subtracting out-of-state locality tax in MD

[mwhicks1]

I was a full year resident in the state of Maryland in 2025. I worked in Philadelphia, PA, and per the reciprocity agreement with MD and PA, I paid MD tax on my earnings. So I don't need to file a PA state return.

The city of Philadelphia also charges me a local wage tax as a non-resident. It comes directly out of my paycheck. I believe I can ask for a credit from the state of Maryland for the tax I paid. When filling this out on Turbotax (Deluxe version, on a Mac), I am able to fill this out by claiming that it is tax from the state of PA, and entering the right amounts for the city of Philadelphia (basically: MD's view of the wages on which I was charged tax, and the amount of tax paid). When I check the 502CR I believe this all looks correct.

My questions:

1. Does this seem right, i.e., am I able to claim this credit and is this the way to do it?

2. The MD filing instructions say I need to include the tax return of the state in which I paid the tax that I'm claiming as a credit. In this case it's not a state, it's a locality (Philadelphia), and I have no return to include. I just have my W-2. Is including the W-2 sufficient, perhaps with a note?

3. Lastly, will I be able to file electronically to MD, or will the need to include the Phila/PA return block me from doing that?

[NanoChemist]

I am trying to figure this out too. I found this post, but i am not sure if this is the correct method
https://ttlc.intuit.com/community/state-taxes/discussion/as-a-full-time-maryland-resident-that-had-t...

[MindyB · Accepted solution]

To answer your questions:

1. Is this the right way to claim the credit?
Yes. Even though Maryland and Pennsylvania have a reciprocity agreement for state taxes, that agreement does not cover local taxes like the Philadelphia Wage Tax.

Maryland allows a credit for income taxes paid to another state and its political subdivisions (localities). Since you paid a local tax to Philadelphia on income that Maryland is also taxing, you are entitled to a credit on your Maryland return to prevent double taxation. Using Form 502CR is the correct way to handle this. In TurboTax, entering Philadelphia's information as if it were the "state" tax is effective.

Here is the navigation path for the credit for taxes paid to other states: State > Go to state returns > Maryland  and Continue > Continue through the interview until you reach Take a look at Maryland credits > Other Credits > Credit for taxes paid to another state > Add PA. You'll get a warning that PA is a reciprocal state, but you can claim a credit on any other type of income taxed by both PA and MD.

2. Is the W-2 sufficient documentation?
The Maryland Comptroller should be aware that Philadelphia does not require non-residents to file a separate city tax return if their employer correctly withholds the tax. Because there is no "local return" for you to provide, your W-2 is your primary piece of evidence.

On the W-2, you should see Philadelphia listed in the local tax boxes. When you file, including the W-2 is usually sufficient. If you are e-filing, TurboTax will package your W-2 data with the return. If you are filing by paper, you would simply attach the W-2. If Maryland ever asks for more information (which is possible), a simple letter explaining that you are a non-resident of Philadelphia and therefore not required to file a local return is all they need.

3. Will this block electronic filing?
Likely no, it should not block you from e-filing. Maryland’s tax system is designed to accept Form 502CR electronically. TurboTax is built to handle this credit and will transmit the necessary data from your W-2 and the 502CR as part of your electronic tax package. If you do encounter an e-filing reject, you can print your return and mail it in.