriers to employment.

Maryland Small Business Relief Tax Credit

The refundable Small Business Relief Tax Credit helps small employers provide paid sick and safe leave. Eligible businesses with 14 or fewer employees can claim up to $500 per employee (capped at $7,000 per business) by following the Maryland Healthy Working Families Act and applying through the Department of Commerce. 

Maryland Disability Employment Tax Credit

Employers who hire individuals with disabilities may claim a credit designed to increase job opportunities under the ADA. Businesses can apply through the Maryland Division of Workforce Development and Adult Learning. 

Hire Our Veterans Tax Credit

Small employers who hire qualified veterans may receive a state income tax credit based on wages paid to those veteran employees. Businesses apply for the Hire Our Veterans Tax Credit through the Department of Commerce to access eligibility and credit limits.

Enterprise Zone Tax Credit

Qualified businesses located in designated Maryland Enterprise Zones or RISE zones can claim income tax credits based on wages paid to newly hired employees, particularly economically disadvantaged or redeployed workers. Additional eligibility rules depend on the job’s location and duration of employment.

One Maryland Project Tax Credit

Businesses that invest in capital projects and create at least 10 new qualified jobs within certain Tier 1 counties may qualify for the One Maryland Project Tax Credit. Credit caps vary, but your business may be eligible for up to $1 million for small expansions and up to $5 million for larger projects, depending on job creation and investment size.

Maryland Research and Development Tax Credit

Companies engaged in qualified R&D activities may claim a Maryland Research and Development Tax Credit equal to 10% of expenses exceeding the state base amount. Small businesses with net assets under $5 million may receive a refundable credit up to $250,000 annually. You must submit your application to the Department of Commerce by November 15 each year.

Industries frequently benefiting from Maryland business tax credits

  • Manufacturing: Maryland manufacturers, especially those located in Tier 1 counties or Opportunity Zones, can benefit from the More Jobs for Marylanders Incentive Program. This credit offers a refundable income tax credit of 4.75 % of wages per qualified new position, available for up to 10 years. The credit is particularly advantageous for businesses creating well-paying jobs in targeted locations.
  • Technology and biotech startups: Early-stage businesses investing in innovation may qualify for the Maryland Innovation Investment Tax Credit (IITC). This credit offers 33 % of eligible investments (up to $250,000) in Qualified Maryland Technology Companies and up to 50 % if located in a RISE Zone or Opportunity Zone. It’s a strong incentive for tech and biotech entrepreneurs looking to grow in the state.

Consult with a tax professional to understand what tax credits and incentives you could potentially apply to your business. 

Common payroll tax mistakes in Maryland (and how to avoid them)

Maryland’s payroll tax system includes multiple layers of state and local requirements, and it’s easy for business owners to overlook key steps. Below are some of the most common payroll tax errors made by Maryland employers, along with tips on how to avoid them.

Misclassifying workers

Improperly classifying a worker as an independent contractor instead of an employee can lead to underpayment of payroll taxes and legal consequences. Maryland uses the ABC test to determine classification, and misclassification is closely monitored by the Maryland Department of Labor.

Missing local income tax withholdings

Maryland requires employers to withhold local income taxes based on the employee’s county of residence or principal place of work. These rates vary and must be included along with the state income tax.

Filing the wrong forms or using incorrect tax rates

Using outdated tax tables or incorrect unemployment insurance (UI) rates can result in either overpaying or underpaying what you owe. Maryland UI rates are assigned individually and can change each year.

Missing filing deadlines

Maryland enforces strict deadlines for submitting withholding payments and quarterly UI reports. Missing even one deadline can lead to penalties and accrued interest.

Not reporting new hires on time

All new hires and rehires must be reported to the state within 20 days. Failing to report can result in penalties and may interfere with Maryland’s benefit programs.

Inadequate recordkeeping

Without complete and accurate records, you may have difficulty addressing tax disputes or complying with audit requests. The state recommends keeping payroll records for at least four years.

