How Maine income tax works: federal AGI, Maine’s own deduction, three brackets and a new surcharge

Maine starts its return where the federal return reaches adjusted gross income, and then does its own arithmetic from there. Form 1040ME copies federal AGI onto line 14, adds a short list of items and subtracts a longer one, takes off a Maine standard deduction of $15,700 single or $31,400 joint for 2026 (not the federal figures), takes off a $5,300 personal exemption for the taxpayer and another for a spouse, and runs what is left through three brackets: 5.8%, 6.75% and 7.15%. New for 2026, taxable income over $1,000,000 single or $1,500,000 joint pays 2% more, so the top rate is 9.15%. There is no local income tax anywhere in the state. The deductions Congress created in 2025 for tips, overtime, seniors and car-loan interest never reach the Maine return, and dependents earn a credit rather than an exemption.

Three things follow from that design. First, anything deducted federally above the AGI line, an IRA contribution, a health savings account deposit, half of self-employment tax, student loan interest, cuts Maine tax automatically. Second, anything deducted federally below the line is gone: the federal standard deduction, the itemized deductions, the qualified business income deduction, and the new 2025 deductions. Maine substitutes its own versions of the first two and nothing for the rest. Third, because Maine’s standard deduction is lower than the federal one and its exemption covers only two people, a household can owe Maine tax on income the IRS left alone.

Who files

A Maine resident who has to file a federal return files a Maine one, and so does anyone with Maine tax to pay who is below the federal filing line. The Department’s instructions say you may not need to file when you have no addition modifications and your Maine income is below your standard deduction plus personal exemption, but add in the same breath that you must file to get a refund. Since Maine’s biggest credits are refundable and are claimed only on a return, the practical rule is: if Maine tax was withheld, or you paid rent or property tax, or you have children, file. Part-year residents and nonresidents with Maine income file the same Form 1040ME with Schedule NR attached; that is covered in Moving to Maine. Married couples use the federal filing status, with one exception for couples where one spouse is a nonresident, who may file Schedule NRH.

Where it starts: federal AGI, line 14

Line 14 of Form 1040ME is federal adjusted gross income, line 11 of the federal 1040. AGI is income after the Schedule 1 adjustments and before the standard deduction, so the federal standard deduction of $32,200 joint, the $6,000 senior deduction, the tips and overtime deductions, the car-loan interest deduction and the 20% qualified business income deduction are all still in the number Maine starts with. Maine Revenue Services said so plainly in its presentation on the 2025 federal law: those provisions are “all below-the-line,” “all are temporary,” and “the Legislature did not choose to extend conformity to any of them.” No add-back is needed because nothing was taken out. A server with $9,000 of tips that are tax-free federally owes Maine tax on every dollar of them.

Maine’s conformity is to a fixed date. Under the April 2026 supplemental budget (L.D. 2212) the state follows the Internal Revenue Code as it stood on December 31, 2025, with its own exceptions. The exceptions that reach a household return are the four deductions above, bonus depreciation, and the new federal exclusion for qualified small business stock. The main choice the Legislature made in a household’s favor was conformity to the federal 529 and section 179 rules.

Additions: Schedule 1A

Most people have nothing on Schedule 1A. The lines that do come up:

Other states’ municipal bond interest. Interest on bonds issued by states other than Maine, which is exempt federally, is added here. Interest on Maine bonds stays exempt.

Bonus depreciation. Maine has “seldom conformed to federal bonus depreciation,” in the Department’s words, and it did not conform to the 100% bonus or to the new section 168(n) allowance in the 2025 federal law. A sole proprietor, landlord or farmer who took bonus depreciation on a federal Schedule C, E or F adds it back on Schedule 1A, line 4, with a pro forma Form 4562, and recovers it through subtractions in later years on Schedule 1S, line 10. The totals match over the asset’s life; the timing does not. Section 179 expensing is a different matter: Maine accepts the federal limits, so the simplest way to write off equipment in one year on both returns is section 179, not bonus.

Qualified small business stock gain. Gain excluded federally on QSBS first acquired after July 4, 2025 is added back. Stock bought before that date keeps the federal exclusion.

Subtractions: Schedule 1S

This is where Maine gives money back. The two biggest lines belong to retirees and are covered in full in Maine for retirees; the rest are below.

The 529 line is a cliff, not a phase-out. At $200,001 of federal AGI on a joint return the subtraction is zero. The contribution can go to NextGen 529, Maine’s plan, or to any other state’s plan.

The Maine standard deduction, and the itemized alternative

Maine has its own standard deduction, and for 2026 it is deliberately below the federal one: $15,700 single and married filing separately, $23,550 head of household, $31,400 joint and surviving spouse. Full conformity to the federal amount “would have cost approximately $31 million,” so the Legislature phased it in over two years; Maine matches the federal figure starting in 2027. Age and blindness add to it: $1,650 per condition for a married person, $2,050 per condition for a single person or head of household. A married couple both over 65 claims $31,400 plus $3,300.

The deduction phases out. Once Maine AGI (line 16, which is federal AGI after the additions and subtractions) passes $102,250 single, $153,400 head of household or $204,550 joint, the deduction shrinks in proportion to how far over the line you are, and it is gone $75,000, $112,500 or $150,000 past the line. A joint filer at $279,550 of Maine AGI has lost the whole $31,400. The phase-out applies to itemized deductions too.

