When county officials in Montgomery County discuss the possibility of raising income taxes, it’s essential to look at how these taxes compare to those in neighboring regions. Income taxes can be a bit intricate, given the variety, but let’s try to summarize it.
Residents here deal with two personal income taxes, along with federal taxes and both state and county taxes. Maryland’s income tax system is progressive, meaning the rates increase with income. Until recently, Montgomery County had a flat income tax rate capped at 3.2%. However, in 2021, representative Julie Parakovic Kerr helped pass a law that allows for brackets. Nearby Anne Arundel and Frederick counties have adopted these brackets, whereas Montgomery County still uses the flat rate. This year, the general assembly authorized a tax increase to 3.3% to cover costs previously managed by state government, a proposal from county executive Mark Elrich, currently under council consideration.
This analysis compares Montgomery County’s income taxes (combining state and local rates) to those in other East Coast areas. West Virginia is included in this comparison, as it allows local taxes. While most states don’t permit local income taxes, a few do. The data also breaks down tax calculations for places like New York City and Yonkers, as well as Wilmington, Delaware; Newark, New Jersey; and Philadelphia and Pittsburgh in Pennsylvania. Most of these jurisdictions have income or wage taxes. The majority of states utilize a progressive tax system, except for Massachusetts, Pennsylvania, Georgia, and North Carolina, where rates vary significantly. For instance, Virginia’s top bracket starts at $17,000, while in New York, it’s set much higher at $25 million.
Starting with single filers earning over $100,000, below is a chart depicting the combined state and local income tax rates for 2025.
People earning this amount are almost considered middle class in Montgomery County. Here, only New York City and Washington, D.C., impose higher taxes than Montgomery County and most other large counties in Maryland.
Now, if we look at single filers with incomes surpassing $200,000, it’s clear, as noted by council staff, that these earners significantly contribute to Montgomery County’s overall adjusted income.
At this income level, Montgomery County’s tax rates generally outpace those of New York City alone.
The chart below illustrates tax rates for single filers making over $1,000,000.
New Jersey, D.C., and New York City take the lead over Montgomery County and several Maryland counties.
Next, let’s evaluate the highest income tax rates currently enforced across these jurisdictions. In Maryland, an added 2% tax on capital gains is applied for individuals earning over $350,000. This doesn’t include the additional 0.1% taxes the county can impose, which so far have not been enacted. Recent legislative moves also mean gradual itemized deductions for incomes above $200,000. Massachusetts charges an 8.5% tax on certain capital gains, deviating from its standard flat rate of 5%.
At this upper income level, Montgomery County outranks New York City, Yonkers, and Newark. The county’s rates are presently under consideration at an increase of 0.1%.
When D.C. Councillor Jack Evans remarked about being thankful for Maryland’s tax increases, he was quite serious!
Think about it—when your income tax rates align closely with those of New York, New Jersey, and D.C., it makes for some unfavorable comparisons. Furthermore, it’s important to note that Montgomery County’s total rates exceed those of Delaware and are significantly higher than Virginia’s. Even with potential changes as the county council contemplates a new maximum rate of 3.3%, it’s clear that this tax structure is likely pushing high earners to migrate to states like Florida and Texas.
The competitive disadvantage for Montgomery County is evident. It’s crucial for councils to address this issue before it escalates further.
