SB 496
Department of Legislative Services
Maryland General Assembly
2021 Session
FISCAL AND POLICY NOTE
Enrolled - Revised
Senate Bill 496 (The President, et al.) (By Request - Administration)
Budget and Taxation Ways and Means and Economic Matters
Recovery for the Economy, Livelihoods, Industries, Entrepreneurs, and Families
(RELIEF) Act
This emergency Administration bill provides income tax relief to certain taxpayers,
economic impact payments to certain taxpayers, and other forms of more immediate
assistance to businesses and employers. The bill also authorizes the Governor to transfer,
in fiscal 2021, and spend a total of $306.0 million from the Revenue Stabilization Account
to provide financial assistance to individuals, businesses, and nonprofit organizations and
funding for specified State agencies and local jurisdictions.
Fiscal Summary
State Effect: General fund revenues decrease by $564.8 million in FY 2021 and
$244.4 million in FY 2022; the FY 2022 budget assumes lesser reductions – $394.3 million
and $190.4 million, respectively. Special fund revenues decrease by $0.8 million in
FY 2022 and $1.2 million annually thereafter through FY 2026, with a lesser impact the
following year. General fund, special fund, and federal fund expenditures increase by a
total of $536.8 million in FY 2021 due to economic impact payments and for the authorized
spending purposes. The FY 2022 budget reflects $230.8 million in spending due to these
provisions. Nonbudgeted revenues for the Unemployment Insurance Trust Fund (UITF)
are assumed to decrease in FY 2021 through 2024.
($ in millions) FY 2021 FY 2022 FY 2023 FY 2024 FY 2025
GF Revenue ($564.8) ($244.4) ($162.3) $0 $0
SF Revenue $0 ($0.8) ($1.2) ($1.2) ($1.2)
NonBud Rev. (-) (-) (-) (-) $0
GF Expenditure $0 $0.6 $0 $0 $0
FF Expenditure $53.0 $0 $0 $0 $0
GF/FF Exp. $177.8 $0 $0 $0 $0
SF/FF Exp. $306.0 $0 $0 $0 $0
Net Effect ($1,101.6) ($245.7) ($163.5) ($1.2) ($1.2)
Note:() = decrease; GF = general funds; FF = federal funds; SF = special funds; - = indeterminate increase; (-) = indeterminate decrease
Local Effect: Local income tax revenues decrease by $162.7 million in FY 2021 and
$59.2 million in FY 2022. Local highway user revenues decrease to the extent coronavirus
relief payments are exempted from the corporate income tax. Local revenues and
expenditures increase in FY 2021 due to the authorized fund transfers and spending.
Montgomery County expenditures for its earned income credit program may increase in
FY 2022 through 2024.
Small Business Effect: The Administration has determined that this bill has a meaningful
impact on small business (attached). The Department of Legislative Services (DLS)
concurs with this assessment. The attached assessment does not reflect amendments to the
bill.
Analysis
Bill Summary: The bill:
 provides up to $500 in economic impact payments to a resident taxpayer who
claimed the State earned income credit in tax year 2019;
 enhances the value of the State refundable earned income credit in tax years 2020
through 2022;
 exempts from the State income tax in tax years 2020 and 2021 certain
unemployment insurance (UI) benefits received by an individual whose income
does not exceed specified amounts;
 authorizes certain businesses to retain an increased sales and use tax vendor credit;
 uses an employer’s pre-pandemic UI claims history for purposes of determining
UI tax rates, if it results in a lower UI tax rate, through the second July 1 after the
COVID-19 state of emergency ends (this provision applies beginning with
2022 taxes and terminates June 30, 2025);
 authorizes small employers to defer payment of UI taxes or reimbursement
payments, as applicable, owed in 2021 until the final quarterly payment for the year
is due, and authorizes the Secretary of Labor to offer similar deferrals in 2022 (this
provision applies only prospectively and terminates June 30, 2023);
 exempts from the State income tax certain coronavirus relief payments;
 authorizes the Department of Commerce to convert certain business loans into
grants;
 authorizes the Comptroller to issue county grants from the local income tax reserve
account if certain conditions are met; and
 establishes reporting requirements for the Comptroller and Department of Budget
and Management (DBM).
