Tax Year Prior to 2020: Maryland refund changes dramatically at 12,199<->12,200 income boundary

My modifing the W-2 it also changes things on the federal return and that change on the federal return can affect things on the state return.

Now from what I figure, the total state tax liability is $540 based on the following:

First $1000 at 2% is $20
Next $1000 at 3% is $30
Next $1000 at 4% is $40
Next $9483 at 4.75% $450
Total tax liability is $540

So anything over $540 (box 17 of the W-2) I would expect to be refunded to him. This is also assuming that this W-2 income is the absolutely only income received in 2019. It's also without taking into account MD tax laws that may change any deductions he may or may not be allowed on the state return. For example, if a single person is entitled to a standard deduction or self-exemption amount on the state return, that amount may be reduced or totally eliminated if they qualify to be claimed as a dependent on someone else's return.

Thanks.  The interesting part is even if his deduction was totally reduced, it seems his tax liability would still only be $540, but instead TurboTax calculates about $750 which seems definitely wrong.  The other interesting thing is the taxes don't seem to be stepped based on tax brackets, but instead, once he his $12,200 income, they calculate a full $750 additional tax.  At $12,199 Turbotax calculates he would get all that back as a refund.  Is it possible that making $1 more would really trigger such a huge tax penalty?  In this case, he only made $12483 in total... just $284 dollars above the $12,199 boundary.  He'd be better off asking his boss to take the money back as "payroll error". 🙂 

I guess now I should report a problem to Turbotax support?

One thing to note is that Maryland has local taxes based on the county of residence. It ranges from somewhere between 2.6% to 3.2% for most counties. You may want to make sure you account for the local taxes too.

I don't think the previous answers are correct, though I don't claim to be an expert.

The simple answer is: Yes, that $1 does make a huge change.  Here is what I think you are seeing.

If a single person's total income (including any MD additions/subtractions) is less than $12,200, then no state tax is owed to MD.   They don't even require you to file.  Tax owed = $0.

However, once you hit $12,200, then the person is required to file.  And, the tax is not just on the amount over $12,199.  All of the $12,200 is eligible to be taxed after subtracting the standard or itemized deduction.    The standard deduction is 15% of the income, with a max of $2250.   

So, if the income is $12,200, the standard deduction would be 15% of that = $1830.  That would leave $10,370 of taxable income.  That would lead to $440 of MD tax (it's $90 tax for the first $3,000+ 4.75% of the remaining $7,370), plus the county tax that we all get to pay (the expensive counties at 3.2% would be $331).   So, if you are in an expensive county like Montgomery or Howard or 4 or 5 others, the total tax is $440 + $331 = $771.   

Very lame that MD does it that way.  Income of $12,199 = $0 tax.  Income of $1 more costs $771 in the expensive counties.

Yes, I think you are exactly right.  I warned my kids to monitor how much money they make.  Of course if they can make a lot more than $12,199, it's ok... however if anywhere close to that number they should ask for time off toward the end of the year.