Tip: QuickBooks Payroll can help you avoid these common mistakes by automating calculations, tracking deadlines, and keeping accurate records.

How to manage your small business payroll obligations 

Understanding the nuances of Maryland's payroll taxes and regulations can take some time. Follow our small business tax preparation checklist and these steps to help you manage your payroll taxes.

Step 1. Partner with a tax professional

Consult a tax professional familiar with Maryland’s payroll taxes and regulations. They can guide you through compliance requirements, local tax nuances, and potential tax benefits for your business.

Step 2. Explore payroll software

Consider using payroll software to streamline your payroll processes. Tools like QuickBooks automate tax calculations, minimize errors, and ensure compliance with Maryland laws.

Step 3. Proactively plan for compliance

Stay informed about Maryland’s payroll tax deadlines and updates. Payroll software combined with expert guidance can help ensure you meet state and local requirements.

Step 4. Optimize your tax strategy

Work with your tax professional to uncover deductions, credits, or other incentives that could benefit your business. Leverage software reports to better understand your payroll data and identify opportunities for savings.

Step 5. Build a financially strong foundation

By combining expert guidance with the right tools, you can efficiently manage payroll taxes and focus on growing your business in Maryland.

What are the payroll taxes in Maryland?

Maryland imposes several state and local payroll-related taxes that employers must manage. These include state income tax withholding, local income tax withholding, and unemployment insurance contributions. Here's a breakdown of Maryland-specific payroll taxes for 2025:

Calculating payroll taxes in Maryland

Payroll tax calculations in Maryland depend on several factors, including:

  • Employees’ filing status
  • County of residence
  • Exemption allowances
  • Wage frequency
  • Taxable wage bases

For employees, the main payroll taxes are: 

  • Maryland state income tax
  • Local tax
  • Federal income tax
  • FICA (Social Security and Medicare taxes)

For employers, the main payroll taxes are:

  • Maryland Unemployment Insurance (UI)
  • Federal Unemployment Tax (FUTA)

Checking the Comptroller’s withholding guides and Department of Labor notices each year ensures accurate payroll tax handling.

It’s essential to stay updated on the current rates and regulations, as they can change annually.

Leverage payroll software for compliance in Maryland

Managing payroll in Maryland requires accuracy due to complex regulations. Errors can lead to penalties and legal risks, but QuickBooks streamlines payroll management to ensure compliance. It automatically calculates, files, and pays federal and state payroll taxes—with a 100% accuracy guarantee.** You'll stay current with Maryland tax law changes, easily generate reports for filings, and get up to $25,000 in penalty coverage if issues arise.**


Disclaimer: 

**Accuracy Guaranteed: Available with QuickBooks Online Payroll Core, Premium, and Elite. We assume responsibility for federal and state payroll filings and payments directly from your account(s) based on the data you supply. As long as the information you provide us is correct and on time, and you have sufficient funds in your account, we’ll file your tax forms and payments accurately and on time or we’ll pay the resulting payroll tax penalties. Guarantee terms and conditions are subject to change at any time without notice.

Tax penalty protection: If you receive a tax notice and send it to us within 15 days of the tax notice we will cover the payroll tax penalty, up to $25,000. Additional conditions and restrictions apply. Only QuickBooks Online Payroll Elite users are eligible to receive tax penalty protection.

This content is for information purposes only and information provided should not be considered legal, accounting or tax advice or a substitute for obtaining such advice specific to your business. Additional information and exceptions may apply. Applicable laws may vary by state or locality. No assurance is given that the information is comprehensive in its coverage or that it is suitable in dealing with a customer’s particular situation. Intuit Inc. does not have any responsibility for updating or revising any information presented herein. Accordingly, the information provided should not be relied upon as a substitute for independent research. Intuit Inc. cannot warrant that the material contained herein will continue to be accurate, nor that it is completely free of errors when published. Readers should verify statements before relying on them.


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