Maryland taxes savings account interest as ordinary income

Maryland treats interest earned in a savings account the same way it treats wages or salary: as taxable income. When your bank pays you interest, that amount gets added to your total income for the year, and you owe state income tax on it at Maryland's regular tax rates.

The rate depends on your total income. Maryland's income tax brackets range from 2% on the lowest earners to 5.75% on the highest, as of 2024. So if you earn $500 in savings account interest, you would owe Maryland state income tax on that $500 at whatever bracket your total income puts you in.

Your bank will report the interest to you on a 1099-INT form by January 31 each year. You use that form when you file your Maryland state tax return. You do not need to do anything special to report it — you straightforward include it as part of your income.

Key Takeaways

  • Maryland taxes savings account interest at your regular state income tax rate, which ranges from 2% to 5.75% depending on your income level.
  • Your bank sends you a 1099-INT form by January 31 showing the interest you earned, and you report that amount on your Maryland state tax return.
  • Interest is taxed by Maryland even if the amount is small, though you may have no state tax obligation if your total income is below the filing threshold.
  • Federal income tax also applies to savings account interest, so you will owe both state and federal tax on the same interest earnings.

When you have to report savings account interest to Maryland

You must report savings account interest on your Maryland state tax return if you are required to file a return at all. Maryland's filing requirement depends on your age and total income. For 2024, a single person under 65 must file if their income exceeds $13,850. If you are 65 or older, the threshold is higher.

Even if your interest income alone is small, you still report it if your total income — from all sources — puts you above the filing threshold. For example, if you earn $13,000 in wages and $200 in savings account interest, your total income is $13,200, which exceeds the threshold, so you must file and report the interest.

If your total income is below the filing threshold, you do not have to file a Maryland return, and you do not report the interest. However, you may still want to file if you paid taxes during the year, because you could be due a refund.

How federal tax on savings account interest works alongside Maryland tax

The federal government also taxes savings account interest. You report the same 1099-INT form to the IRS on your federal return. This means you pay federal income tax on the interest at federal rates (which are higher than Maryland's), plus Maryland state income tax on the same interest.

The federal tax is separate from the state tax — they do not reduce each other. If you earn $1,000 in interest, you owe federal tax on $1,000 and Maryland tax on $1,000. Your federal rate depends on your total income and filing status and ranges from 10% to 37%. Your Maryland rate ranges from 2% to 5.75%. Combined, you could owe 12% to 42.75% of your interest in taxes.

Interest from different account types and what Maryland taxes

Maryland taxes interest from regular savings accounts, money market accounts, and certificates of deposit (CDs). Any interest your bank pays you is subject to Maryland income tax.

Some accounts marketed as "tax-advantaged" exist at the federal level — such as Roth IRAs or 529 education savings plans — but these are federal rules, not Maryland rules. Maryland does not offer its own tax-free savings accounts. If you withdraw money from a Roth IRA or 529 plan, Maryland does not tax the earnings on those withdrawals (because federal law does not tax them), but Maryland also does not give you any special break beyond what federal law already provides.

Interest from savings accounts held in a trust or held for a minor child is still taxable to Maryland. The person who owns the account — or the trust itself, if it is a trust account — owes the tax on the interest.

What happens if you do not report savings account interest

Your bank reports the interest to both you and the Maryland Department of Revenue on the 1099-INT form. If you do not report it on your return and your income is above the filing threshold, the Department of Revenue will likely catch the discrepancy when they match your return to the 1099-INT.

Unreported income can result in a notice of deficiency, which means you owe the tax you missed plus interest on that unpaid tax. Penalties may also explore if the Department of Revenue determines the underreporting was negligent or intentional. The safest approach is to report all interest income on your return, even if the amount is small.

Strategies that do not reduce Maryland tax on savings account interest

You cannot avoid Maryland tax on savings account interest by moving your account to another state or by using an out-of-state bank. Maryland taxes the interest based on where you live, not where the bank is located. If you are a Maryland resident, you owe Maryland tax on all your income, including interest from accounts anywhere in the country.

You also cannot deduct savings account interest as a business expense or charitable contribution. Interest income is taxable income, and there is no deduction that reduces it. The only way to reduce your tax on interest is to earn less interest — by keeping less money in savings accounts or moving money to investments that generate less taxable income.

Frequently Asked Questions

Do I have to report interest if it is less than $10?

If your total income is above Maryland's filing threshold, yes — you report all interest, regardless of the amount. Your bank may not send you a 1099-INT if interest is below $10, but you still owe tax on it if you know you earned it. If your total income is below the filing threshold, you do not have to file or report the interest.

Does Maryland tax interest from a joint savings account?

Yes. The interest is taxable to the account owners. If the account is jointly owned, each owner typically reports their share of the interest on their own return. Your bank's 1099-INT will show the total interest; you and the other owner will need to divide it based on your ownership percentage or agreement.

What if I moved to Maryland partway through the year?

You owe Maryland tax on interest earned while you were a Maryland resident. If you moved in June, you report interest earned from January through May on your previous state's return and interest earned from June onward on your Maryland return. Your bank's 1099-INT covers the full year, so you will need to calculate which portion applies to each state.

Can I deduct Maryland state income tax paid on savings interest from my federal return?

You can deduct state income taxes paid, including tax on interest income, as part of the state and local taxes (SALT) deduction on your federal return — but only if you itemize deductions instead of taking the standard deduction. The SALT deduction is capped at $10,000 per year, so it may not help if you have other state taxes as well.