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The bill also authorizes the Governor, in fiscal 2021, to transfer $306.0 million from the
Revenue Stabilization Account (known as the Rainy Day Fund) to a newly established
Recovery Now fund to provide financial assistance to individuals, businesses, and
nonprofit organizations and funding for specified State agencies. In addition, the bill
restricts the use and authorizes the transfer to the Public Service Commission (PSC) of
$53.0 million in specified funds from the Strategic Energy Investment Fund (SEIF) for
utility arrearages in fiscal 2021. The bill expresses legislative intent that, to the extent
practicable, the funds authorized be distributed proportionally by population across the
State and if federal funds become available for any purpose authorized by the bill, the
federal funds must be used to supplant and not supplement the spending. Other priorities
may be attached to each specified funding provision.
Economic Impact Payments
The bill requires the Comptroller to issue an economic impact payment to a resident
taxpayer who claimed a State earned income credit in tax year 2019. Exhibit 1 shows the
economic impact payments by taxpayer filing status.
The bill exempts these economic impact payments from the State income tax.
The Comptroller must report specified information to the Governor and General Assembly
on the economic impact payments issued.
Exhibit 1
Economic Impact Payments
Individual $300
Married Filing Jointly* 500
*Married Filing Jointly includes head of household and surviving spouse.
Source: Department of Legislative Services
State Earned Income Credit
In tax years 2020 through 2022, the bill expands the State refundable earned income credit
program. The value of the refund for qualified individuals increases from 28% to 45% of
the federal earned income tax credit, minus any pre-credit State income tax liability. For
an individual without a qualifying child, the value of the credit is increased to 100% of the
federal credit, subject to a maximum of $530. A taxpayer will claim this fully refundable
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credit instead of the nonrefundable and refundable State earned income credits provided to
other taxpayers.
The Comptroller must conduct a tax year 2020 eligibility awareness campaign encouraging
eligible individuals to claim the federal and State credits.
State Income Tax Exemption for Unemployment Insurance Benefits
In tax years 2020 and 2021, the bill exempts from the State income tax the UI benefits
received by an individual if (1) the benefits were paid by the Maryland Department of
Labor (MDL) or by a state with which the State has a reciprocal taxation agreement
(currently Pennsylvania, Virginia, West Virginia, and the District of Columbia). In order
to qualify, a taxpayer must have a federal adjusted gross income of $75,000 or less
($100,000 if married filing jointly).
Enhanced Sales and Use Tax Credit for Certain Vendors
The bill authorizes eligible vendors to retain an increased vendor tax credit for the
three consecutive months following the enactment of the bill. The amount of the vendor
credit allowed is equal to the lesser of the amount of sales and use tax collected during the
month the vendor qualifies for the increased credit or $3,000. In order to be eligible, a
vendor (1) must file a timely sales and use tax return or consolidated return and (2) the
gross amount of sales and use tax remitted with the return may not exceed $6,000. This
credit would be claimed in lieu of the standard vendor credit authorized under current law.
Unemployment Insurance Employer Relief
For the period beginning March 5, 2020, through the second July 1 after the expiration of
the COVID-19 state of emergency, “computation date” means July 1, 2019, if that date
results in a lower rate of contribution (i.e., UI tax rate). This provision applies beginning
with 2022 taxes and terminates June 30, 2025.
For calendar 2021, an employer with fewer than 50 employees may elect to defer
submitting contribution and employment reports for the calendar quarters ending
March 31, June 30, and September 30. An employer that elects to defer must submit the
report by the December 31 quarter’s due date (January 31, 2022). A reimbursing employer
with fewer than 50 employees is similarly allowed to defer the payment of quarterly bills
in 2021. The Secretary of Labor may authorize similar deferrals for taxable and
reimbursing employers in 2022. This provision terminates June 30, 2023.
