Credits and breaks for Maryland families: the EITC, the $500 child credit, child care and the 529

A working Maryland family pays two income taxes on one return, about 7.95% combined for most, and gets most of its relief back through credits rather than deductions. The big one is the earned income credit: a Maryland resident who qualifies for the federal EITC can take 50% of it against the state tax, or 45% of it as a refundable credit that pays out whatever the state tax does not use up. A worker with no qualifying child gets 100% of the federal credit, refundable, at any age, and a filer with an ITIN gets the Maryland credit even though the IRS pays nothing. The child tax credit is $500 per child under 6 and refundable, but only for families with federal AGI under $15,000, phasing out by $25,000. Child care expenses come off income on Line 9 and earn a credit of up to 32% of the federal credit. Each $3,200 exemption for a child is worth about $254 a year; a $2,500 deposit into a Maryland 529 is worth about $199. None of the credits requires anything the federal return does not already compute, except the decision to claim them.

Every one of these breaks keys off federal adjusted gross income, which Form 502 copies onto Line 1. The federal child tax credit, the federal standard deduction and the new federal deductions for tips and overtime are below that line and have no Maryland effect; a tipped server who owes no federal tax on $10,000 of tips still owes Maryland and the county about $795 on them. The Maryland credits are what the state offers instead.

The Maryland earned income credit

If you qualify for the federal EITC you qualify for Maryland’s, and the Maryland credit is computed from the federal one. There are two versions, and the return takes whichever helps more.

Nonrefundable, Line 22: 50% of the federal EITC, limited to the Maryland state tax. Refundable, Line 44: 45% of the federal EITC; the state tax is paid first and the remainder is refunded. A family with $700 of state tax and a $5,000 federal EITC uses $700 of the credit on Line 22 and receives the other $1,550 of the 45% figure as a refund. The nonrefundable 50% only wins for a filer whose state tax is larger than 45% of the federal credit, which at EITC incomes is rare.

Maryland then goes beyond the federal credit in three ways, all made permanent by the Family Prosperity Act of 2023. A worker with no qualifying child receives 100% of the federal childless EITC, refundable, with no minimum or maximum age: the federal credit’s 25-to-64 age window does not apply, so a 20-year-old or a 68-year-old with low earnings qualifies. A filer who uses an ITIN rather than a Social Security number, and who would qualify for the federal credit if the number were an SSN, receives the Maryland credit computed as if it were. And most counties pay a local earned income credit against the county tax on Line 29, at a percentage of the federal credit that varies by county. Investment income must stay under the federal limit, $11,950 for 2025 on the Comptroller’s page (verify 2026). The federal rules on who is a qualifying child, and the tie-breakers for separated parents, carry over unchanged; see The earned income credit and EITC for divorced and separated parents.

Below the earned income credit sits the poverty level credit, Line 23, for a filer whose income is under the federal poverty guideline for the household: 5% of earned income, nonrefundable, with a county version on Line 30. A family that qualifies for the EITC usually does better with it; the return takes the larger of the two, not both.

The $500 child tax credit

Form 502CR Part CC allows a refundable credit of $500 for each qualified child: a dependent under 6 on the last day of the year, or a dependent 6 to 16 with a disability certified by a physician. The income limit is federal AGI of $15,000 or less. Since the 2025 budget law the credit phases out above that, by $50 for each $1,000 of federal AGI over $15,000, reaching zero at $25,000. A family with a 3-year-old and $12,000 of income gets $500; with $20,000 of income, $250; with $26,000, nothing. Maryland defines “dependent” for this credit by the Internal Revenue Code as it stood on December 31, 2024, so a federal change to the definition would not reach it. The credit is paid even when there is no tax, which for a family at this income is the point. Starting with 2027 returns, not 2026, counties may add their own child credit or grant to families who receive the state credit, and a $1,000 refundable credit for the parent of a stillborn child takes effect.

Child and dependent care: a subtraction and a credit

Maryland gives child care expenses two bites. First, the expenses that were used to compute the federal child and dependent care credit, up to the federal limits of $3,000 for one child and $6,000 for two or more, are subtracted from income on Form 502, Line 9. For a family in the 4.75% band in a 3.20% county, a $6,000 subtraction is worth $477. Second, Form 502CR Part B allows a credit of 32% of the federal credit itself for federal AGI up to a threshold, phasing down to zero at $109,300 single or $169,900 joint on the 2024 form (verify 2026). The credit is refundable for families with federal AGI under $59,400 single or $89,100 joint on the same form (verify 2026); above that it only reduces tax. A family whose federal credit is $1,200 gets up to $384 from Maryland. The federal credit must actually be computed on Form 2441, with the provider’s name and tax number, for either Maryland benefit to follow. See The child and dependent care credit.

