The Complete Guide To Maryland Payroll & Payroll Taxes

Maryland payroll can be more complex than payroll in many states because employers may need to handle federal taxes, Maryland state income tax withholding, local income tax withholding, and state unemployment insurance.

Maryland employers also need to follow state labor rules covering minimum wage, payday requirements, new-hire reporting, overtime, and other HR compliance basics.

This guide breaks down the Maryland payroll taxes and labor laws small business owners need to know.

State Payroll Taxes in Maryland

Maryland payroll taxes are more complex than payroll taxes in states with no income tax because employers may need to withhold both Maryland state income tax and local income tax based on the employee’s residence.

Maryland employers may also need to pay state unemployment insurance tax, in addition to federal payroll taxes such as federal income tax withholding, FICA, and FUTA.

Note that Maryland businesses may also be responsible for other taxes, such as sales tax, use tax, or property tax, but those are separate from payroll taxes.

Getting A Maryland CRN Number For Your Business

Maryland employers need to register with the Comptroller of Maryland to get a Central Registration Number, or CRN, for employer withholding taxes.

Businesses can use Maryland’s Combined Registration Application to register for multiple tax accounts, including employer withholding and unemployment insurance. Before registering, most employers need a Federal Employer Identification Number, or FEIN. The Maryland Combined Registration Application says a FEIN is required for sole proprietors who pay wages to one or more employees, as well as corporations, LLCs, partnerships, and nonprofits.

Maryland Payroll Tax Exclusions & Exemptions

Some Maryland workers may qualify for withholding exemptions or special payroll tax treatment, depending on their residency, income, job type, or worker classification.

Maryland employees should use Form MW507 to claim state withholding exemptions and tell employers how much Maryland income tax to withhold. Employees who expect federal adjusted gross income over $100,000, or $150,000 if filing jointly, must use the exemption worksheet to recalculate their Maryland withholding exemptions.

Some types of work may also be excluded from Maryland unemployment insurance coverage, depending on the facts. Examples can include certain domestic service, religious service, maritime employment, or other narrowly defined employment categories.

Independent contractors are treated differently from employees. Businesses generally do not withhold payroll taxes for properly classified contractors, but contractors are still responsible for their own income and self-employment taxes. Maryland may apply an independent contractor test that looks at whether the worker is free from control, performs work outside the usual course of the business, and is engaged in an independently established trade or business.

This keeps the useful compliance info without turning the section into a long list of niche exceptions.

Maryland Labor Laws & Other HR Requirements

In addition to payroll taxes, Maryland employers must comply with state and federal labor laws governing minimum wage, sick and safe leave, new-hire reporting, child labor, paydays, breaks, and workers’ compensation.

How To Do Maryland Payroll In 6 Steps

Once you understand Maryland’s payroll taxes and labor rules, running payroll comes down to collecting the right information, calculating pay, withholding taxes, paying employees, and keeping accurate records.

Step 1: Register Your Business

Before running payroll in Maryland, make sure your business is registered for the proper employer accounts. Most employers need a Federal Employer Identification Number, a Maryland Central Registration Number, and a Maryland unemployment insurance account.

Maryland employers must also report newly hired and rehired employees within 20 days of the hire or rehire date.

Step 2: Gather Employee Payroll Documents

Before paying employees, collect the forms and information needed to calculate payroll correctly, including:

• Form W-4 for federal income tax withholding
• Maryland Form MW507 for state and local withholding
• Form I-9 for employment eligibility verification
• Direct deposit information, if applicable
• Pay rate, pay schedule, employee classification, and deduction information

Step 3: Calculate Gross Pay

Calculate each employee’s gross pay based on their pay type. For hourly employees, multiply hours worked by the hourly rate and include overtime when required. For salaried employees, divide the annual salary by the number of pay periods.

Include bonuses, commissions, tips, PTO, sick leave, reimbursements, and other taxable compensation when applicable.

If you’re strapped for time or have many employees, small business payroll software can streamline the process.

Step 4: Calculate Taxes & Deductions

Maryland employers must withhold federal income tax based on each employee’s Form W-4. Employers must also withhold Maryland state and local income taxes based on Form MW507 and the applicable local tax rate.

Employers and employees also pay FICA taxes. For 2026, Social Security tax is 6.2% for both employer and employee up to the $184,500 wage base. Medicare tax is 1.45% for both employer and employee, with no wage cap. Employers must also withhold the 0.9% Additional Medicare Tax from employee wages over $200,000.

Maryland unemployment tax is paid by the employer, not deducted from employee wages. For 2026, Maryland’s unemployment insurance taxable wage base is $8,500, and contributory employer rates range from 0.30% to 7.50%.

Finally, subtract any required or employee-authorized deductions, such as benefits contributions, retirement contributions, wage garnishments, or child support.

Step 5: Pay Employees

After calculating gross pay, taxes, deductions, and net pay, pay employees using an allowed payment method, such as direct deposit, paper check, or another approved method.

Maryland employers generally must pay employees at least once every two weeks or twice per month, with limited exceptions.

Step 6: Keep Payroll Records

Keep payroll records organized and secure. Records should include employee names, Social Security numbers, addresses, pay rates, hours worked, pay periods, payment dates, deductions, and tax records.

The IRS generally requires employment tax records to be kept for at least four years. FLSA payroll records should generally be kept for at least three years, while wage calculation records, such as timecards and work schedules, should generally be kept for at least two years.