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Maryland Withholding Tax
Generally
Maryland charges a "Withholding Tax" on the sale of real estate. The Maryland Withholding Tax is actually not a sales tax or a transfer tax. It is simply to withhold funds from the sale of real estate to protect Maryland's potential share of state income tax due from those out of state people/companies making a profit on the sale of their Maryland real estate.
Withholding Tax Rate
The withholding tax rate is 8.00% for Individuals and 8.25% for entities. The tax is computed as the rate times the net proceeds of sale.
Exceptions to the Withholding Tax
If you fall into any of these automatic exemption categories you will not have to pay Withholding Tax at the time of settlement.
1. Maryland residents
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.
3. Entities that are timely registered with the SDAT.
Exemption Applications for those that are not automatically exempt
If you do not fall within one of the above automatic exemption exceptions, you can apply in advance of settlement for an exemption from the tax. You can get the exemption application from the state website. Choose the appropriate year and look for the MW506AE form.
Refunds of the withholding tax
If you do pay the withholding tax, but feel that some or all of the tax you paid is due as a refund, you can get a refund application from the state website. Choose the appropriate year and look for the MW506R form.