Itemizing in Maine goes on Schedule 2, and the instructions open with “If you itemized deductions on your federal return, complete Form 1040ME, Schedule 2,” so in practice Maine itemizing follows federal itemizing. Schedule 2 starts from the federal itemized total, removes state and local income taxes, and caps everything except medical and dental expenses at $37,100 for 2026. Then you take the larger of Schedule 2 or the Maine standard deduction. The answer can differ from the federal one: a couple who itemizes federally on $38,000 of mortgage interest, property tax and gifts, plus $9,000 of Maine income tax, has $38,000 for Schedule 2 after the income tax comes out, capped at $37,100, and that beats $31,400, so they itemize here too. A couple with $33,000 federal itemized of which $8,000 is Maine income tax has $25,000 for Maine and takes the $31,400 standard deduction instead.

The personal exemption: two people, not the household

Line 6b of the computation, the personal exemption, is $5,300 for the taxpayer and $5,300 for a spouse on a joint return, $10,600 in all. There is no exemption for dependents. Someone who can be claimed as a dependent on another return gets $0. The exemption phases out over $125,000 of Maine AGI starting at $341,000 single, $375,050 head of household, $409,150 joint and $204,575 married filing separately.

Dependents are not forgotten; they move to the credit side of the return as the dependent exemption tax credit, $305 each or $610 for a child under 6 (2025 figures; 2026 to come), which is worth more than a $5,300 exemption at 5.8% would have been and is refundable. It is covered with the other family credits in Credits and breaks for Maine families.

The rates

Maine AGI minus the deduction minus the exemption is Maine taxable income, line 19. The 2026 brackets, indexed by Maine itself:

The Department’s schedule states the tax as a fixed amount plus a rate on the excess: for a joint return, $3,181 plus 6.75% of taxable income over $54,850, and $8,237 plus 7.15% over $129,750. The surcharge thresholds are indexed from 2027.

Everything in taxable income is taxed at the same rates: wages, interest, dividends, long-term capital gains, rental income, unemployment, gambling winnings. There is no lower rate for capital gains and no Maine exclusion for them. A couple whose $40,000 long-term gain is taxed at 0% federally pays Maine 5.8% to 7.15% on it.

The surcharge is the one genuinely new piece. L.D. 2212, signed in April 2026, added 2% on Maine taxable income over $1,000,000 single, $750,000 married filing separately, and $1,500,000 joint, surviving spouse and head of household, for tax years beginning on or after January 1, 2026, so it reaches back to income earned before the law passed. The Department revised its rate schedule on May 20, 2026 and its withholding tables afterward. Someone who sells a business or a block of stock in 2026 and lands at $1,400,000 of single taxable income pays 9.15% on the last $400,000, and should have paid estimated tax on it.

The credits

Maine’s credits live on Schedule A. The ones most households touch are refundable: if the credit exceeds the tax, the difference is paid out, which is why a return with zero tax can still produce a four-figure refund.

The property tax fairness credit is the one most often missed. Renters qualify: 15% of rent is treated as property tax, and the credit pays when that figure exceeds 4% of total income. It is claimed on Schedule PTFC/STFC, attached to Form 1040ME.

Withholding and estimated payments

Employers withhold Maine tax from the allowances claimed on Form W-4ME, the state’s own certificate, using tables the Department revised in 2026 for the surcharge. Supplemental wages paid separately may be withheld at a flat 5%. For a one-job wage earner with no other income the withholding lands close. For two-earner couples, people with a second job, and anyone with investment or rental income, it does not, because each paycheck is withheld as if it were the household’s only income.

Estimated payments on Form 1040ES-ME are required when you expect to owe $1,000 or more after withholding and credits and your prior-year liability was $1,000 or more. The four installments are due April 15, June 15 and September 15, 2026 and January 15, 2027. The safe harbor is the smaller of last year’s tax (if it was a full-year return) or 90% of this year’s; there is no 110% rule for higher earners. One wrinkle is Maine’s own: if taxable income not covered by withholding jumps by $500,000 or more over the same period a year earlier, the “unusual event” rule requires 90% of the tax on that jump to be paid in, and the prior-year safe harbor does not cover it. A big 2026 sale, especially one that triggers the surcharge, is exactly that event. Underpayment is figured on Form 2210ME, and under a 2025 law there is no penalty on the fourth installment if the tax is paid in full by January 31 (verify).

How to file

Most Maine returns are e-filed with the federal return. The Department’s Maine Tax Portal files Form 1040ME at no charge and takes payments. The return is due April 15, 2027. Maine grants an automatic six-month extension to file when at least 90% of the tax is paid by the April date; the payment goes in with Form 1040EXT-ME, and an e-filed balance due goes with Form 1040ME-PV. The extension is to file, not to pay. Dates, forms and free-file options are in Maine calendar and forms.

What trips people up

• Expecting the federal tips, overtime or senior deduction to lower Maine tax. It never reaches line 14.
• Using the federal standard deduction. Maine’s is $15,700 / $23,550 / $31,400 for 2026, and it phases out.
• Claiming an exemption for a child. There is none; the dependent exemption tax credit on Schedule A takes its place.
• Skipping Schedule PTFC/STFC because “we rent” or “we don’t owe anything.” Renters qualify, and the credit is refundable.
• A 529 contribution left off Schedule 1S, or claimed at $200,001 of AGI.
• Bonus depreciation carried into Maine with no Schedule 1A add-back.
• Social Security left in income because the software did not fill Schedule 1S line 3.
• Pension income deducted in full without reducing the cap by Social Security received.
• The extension treated as an extension to pay.