Maryland Withholding Tax

Withholding Tax clarified - Maryland charges a Withholding Tax on the sale of real estate. Many people believe the Maryland Withholding Tax is actually a sales tax or a transfer tax. That is not true. Actually, it is truly only a Withholding Tax. Basically Maryland wants to withhold funds from the sale of real estate to protect the states share of income tax from those people making a profit on the sale of their property.

Withholding Tax Rate - Individuals are subject to a 6.75% rate and Entities are subject to a 8.25% rate. The tax is computed as the rate times the net proceeds of sale.

Exceptions to the Withholding Tax Requirement - If you fall into any of these categories you will not have to pay Withholding Tax at the time of settlement.

  1. Maryland residents - Maryland residents are exempt from withholding tax.
  2. Out of state residents selling their former principal residence - In order to qualify for the exemption, you need to have lived in the property as your former principal residence for 2 out of the past 5 years and the property was registered as your principal residence with the SDAT.
  3. Entitites that are timely registered with the SDAT. - To verify if your entity is registered, you can check the State Registration Page.
Exemptions - If you do not fall within one of the above exceptions, you can apply in advance of settlement for an exemption from the tax. You can get the exemption Application from the State.

Refunds - If you do pay withholding tax, but feel that some or all of the tax you paid is due as a refund, you can get the Refund Application from the State.

The State has published some further information for those that are interested.

This is a very tricky area. We get lots of questions about this tax since the number of situations varies dramatically. Please do not hesitate to email us with any questions.