How to Adjust Tax Withholding for Alimony Payments in Maryland
If you live in Maryland and file annual state income tax returns, you may need to make adjustments to your tax withholding to reflect the alimony payments you make or receive. However, because Maryland treats alimony income and payments in the same way as the federal government, you should review the IRS alimony rules prior to adjusting your federal or Maryland tax withholding.
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Instructions
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Familiarize yourself with alimony tax rules. The IRS rules for alimony -- which the state of Maryland also follows -- allow you to claim a deduction for alimony payments you make to a former spouse during the year. You report the deduction as an adjustment to income on the first page of your Form 1040 to arrive at your Adjusted Gross Income (AGI). Because Maryland uses your federal AGI to calculate your state income taxes, it's unnecessary to claim a second state deduction. However, both the state and federal governments require the recipient to report all alimony as taxable income.
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Adjust your W-4 for alimony payments. If you are the former spouse responsible for making the alimony payments and earn your income from employment, it may benefit you to adjust the amount your employer withholds from your paycheck for state and federal taxes. When you start a job, your employer will require you to submit a federal W-4 form so your employer knows how much to withhold from each paycheck. The form allows you to claim allowances for the tax credits and deductions you anticipate claiming on your return at the end of the year so your employer can estimate what your taxable income will be. However, if your W-4 doesn't include allowances for the alimony deduction you will claim, your employer may be withholding too much. By increasing your allowances, you can receive more money in each paycheck, but you will receive less of a tax refund on your Maryland and federal income tax returns. Your employer will use the W-4 for Maryland tax withholding as well, but if you prefer to claim a different number of allowances for state purposes, you can file an additional Form MW507.
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Adjust your W-4 for alimony income. If you are the one receiving alimony payments, you may need to adjust your withholding as well. Because your alimony payments are not subject to federal or state withholding, decreasing the number of allowances on your W-4 will ensure you pay sufficient tax during the year. If the W-4 doesn't provide an accurate estimate of your taxable income for Maryland purposes, you can make state-specific adjustments on Form MW507.
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Make estimated tax payments if you are self-employed. If you are self-employed and not subject to withholding, you must make periodic estimated tax payments to Maryland and the IRS instead. If you make estimated payments, you can control the amount you send each tax authority to ensure it covers the tax on your alimony, as well as your other self-employment income. If your estimated tax payments are insufficient, you can be subject to penalties.
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Tips & Warnings
The tax penalties for insufficient withholding and estimated tax payments apply even if you pay your state and federal taxes in full by April 15.
