Maryland Governor Larry Hogan signed the RELIEF Act into law on February 15, 2021. The RELIEF Act is intended to help reverse some of the adverse economic conditions brought about by the COVID-19 pandemic. This legislation includes changes to personal and business tax filings, relief payments for certain individuals, a sales and use tax credit, and changes to pass-through entity taxation.
Let’s look more closely at some of the key provisions in the $1 billion plus relief package.
Short for “Recovery for Economy, Livelihoods, Industries, Entrepreneurs and Families,” the RELIEF Act affects both individual and business taxpayers. Maryland’s comptroller, Peter Franchot, strongly recommends that taxpayers impacted by the new legislation hold off from filing until revised forms have been published, in order to take maximum advantage of the relief that’s offered.
Effect on Individual Taxpayers
Following are some of the highlights of the RELIEF Act that affect individual taxpayers.
Maryland Economic Impact Payments
The RELIEF Act authorizes economic impact payments to individuals who received the Maryland Earned Income Tax Credit for the 2019 tax filing year. Only current Maryland residents will receive the economic impact payment. While these payments will not be subject to Maryland tax, they may be subject to federal income tax.
Individual taxpayers will receive a $300 economic impact payment. Spouses who file jointly, along with surviving spouses and heads of household (as defined by the Internal Revenue Code), will receive a $500 economic impact payment.
Taxpayers who received their last tax refund by direct deposit will see their state economic impact payment sent to the same bank account. Taxpayers who received their 2019 refund by paper check can expect their state economic impact payment via a mailed paper check.
Subtractions from Income
Taxpayers, thanks to the RELIEF Act, can subtract certain amounts from their federal adjusted gross income (FAGI). In order to be eligible for the subtraction, these amounts must be included in the taxpayer’s federal adjusted income for the same year.
The RELIEF Act allows for the following two subtractions for the 2020 and 2021 tax years.
If you received unemployment benefits during the taxable year, you can subtract the amount of benefits you received on your Maryland tax return. Note that this subtraction is only available to those with a filing status of single, married filing jointly, head of household or surviving spouse status with a FAGI of less than $100,000.
Coronavirus relief payments
You can subtract COVID-19 relief payments, including grants or loans applied for after March 5, 2020, on your Maryland tax return.
The RELIEF Act allows for a subtraction from income for Maryland economic impact payments for the 2021 tax year only.
State economic impact payments
You can subtract your Maryland economic impact payment from your FAGI on the 2021 Maryland tax return.
Marylanders who claim the federal Earned Income Tax Credit might be eligible for a refund of a percentage of this amount through their Maryland income tax return. The RELIEF Act significantly increases the percentage from 28% for the 2019 tax year to 45% for the 2020, 2021 and 2022 tax years. This is expected to result in increased refunds for some taxpayers.
Effect on Business Taxpayers
Following are some of the highlights of the RELIEF Act that affect business taxpayers.
Subtractions from Income
The RELIEF Act allows certain businesses to subtract certain amounts included in their federal taxable income for the 2020 and 2021 tax years.
Coronavirus relief payments
Corporations can subtract COVID-19 relief payments, such as grants or loans applied for after March 5, 2020, from their Maryland tax return. The subtraction includes any relief loan amounts that have already been forgiven.
Sales and Use Tax Discount
The RELIEF Act allows for an alternative credit against the gross amount of sales and use tax that is owed by some vendors. The credit is available for March, April and May 2021. To qualify for this credit, all of the following conditions must be true:
- The vendor’s return is filed timely;
- The vendor’s return is filed using the comptroller’s bFile system;
- The gross amount of sales and use tax required to be paid with the return does not exceed $6,000; and
- The vendor has not taken the credit allowed under Section 11-105 of the Tax-General Article (known as the vendor discount) for the same period.
Note that this credit does not apply to sales by a marketplace seller (defined under Section 11-101 of the Tax-General Article). Likewise, marketplace facilitators reporting sales by a marketplace seller are ineligible for the credit.
The amount of the credit is equal to the lesser of $3,000 or the sales and use tax collected in the month for which the vendor qualifies for the credit. The comptroller’s office will issue new forms and instructions for this new credit.
This sales tax credit is automatic and is based on a sliding scale up to $3,000. Here’s how it works: say your business brings in $100,000 in monthly revenue and you collect $6,000 in sales tax. Under the new legislation, you’d only remit $3,000. In another scenario, if you have $50,000 in monthly revenue and you collect $3,000 in sales tax, you would hold onto all of it.
Maryland’s comptroller extended the filing deadlines for sales and use tax returns to allow taxpayers to claim the credit. As we noted earlier, the credit applies to March, April and May tax returns. The March return is due by April 20. Sales and use tax returns that are normally due between January 20 and April 14, 2021 are now due by April 15, 2021.
April 20 is the first due date for which the RELIEF Act credit is available. The RELIEF Act credit, therefore, is unaffected by the extended sales and use tax deadline.
Pass-Through Entity Tax and Member Addition
The RELIEF Act includes long-awaited clarification of Maryland state income tax imposed on certain pass-through entities. The RELIEF Act:
- Authorizes a pass-through entity to elect to pay the tax imposed with respect to certain shares of all members of the pass-through entity, rather than only resident members
- Allows each pass-through entity member to claim a credit against the income tax for the member’s proportionate share of the tax paid by the pass-through entity
- Requires certain taxpayers to add the amount of the credit back to federal adjusted gross income to determine Maryland adjusted gross income
Comptroller Peter Franchot talks about the RELIEF Act in this video:
The Maryland Comptroller’s office has FAQs for individuals, small businesses and nonprofits on its website.
You can read the legislation in its entirety here.
Contact us here or call 800.899.4623.