On May 13, 2019, Governor Hogan signed a bill to expand Maryland’s Child and Dependent Care Tax Credit. Taxpayers who have expenses for child and dependent care to allow them to work can claim a credit for these expenses on their federal tax return. Maryland has long allowed an income tax credit that was a percentage of the federal credit; however, the credit was limited to those with relatively low income –$50,000 federal adjusted gross income (AGI) or less. The new bill expands the reach of the credit in 3 ways:
- The credit is now available to taxpayers at higher income levels – individuals with federal AGI of $92,000 or less and married couples filing a joint return with federal AGI of $143,000 or less.
- The state credit starts at 32% of the federal credit and is reduced for taxpayers with federal AGI over $30,000 (individuals) or $50,000 (married filing joint return). Taxpayers who fall into this “phaseout” range will be eligible for a credit of between 1% and 31% of the federal credit, depending on their income level.
- If the amount of the credit exceeds a taxpayer’s state income tax, the taxpayer may be able to get a refund of the excess. This applies to taxpayers whose federal AGI does not exceed a certain level: $50,000 for individuals and $75,000 for married couples filing a joint return.
- The income thresholds above will be indexed for inflation.
The new bill will apply to 2019 tax returns.
Maryland also allows a subtraction modification for child and dependent care expenses, which is allowed in addition to the credit and is not affected by these changes.
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