MD Non Resident Withholding Tax

What is it?

It is a withholding levied by the State of Maryland to facilitate the payment of capital gains income taxes by non-residents who sell real property located in Maryland.

When does it take effect?

For any settlements occurring October 1, 2003 or thereafter. The withholding rate set forth below took effect June 1, 2012.

How much tax is withheld?

  • Individuals (effective 6/1/12): 7% of the total payment from the sale
  • Entities (effective 1/1/08): 8.25% of the total payment from the sale

“Total Payment”is defined as the sales price less: 1) payoffs of any existing liens over 90 days old; and 2) other expenses arising out of the sale

To whom does it apply?

Any non-resident individual or entity (corporation, partnership, LLC, etc., that is: 1) not formed under the laws of the State of Maryland; and 2) not registered with the Maryland Department of Assessments and Taxation (“MDAT”) to do business in the State more than 90 days prior to the settlement).

How does it work?

At settlement, the settlement agent is required by law to withhold the prescribed funds unless the Seller provides:

  1. A Maryland Residency Affidavit; OR
  2. A certificate from the Comptroller’s office showing that no tax is due on the sale of the property (must apply at least 21 days before settlement); OR
  3. A certificate from the Comptroller showing that less tax is due than the withholding rate provided, in which case the lesser amount will be withheld (must apply at least 21 days before settlement); OR
  4. An Affidavit that the property sold qualifies as Seller’s principal residence under IRC Section 121 (must also be listed as primary residence with MDAT).

What happens to the money withheld?

The funds are remitted to the Clerk of the Court who will in turn forward the funds to the Comptroller’s office where they are held pending the filing of a non-resident income tax return by the seller. For more detailed information on this withholding requirement, go to:http://individuals.marylandtaxes.com/estatetax/withholding.asp