Lori Meadows
In Maryland, students can avail of free tax return preparation through TerpTax, a Volunteer Income Tax Assistance (VITA) chapter. This service is provided by the Internal Revenue Service (IRS) to help low- to mid-income individuals, including students, with their tax returns. In addition to federal taxes, Maryland residents are subject to state and local income taxes. The statewide income tax rate in Maryland is supplemented by county income taxes, which are assessed at a flat rate. While students in Maryland may not owe income taxes, they are still required to file a federal tax return if they earned an income during the calendar year.
| Characteristics | Values |
|---|---|
| State income tax | Exists |
| Local income tax | Exists |
| Student Loan Debt Relief Tax Credit | Exists |
| Volunteer Income Tax Assistance (VITA) | Exists |
| GLACIER Tax Prep | Available for F-1/F-2 and J-1/J-2 status holders |
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What You'll Learn
International students and taxes
International students in Maryland need to be aware of their tax obligations, especially when it comes to filing tax returns and paying any necessary taxes. The information provided here is for informational purposes, and international students should consult a qualified tax professional or the Internal Revenue Service (IRS) for specific guidance on their unique situations.
Tax Residency Status
The first step for international students is to determine their tax residency status. This can be done through services like Sprintax, which can help determine residency status for tax purposes. F, J, Q, or M nonresident aliens for tax purposes are generally required to file an annual U.S. income tax return using Form 1040NR or 1040NR-EZ, along with IRS Form 8843, which confirms their nonresident status. F, J, and M students are typically considered "exempt individuals" for up to five calendar years, making them nonresidents for tax purposes.
Income Tax
International students who earned money in Maryland during the tax year may need to file a Maryland state tax return in addition to federal tax returns. The deadline for both is typically April 15. The income threshold for filing a Maryland state tax return may vary from year to year, so students should refer to the latest guidelines. If students worked outside of Maryland, they may need to file a state tax return for the state where they worked.
Maryland has a statewide income tax, and residents also pay additional income taxes based on the county they live in. Nonresidents pay a flat rate of 2.25%, while resident rates vary by county. It's important to note that students may be eligible for deductions and credits, such as contributions to the Maryland Prepaid College Trust or the Maryland Broker-Dealer Investment Plan.
Tax Preparation Assistance
Resources like TerpTax, a Volunteer Income Tax Assistance (VITA) chapter, offer free tax return preparation services to students. Additionally, GLACIER Tax Prep provides free federal income tax return preparation for F and J status holders. The Office of International Services at universities may also provide access to resources like Sprintax to assist with tax form preparation. These services can help international students navigate the tax filing process and ensure they meet their tax obligations.
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Student loan debt relief
In Maryland, students do pay income tax, which is based on the county in which they live. County income taxes are assessed at a flat rate, which means the rate does not change based on income level. Nonresidents pay a flat rate of 2.25%, while the rate for residents varies by county. In addition to county taxes, Maryland also levies a statewide income tax, with a top rate of 3.20%.
Now, onto the topic of student loan debt relief, which is a separate but related issue. Student loan forgiveness has been a highly debated topic in recent years, with some calling for widespread loan forgiveness and others arguing that borrowers should repay their debts. The College Cost Reduction and Access Act, signed into law by President George W. Bush in 2007, introduced the concept of student loan forgiveness for those working in public service. This act, known as the Public Service Loan Forgiveness (PSLF) program, remains the only form of loan forgiveness available.
Under the PSLF program, borrowers who work in the public service sector and meet certain conditions may be eligible for student loan forgiveness. These conditions include being employed by a qualifying government or non-profit organization, working full-time, having Direct Loans or consolidating federal loans into a Direct Consolidation Loan, repaying loans under specific plans, and making 120 qualifying monthly loan payments.
Additionally, Pell Grant recipients with an annual income below certain thresholds ($125,000 for individuals and $250,000 for married couples) may qualify for up to $20,000 in student loan debt relief. However, it is important to note that as of August 2023, no applications for student loan forgiveness under President Biden's proposal are being accepted due to legal challenges and Supreme Court rulings. The administration is working on an alternative approach, which is expected to be announced before the 2024 election.
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Local income taxes
In Maryland, local governments levy their own taxes on personal income. Counties in Maryland collect income taxes at varying rates depending on the county, ranging from 2.25% to 3.20%. The income tax is a flat rate, meaning the rate does not change based on income level. Nonresidents pay a flat rate of 2.25%, while the rate for residents varies by county.
Maryland also has a statewide income tax, with a top rate that is applied to taxable income. This means that an individual's location within the state will determine whether they owe local and/or state taxes.
In addition to income taxes, Maryland has a sales tax of 6%. Unlike many other states, there are no local sales taxes in Maryland, so this rate does not vary depending on location within the state. The sales tax applies to most goods, including personal property like furniture and clothing, but not to most services. Most food sold at grocery stores or markets is exempt from sales tax, while prepared food served in restaurants is taxed at the full 6% rate.