Exemptions, the standard deduction and head of household

Each dependent is a $3,200 exemption on Line 19, listed on Form 502B; a child who is a dependent at any age counts, including a college student. At the 7.95% combined rate the exemption saves $254 per child. The exemptions step down with federal AGI: on a joint or head-of-household return each $3,200 falls to $1,600 above $150,000, to $800 above $175,000 and to zero above $200,000; on a single return the steps are $100,000, $125,000 and $150,000. A single parent filing as head of household gets the larger standard deduction, $6,800 for 2026 (verify; $6,700 for 2025), the same as a joint return, and uses the joint rate schedule, so the 4.75% band runs to $150,000 instead of $100,000. The federal head-of-household rules decide who qualifies; see Head of household and Who claims the child.

A married couple where both spouses work also takes the two-income subtraction on Line 14, up to $1,200, roughly $95 of tax. It is Maryland’s small answer to the marriage penalty built into a joint rate schedule that is not twice the single one.

The 529 subtraction

Contributions to the Maryland College Investment Plan are subtracted on Form 502SU, code xa, up to $2,500 per contributor per beneficiary per year; payments into a Maryland Prepaid College Trust contract get the same $2,500 per contract under code xb. Two parents contributing to two children’s accounts can subtract $10,000. A grandparent who opens an account of their own gets a separate $2,500 on their own return. Anything over the cap carries forward, for ten years in the investment plan, still subject to the $2,500 annual limit. Out-of-state plans earn nothing. A bill to raise the cap to $4,850 did not pass in 2025, and nothing moved in 2026. Because the federal return asks nothing about 529 deposits, this is the subtraction most often left off a Maryland return; a $2,500 deposit saves about $199 in a 3.20% county. Withdrawals for qualified education expenses are not taxed, and a withdrawal for anything else brings the earlier subtraction back as an addition.

Education beyond the 529

Maryland has no tuition credit or deduction of its own; the federal American Opportunity and Lifetime Learning credits are the whole story on tuition, and since they are credits rather than deductions they have no Maryland effect. What Maryland does have is the Student Loan Debt Relief Tax Credit: a refundable credit of up to $5,000 for a borrower with at least $20,000 of student loans taken out and $5,000 still owed, awarded by the Maryland Higher Education Commission to applicants who file by September 15 and claimed on Form 502CR Part CC with MHEC’s certificate. The statewide pool is $9 million for tax year 2026, so awards are rationed and the typical award is well under the maximum. The money must be used to pay down the loan or it is recaptured. Teachers subtract up to $250 of classroom supplies, and from 2026 so do publicly funded pre-K teachers. The Quality Teacher Incentive credit pays up to $1,500 of unreimbursed graduate tuition for teachers in Maryland public schools.

The county line

The county tax on Line 28 is computed on the same taxable income as the state tax, so every exemption and subtraction above cuts both. Credits are different: the state credits on Form 502CR reduce only the state tax. What the county gives back is on Lines 29 to 31: the local earned income credit, the local poverty level credit and a few county-specific credits carried from Form 502CR Part BB. A family that has zeroed out the state tax with the EITC still owes the county tax minus the local EITC, which is why a Maryland refund is often smaller than the refundable credits alone would suggest.

Outside the return

Two property programs reach families and are claimed from the State Department of Assessments and Taxation, not on Form 502. The Homeowners’ Property Tax Credit is a circuit breaker for any age: gross household income of $60,000 or less and net worth under $200,000, not counting the home and retirement accounts, caps the property tax on the first $300,000 of assessment at a sliding share of income; apply by April 15 to see it on the July bill. The Renters’ Tax Credit, up to $1,000 by check, is open to renters under 60 who had a dependent child under 18 at home, received no housing subsidy and have household income under SDAT’s chart: $21,150 for a household of two, $26,650 for three, $32,150 for four on the 2025 chart (verify 2026). Applications are due October 1.

What trips people up

• Taking the 50% nonrefundable EITC when the 45% refundable version pays more. Software usually gets this right; a hand-prepared return often does not.
• Skipping the Maryland EITC because the IRS denied the federal one for age or an ITIN. Maryland pays it anyway.
• Expecting the $500 child credit at $30,000 of income. It is gone at $25,000.
• Child care expenses with no Form 2441. Neither the Line 9 subtraction nor the Part B credit follows without the federal computation.
• A 529 contribution nobody mentioned. The federal return did not ask.
• Both parents contributing to one child’s account and claiming $5,000 on one Form 502SU line. It is $2,500 per contributor; show both.
• Applying for the Student Loan Debt Relief credit after September 15, or spending the refund on something other than the loan.
• Filing head of household in Maryland with a different status than the federal return. The statuses match.