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Tax Year 2026Updated July 13, 2026

Does Maryland Tax Tips in 2026?

Yes - Maryland fully taxes tip income in 2026. Maryland has not adopted the federal OBBBA tips deduction (IRC §224). Maryland computes its income tax from Maryland adjusted gross income and has a history of selectively decoupling from federal tax provisions. All tip income remains subject to Maryland's graduated income tax rates (up to 6.5% on income over $1,000,000) plus mandatory county income taxes ranging from 2.25% to 3.30%. The combined state-plus-county rate on tips can approach 8%-10% depending on the county and income level.

How Maryland's Tips Tax Treatment Works

Maryland's non-conformity to the OBBBA tips deduction stems from two factors: its use of Maryland-specific adjusted gross income and its history of selective decoupling from federal tax changes.

Maryland AGI as the starting point: Maryland computes its income tax from "Maryland adjusted gross income," which starts from federal AGI but applies Maryland-specific modifications. While some federal AGI changes do flow through to Maryland, the OBBBA tips deduction requires explicit Maryland legislative adoption. No such legislation has been enacted.

Selective decoupling history: Maryland has a well-established pattern of choosing which federal tax provisions to adopt and which to reject. The state has previously decoupled from federal bonus depreciation rules, the Qualified Business Income Deduction (QBID) phase-in timing, and other provisions. This selective approach means that new federal deductions do not automatically apply in Maryland - each must be evaluated and potentially adopted through Maryland legislation.

County tax compounding: Maryland is one of the few states with mandatory county-level income taxes. Because the county tax is computed on the same Maryland taxable income, the non-conformity impact is multiplied. A tipped worker pays the state rate plus their county rate on tip income, with no deduction at either level.

Federal Tips Deduction Quick Reference

DetailValue
IRC Section§224 (OBBBA)
Maximum deduction$25,000 tips
Deduction typeAbove-the-line (Schedule 1-A)
FICA still applies?Yes (Social Security 6.2% + Medicare 1.45%)
MFS eligible?No (MFJ or Single/HoH only)
Effective datesJan 1, 2025 – Dec 31, 2028
Maryland treatmentDoes not conform

Worked Examples Comparing Federal and Maryland Treatment

Example 1: Restaurant server in Montgomery County (single filer, $40,000 income, $15,000 in tips)

Federal return:
Qualified tip income: $15,000
Tips deduction claimed: $15,000 (capped at $25,000)
Estimated federal tax savings: $1,800.00

Maryland return:
Maryland does not recognize the federal tips deduction. The full $15,000 in tip income is subject to Maryland's 4.75% state income tax plus Montgomery County's 3.20% piggyback tax. Estimated MD state tax on tips: $712.50. Estimated county tax: $480. Combined state + county burden on tips: approximately $1,192.50.

Example 2: Bartender in Montgomery County (single filer, $70,000 income, $25,000 in tips - federal cap reached)

Federal return:
Qualified tip income: $25,000
Tips deduction claimed: $25,000 (capped at $25,000)
Estimated federal tax savings: $5,500.00

Maryland return:
Maryland does not recognize the federal tips deduction. The full $25,000 in tip income is subject to Maryland's 4.75% state income tax plus Montgomery County's 3.20% piggyback tax. Estimated MD state tax on tips: $1,187.50. Estimated county tax: $800. Combined state + county: approximately $1,987.50.

Maryland's County Piggyback Tax Amplifies the Impact

Unlike most states, Maryland requires all counties and Baltimore City to impose a local income tax on the same taxable income used for the state tax. County rates range from 2.25% (the statutory minimum) to 3.30% (Frederick County). Most of Maryland's most populous jurisdictions - Montgomery County, Baltimore County, Howard County, Prince George's County, and Baltimore City - impose a 3.20% rate.

This means a tipped worker earning in the 4.75% state bracket in Montgomery County faces a combined 7.95% effective rate on their tip income. This is substantially higher than neighboring states: Virginia's top rate is 5.75% with no local income tax, and Washington D.C.'s rate for the same income range would be 8.5% but without a county add-on.

Maryland's 2026 High-Earner Brackets

Maryland's FY2026 budget act added two new high-earner brackets: 6.25% on income over $500,000 and 6.5% on income over $1,000,000. While most tipped workers will not reach these brackets, high-earning restaurant owners or those with significant other income could face these elevated rates on their tip income as well. Combined with the county piggyback tax, the top combined rate in Maryland can exceed 9.8%.

The Federal AGI Starting Point Nuance

Maryland starts its tax computation from federal AGI. One might expect the OBBBA tips deduction (which reduces federal AGI) to automatically flow through. However, Maryland applies its own modification schedule to federal AGI, and the Comptroller has not indicated that the OBBBA tips deduction is recognized in Maryland's modification rules. Without explicit guidance or legislation, the deduction does not reduce Maryland taxable income.

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Frequently Asked Questions

Does Maryland conform to the federal 'no tax on tips' deduction under the OBBBA?
No. Maryland computes its income tax from Maryland adjusted gross income (MD AGI), not federal taxable income. The OBBBA tips deduction (IRC §224) reduces federal AGI, but Maryland has not enacted legislation to adopt this deduction at the state level. Maryland has a history of selectively decoupling from federal tax provisions.
Why doesn't the federal tips deduction automatically reduce my Maryland taxes?
Maryland uses its own AGI computation that starts from federal AGI but applies Maryland-specific modifications. While some federal AGI changes flow through, the OBBBA tips deduction requires explicit Maryland adoption because Maryland's tax code has historically decoupled from numerous federal provisions. No enabling legislation has been enacted.
What Maryland income tax rate applies to my tip income?
Maryland uses a graduated rate schedule with 10 brackets. Most tipped workers earning between $3,000 and $100,000 of Maryland taxable income fall in the 4.75% bracket. Higher earners face rates of 5% to 6.5%. In addition, all Maryland residents pay a mandatory county income tax (2.25% to 3.30%) on the same taxable income, making the effective combined rate 7% to nearly 10%.
How do Maryland county taxes affect the impact of non-conformity on tipped workers?
Maryland is unique in imposing mandatory county-level income taxes that piggyback on the state tax base. Because tips remain fully taxable at both the state and county level, the non-conformity impact is amplified. A tipped worker in a county with a 3.20% rate (Montgomery, Baltimore County, Howard, Prince George's, Baltimore City) pays nearly 8% combined on their tip income - significantly more than in states without local income taxes.
Has Maryland proposed any legislation to create a state tips deduction?
As of August 2026, no pending Maryland legislation would create a state-level tips income deduction or adopt the OBBBA tips provision. Maryland's history of selective decoupling from federal tax provisions makes adoption uncertain. The Maryland Comptroller has not issued guidance indicating any plan to conform to the OBBBA tips deduction.
Do I still get the federal tips deduction on my federal return if I live in Maryland?
Yes. The federal tips deduction under IRC §224 applies on your federal Form 1040 regardless of where you live. You can deduct up to $25,000 in qualified tip income from your federal AGI. This deduction simply does not carry over to your Maryland state or county returns.