There are also a number of deductions and credits available to Maryland taxpayers. For example, taxpayers can claim a deduction of up to $2,500 per year for contributions to the Maryland Prepaid College Trust or the Maryland Broker-Dealer Investment Plan. Credits can also be claimed for income taxes paid in other states and for childcare expenses.
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State income tax credits
In Maryland, there are several credits, deductions, and subtractions that can be applied to state income tax. These include:
Child and Dependent Care Credit
If you claimed the Child and Dependent Care Credit on your federal income tax return, you may be entitled to a credit on your Maryland state income tax return. The credit starts at 32% of the federal credit allowed and is in addition to the subtraction modification available for child and dependent care expenses.
Earned Income Tax Credit (EITC)
The EITC is a benefit for working people with low to moderate incomes. If you qualify for the federal earned income tax credit and claim it on your federal return, you may be entitled to a Maryland earned income tax credit on your state return equal to 50% of the federal tax credit. The Maryland EITC will reduce or eliminate the amount of state and local income tax owed.
Student Loan Debt Relief Tax Credit
Maryland residents with at least $20,000 in undergraduate or graduate student loan debt may qualify for this credit.
Independent Living Tax Credit
You may be able to claim a credit towards your state income tax equal to 50% of the incurred expenses to make your home more accessible. The Department of Housing and Community Development must certify the qualified expenses.
Endowments of Maryland Historically Black Colleges and Universities Tax Credit
Taxpayers who make donations to a qualified permanent endowment fund held at an eligible Maryland Historically Black College or University may be eligible for a credit of 25% of the donation amount.
Credits for Homeowners and Renters
Maryland offers tax credits for homeowners and renters, such as the First-Time Homebuyer Savings Account Subtraction, which can be claimed by Maryland residents who have not owned or purchased a home in the state in the last 7 years and who have contributed to a first-time homebuyer savings account.
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Tax return preparation
In Maryland, students who earn an income may need to file a tax return and pay income tax. The state has both a statewide income tax and county-level income taxes. The statewide income tax rate varies, while the county income tax rates are flat and range from 2.25% to 3.20%. Additionally, Maryland has an estate tax and an inheritance tax, with exemptions and varying rates depending on the relationship between the deceased and the heir.
If you are a student in Maryland and need assistance with tax return preparation, there are several resources available. Here are some options to consider:
Free Tax Preparation Services:
The CASH Campaign of Maryland offers free tax preparation services for taxpayers with incomes under $64,000 to $67,000 per year. Their IRS-trained and certified staff and volunteers can help you prepare high-quality returns and access refunds and credits, such as the Earned Income Tax Credit and Child Tax Credit. They also provide assistance with back taxes and can help you schedule a tax preparation appointment.
Online Tools and Software:
The IRS Free File Program offers free online tools to help you prepare your tax returns. These tools can guide you through the process and make it more accessible.
Income Tax Courses:
Montgomery College in Maryland offers income tax courses for students interested in becoming income tax professionals. These courses are designed for both beginners and experienced tax preparers seeking continuing education credits. The college is an IRS Authorized Continuing Education provider, allowing students to receive IRS continuing education credit for specific courses. The courses cover various topics, including the Maryland Tax Preparers examination, federal and state tax returns, tax laws, ethics, and specific schedules and forms.
Tax Credits and Deductions:
When preparing your tax return, remember to consider any tax credits or deductions you may be eligible for. Maryland offers deductions for contributions to the Maryland Prepaid College Trust or the Maryland Broker-Dealer Investment Plan. You can claim credits for income taxes paid in other states and childcare expenses. Additionally, Maryland has a sales tax of 6%, and certain expenses, such as tuition fees or student loan interest, may be deductible or eligible for credits.
It is important to stay organized and keep track of all your tax documents when preparing your tax return. Ensure you have all the necessary forms and information before scheduling an appointment with a tax preparer or using online tools.
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Frequently asked questions
Students in Maryland are subject to the same income tax rules as everyone else. This means that if you have no income, you don't need to file for income tax. However, if you do have an income, you must file a federal tax return and may also need to file a state tax return.
In addition to federal income tax, Maryland residents pay income tax to the state, and their county of residence. The state income tax rate varies depending on income level, and the county income tax rate is a flat rate that also varies by county.
Yes, there are tax credits and deductions available for Maryland taxpayers. Students can access free tax return preparation through TerpTax, a Volunteer Income Tax Assistance (VITA) chapter, to learn more about their specific situation.
The deadline for filing your federal tax return is usually April 15. If you don't owe any taxes, there is no penalty for filing after the deadline. For those who owe a small amount, there is typically no penalty as long as the return is filed by June 15.
