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ANNAPOLIS — New reforms that raised the federal standard tax deduction but eliminated several individual deductions are causing a quandary for Marylanders who still want to itemize deductions on state returns.
Marylanders can itemize deductions for state income tax purposes only if they itemize on federal returns. In addition, a taxpayer can itemize an expense for state income tax purposes only if the expense can be claimed as a federal itemized deduction.
Del. William Wivell, R-Washington, presented a bill Wednesday to let taxpayers itemize Maryland returns regardless of whether they itemize on federal returns.
Now that it's tax season, taxpayers are feeling the pain.
According to legislative analysts, the state would lose $155.5 million in Fiscal Year 2020 and $108.6 million in FY 2021 if taxpayers could take those deductions.
Revenue to local governments would decrease by $100.7 million in FY 2020 and more than $70 million in successive years.
When federal reforms passed late in 2017, state officials realized that differences in the standard deductions — and caps on certain itemized deductions — would result in a windfall for the state and fewer refunds for some taxpayers, as long as the state and federal codes are coupled.
The comptroller's office estimated that the state would get more than $400 million in revenue during the current fiscal year that would normally go back to taxpayers. In fiscal year 2020, the state will get more than $315 million, according to estimates.
Wivell told the House Ways and Means Committee on Wednesday that Maryland is one of 10 states that mandate itemizing deductions on both state and federal returns.
He said that when the federal tax code was reformed in 1986, the General Assembly amended Maryland's code — raising the standard deduction and personal and dependent exemptions, adding a new tax filing status, and raising the minimum income for filing.
Last year's federal tax reform was the most comprehensive since 1986, he said, but Maryland had not gone far enough to adapt to it.
"Only 12 states have not acted to date," he said.
He had some support. Among those speaking in favor of the bill Wednesday was Paul K. Schwartz, representing the Maryland chapter of the National Association of Retired Federal Employees, who called the windfall "a tax hike on middle-class taxpayers."
"Last year, this committee said it was too soon to pass (a similar bill). This year, is it soon enough?"
Del. Susan Krebs, R-Carroll, has filed a similar bill, also heard Wednesday. She and Sen. Andrew Serafini, R-Washington, filed bills last year to allow deductions on state returns.
The committee will review the bill and vote on whether to take it to the full House for consideration.
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