Does Maryland Tax Overseas Income?

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Jan 18, 2025
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If you're a Maryland resident earning income abroad, you might be wondering if Maryland taxes your overseas income. The answer is yes—Maryland taxes the worldwide income of its residents. However, there are credits and exclusions that can help reduce the impact of double taxation, ensuring you’re not taxed twice on the same income. Here’s what you need to know about Maryland’s tax rules for overseas income.

Maryland Taxes Worldwide Income

As a Maryland resident, you are required to report all your income, whether it’s earned in the U.S. or abroad. Maryland state income tax applies to your worldwide income, meaning any earnings you receive from foreign sources must be included in your Maryland tax return. This includes income such as wages, interest, dividends, rental income, and other types of earnings, no matter where they are generated.

It’s important to note that Maryland’s tax laws focus on your residency status. If you are a Maryland resident, you are obligated to file a state tax return and pay taxes on your total income, regardless of where it’s earned.

How to Reduce Double Taxation

While Maryland taxes all of your income, there are ways to reduce the financial impact of paying taxes both to a foreign country and to Maryland. Here are the two main ways you can potentially lower your tax burden:

  1. Foreign Tax Credit: If you paid taxes to a foreign country on your overseas income, you may be eligible for a Foreign Tax Credit. This credit allows you to offset the taxes you paid to the foreign government against your Maryland tax liability. By claiming this credit, you can reduce your Maryland taxes to avoid being taxed twice on the same income.
  2. Foreign Earned Income Exclusion (FEIE): In some cases, you may qualify for the Foreign Earned Income Exclusion, which allows you to exclude a portion of your foreign-earned income from U.S. federal income taxes. While Maryland typically follows federal tax rules, some exclusions may apply to your state taxes as well. This exclusion can help reduce the amount of income that is subject to Maryland tax.

Conclusion

Maryland taxes worldwide income for its residents, but provisions like the Foreign Tax Credit and the Foreign Earned Income Exclusion can help minimize double taxation. If you earn income abroad, it’s important to be aware of these tax benefits to reduce your Maryland tax liability.