Before we know it, the year will be coming to a close, which means that now is the time for tax planning and preparation. But as you begin to strategize for the impending tax season, it’s important to familiarize yourself with several recent state and federal laws that will impact your tax liability.
On April 1st, 2022 Governor Larry Hogan signed into law what is being touted as the largest tax relief measure in the state’s history. The $1.86 billion tax break package prioritizes aging constituents, vulnerable populations, and families. Here are the three major components of this new legislation that could influence your year-end tax planning:
Relief for Retirees
The Retirement Tax Elimination Act is a nonrefundable tax credit for those over the age of 65. Single taxpayers will receive a $1,000 credit, and taxpayers filing a joint return will receive a $1,750 credit – as long as both taxpayers are over the age of 65. If only one taxpayer is over the age of 65 in a joint return, the credit amount is $1,000. Additionally, to qualify for the tax credit, the taxpayer must also make less than $100,000 if filing single and $150,000 if filing a joint return.
Relief for Employers
The federal Work Opportunity Tax Credit (WOTC) is a general business credit that allows employers to claim a credit against certain wages paid to individuals with a barrier to employment. The goal is to address the labor shortage by encouraging businesses to hire overlooked populations. The new Maryland nonrefundable tax credit would be against state income tax or up to 50% of the federal WOTC. But businesses cannot deduct wages used to generate the WOTC on the tax return. This credit applies to taxable years beginning January 1, 2022, through December 31, 2028, and uses the same framework as the IRS in determining qualified individuals.
Relief for Working Families
A component of the legislation’s sales tax relief, known as “Family Budget Boosters”, will make various childcare and select healthcare items exempt from sales tax as of July 1, 2022. Exempt items include diapers, diaper rash cream, baby wipes, baby bottles, baby bottle nipples, infant car seats, oral hygiene products, certain thermometers, pulse oximeters, blood pressure monitors, respirators, and certain diabetic care products as well as other items.
This legislation will undoubtedly minimize the tax burden for many Maryland residents. Every situation is different and the tax professionals at Ellin & Tucker can walk you through how these new tax breaks will affect you. We will continue to update the article with new information as it becomes available. Should you need any assistance or have any questions, don’t hesitate to contact one of our tax professionals.