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Maryland Governor's Budget Includes Tax Relief for Retirees

Posted on Jan. 26, 2021

Maryland Gov. Larry Hogan (R) is again proposing a $1 billion tax cut for retirees, but the proposal is not expected to gain momentum in the Democrat-controlled General Assembly.

Hogan's fiscal 2022 budget sets aside $1 billion to provide tax relief for Maryland retirees through a new income tax exclusion. During a January 19 press conference, he said, “Even though we’re one of the best places to live in America — we have so many great things going for us — we’re losing many of our best citizens.” 

“People have been lifelong Marylanders and have contributed so much and . . . are moving to other states for one reason: our state’s sky-high retirement taxes,” Hogan said.

Last year Hogan also proposed a $1 billion tax cut for retirees, which failed to advance. Under that plan, the state would have eliminated tax on the first $50,000 of income for retirees with up to $100,000 in federal adjusted gross income.

Hogan is also proposing to expand the Hometown Heroes Tax Credit to exempt law enforcement, fire and rescue, corrections, and emergency response personnel from state tax on all retirement income related to their service and increase an income tax exemption for military pensions.

Kali Schumitz of the Maryland Center on Economic Policy, however, told Tax Notes that veterans, retirees, and first responders are unlikely to have been as affected by the economic downturn as other residents. “It doesn't appear that there is any new reason for the legislature to focus on those this year when so many of their constituents are facing really urgent needs, like being able to stay in their homes and afford enough food,” she said.

Hogan’s budget appears to acknowledge those needs, proposing a $1 billion stimulus package designed to deliver tax relief to families, small businesses, and workers who have lost their jobs during the COVID-19 pandemic. The tax relief is included in the Recovery for the Economy, Livelihoods, Industries, Entrepreneurs, and Families Act S.B. 496/H.B. 612, introduced January 20 at the request of the governor.

The Senate version of the bill is scheduled for a hearing January 26 in the Senate Budget and Taxation Committee, and the House version is set for a hearing February 4 in the House Ways and Means Committee.

For tax years starting after December 31, 2019, but before January 1, 2022, the bill would create an income tax subtraction for federal, state, and local grants and loans applied for on or after March 5, 2020, including forgiven loans.

It would provide direct stimulus payments of up to $750 for families and $450 for individuals, which the governor estimates would provide relief to more than 400,000 Marylanders. It would also permanently repeal all state and local income taxes on unemployment benefits, costing the state about $180 million.

The bill would also provide $300 million in sales tax credits to small businesses and extend unemployment tax relief for small businesses. It is an emergency measure and would take effect upon enactment.

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