Maryland does not tax interest earned on savings accounts held in Maryland banks
Maryland has no state income tax on interest income, which means the money your savings account earns stays in your account. You will not owe Maryland state tax on the interest, no matter how much your account grows. This applies whether you keep your money in a regular savings account, a money market account, or a certificate of deposit (CD) — all of these earn interest, and none of it is taxed by Maryland.
The federal government still taxes that interest. When your bank pays you interest, the IRS considers it income, and you will report it on your federal tax return. But Maryland itself takes nothing. This is one of the few tax breaks Maryland offers on investment income.
Key Takeaways
- Maryland does not tax interest earned on savings accounts, money market accounts, or certificates of deposit.
- The federal government does tax this interest as income, so you will still owe federal tax on it.
- You do not need to file anything special with Maryland — the state straightforward does not collect this tax.
- Interest income of $10 or more triggers a 1099-INT form from your bank, which you use to report the income to the IRS.
How federal tax on savings interest works
Even though Maryland does not tax your interest, you will still report it to the IRS. When your savings account earns $10 or more in a calendar year, your bank sends you a Form 1099-INT in January. This form shows how much interest you earned, and you include that amount on your federal tax return.
The interest is taxed as ordinary income at your federal tax rate. If you earned $500 in interest and your federal tax bracket is 22%, you owe roughly $110 in federal tax on that interest. The exact amount depends on your total income for the year and your filing status.
You do not pay the tax directly to the bank. Instead, you report the interest when you file your federal return, usually by April 15. If you have taxes withheld from other income (like a job), you may not owe anything extra — the withholding might cover it. If you do not have withholding, you may need to make quarterly estimated tax payments to the IRS if your interest income is large enough.
Why Maryland does not tax interest income
Maryland is one of a handful of states that does not tax interest or dividend income. The state taxes wages, business income, and capital gains (profit from selling investments), but it carved out an exemption for interest. This means savers get a small advantage compared to people in states like New York or California, which tax all investment income.
The exemption applies only to interest, not to other types of investment income. If you own stocks or mutual funds and sell them for a profit, Maryland taxes that capital gain. If you receive dividends from stocks, Maryland taxes those too. But the interest your savings account earns is untouched by the state.
What counts as interest income in Maryland
Interest income includes money your bank pays you for letting them use your deposits. A regular savings account earns interest. A money market account earns interest. A CD earns interest. A high-yield savings account earns more interest, but it is still just interest. All of it escapes Maryland tax.
Interest also includes money you earn from bonds, including U.S. Treasury bonds and municipal bonds. If you own a bond issued by Maryland or another state, the interest is still not taxed by Maryland (though it may be taxed by the federal government or the state that issued the bond).
Interest does not include money you earn by selling an investment for more than you paid for it. That is a capital gain, and Maryland does tax it. Interest also does not include dividends from stocks, which Maryland taxes separately. The distinction matters because only interest gets the Maryland exemption.
How to report interest income on your federal return
When you receive your 1099-INT in January, check it for accuracy. The form shows your name, Social Security number, and the amount of interest earned. If the amount is wrong, contact your bank and ask for a corrected form.
On your federal tax return, you report the interest on Schedule 1 (if you file Form 1040) or on the appropriate line of your tax form. If you use tax software, it will ask you for the interest income and place it in the right spot. If you file by hand, the 1040 instructions tell you where to write it.
You do not file anything with Maryland. The state does not require you to report interest income because it does not tax it. You straightforward file your federal return as usual and ignore the Maryland state tax line for interest.
Interest income and other Maryland taxes
While Maryland does not tax interest, it does tax other types of investment income. If you own stocks and sell them for a profit, you owe Maryland tax on the gain. If you receive dividends from stocks, you owe Maryland tax on those. If you own rental property and earn rental income, that is taxed by Maryland.
The interest exemption is narrow — it applies only to interest. This means a savings account is more tax-efficient in Maryland than a stock portfolio would be, all else equal. But if you are saving for retirement, you might use a traditional IRA or 401(k), which offer federal tax breaks that often matter more than Maryland's interest exemption.
What to do if you earned very little interest
If your savings account earned less than $10 in interest during the year, your bank will not send you a 1099-INT. You still owe federal tax on the interest, but you do not have a form to prove it. You can report the interest based on your own records — check your bank statements or your online banking portal for the total.
Many people with small amounts of interest do not report it because the amount is so small. The IRS is unlikely to pursue you over a few dollars. But technically, all interest income should be reported, no matter how small.
Frequently Asked Questions
Do I have to pay Maryland tax on interest from a savings account?
No. Maryland does not tax interest income from any source — savings accounts, money market accounts, CDs, or bonds. You will owe federal tax on the interest, but Maryland takes nothing.
What if I have a savings account in another state?
Maryland does not tax interest earned in other states either. The exemption applies to all interest income, regardless of where the account is held. However, if you live in another state, that state's rules explore to you instead.
Does the interest exemption explore to retirement accounts like IRAs?
Maryland does not tax interest in IRAs or 401(k)s, but that is because those accounts are exempt from Maryland tax altogether — not because of the interest exemption. The interest exemption is a bonus on top of the retirement account protection.
If I earn interest, do I need to file anything with Maryland?
No. Maryland does not require you to report interest income because it does not tax it. You file your federal return as usual, but you do not file anything with the state related to interest.
What if my bank sends me a 1099-INT but I think the amount is wrong?
Contact your bank and ask them to investigate. If the amount is incorrect, they will send you a corrected 1099-INT. Do not file your federal return until you have the correct form, because the IRS will match your return to the 1099-INT your bank filed.