DLS notes that, while all small businesses that pay UI taxes benefit from the potential
deferral, not all small businesses do. Some small businesses, such as sole proprietorships,
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do not pay UI taxes. The deferral also benefits small nonprofits, which are not small
businesses by definition. DLS further notes that MDL allowed for the deferral of eligible
UI taxes and reimbursements under the provisions in this bill; however, subsequent
legislation (Chapters 47 and 48 of 2021) modified the provisions to still require the
submission of the reports.
State Income Tax Exemption for Coronavirus Loan Forgiveness and Grants
In tax years 2020 and 2021, the bill exempts from the State income tax a coronavirus relief
payment received by a person. A “coronavirus relief payment” is a federal, State, or local
government grant or loan (1) provided to a person for the purpose of assisting with the
economic hardships resulting from the coronavirus pandemic and (2) applied for on or after
March 5, 2020.
The Comptroller must publish guidance regarding eligibility for the exemption, including
a list of eligible grants and loans. A unit of State or local government must provide to the
Comptroller specified information regarding relief payments.
Equity Participation Investment Program Grants
The bill authorizes Commerce to forgive up to $50,000 of a loan made to a small business
under the Equity Participation Investment Program (EPIP) within the Maryland Small
Business Development Financing Authority (MSBDFA). This provision applies only to
fiscal 2021 and 2022 loans provided to relieve the adverse effects of the coronavirus
pandemic.
Strategic Energy Investment Fund Transfers for Utility Arrearages
In addition to $30.0 million in funding provided through the Recovery Now Fund in this
bill, $53.0 million in specified SEIF funds are restricted and authorized to be transferred to
PSC for utility arrearages in fiscal 2021. Of that amount, $23.0 million is from the money
derived from the AltaGas Ltd. and WGL Holdings, Inc. merger and $30.0 million is from
among all the unappropriated allocations of Regional Greenhouse Gas Initiative (RGGI)
revenue. Funds must be prioritized as specified, starting with the elimination of all
arrearages for households that have qualified for other specified energy assistance in the
past four years.
Fiscal 2021 Transfers to the Recovery Now Fund and Related Spending
The bill establishes the Recovery Now Fund, administered by DBM, which is to receive
money to be spent on the purposes specified by the bill. The Governor may transfer to the
Recovery Now Fund $306.0 million from the Rainy Day Fund. The transferred funds may
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be used as specified to provide (1) financial assistance to individuals, businesses, and
nonprofit organizations and (2) funding for specified State agencies and local jurisdictions.
Appendix 1 provides more detail on the funding provided to each program. Except as
specified, any balance remaining in the fund at the end of fiscal 2021 reverts to the general
fund. Every two weeks following the enactment of the bill, DBM must report to the General
Assembly specified information about distribution of the funds and how they were used.
The Comptroller is authorized to distribute to a county a grant from the local income tax
reserve account in an amount equal to the difference between a county’s audited fiscal 2021
unrestricted fund balance and the amount necessary to bring the unrestricted fund balance
to 5% of the county’s fiscal 2021 general fund revenues. A county may not receive a grant
if federal legislation enacted after February 15, 2021, directs revenues to the county in
excess of 5% of the fiscal 2021 county general fund revenues.
The Comptroller’s Office must perform a cash flow analysis of the local income tax reserve
account to determine how much of the account balance is required to make local income
tax distributions to local governments and the amount that can be used to support
COVID-19 related expenses and report the results to the Senate Budget and Taxation and
House Ways and Means committees and the Maryland Association of Counties.
Current Law/Background:
Earned Income Tax Credits
Low- and moderate-income workers may be eligible for a federal refundable credit that
generally equals a specified percentage of earned income (wages and other employee
compensation plus net self-employment earnings) up to a maximum dollar amount.
Maryland offers a nonrefundable credit, which is equal to the lesser of 50% of the federal
credit or the State income tax liability in the taxable year. If the nonrefundable credit
reduces a taxpayer’s liability to zero, the taxpayer is eligible to claim a refundable credit
equal to 28% of the federal credit, minus any pre-credit State tax liability.
To be eligible in tax year 2020, a taxpayer must have earned income, investment income
of $3,650 or less, and a modified federal adjusted gross income of less than:
 $50,594 ($56,844 married filing jointly) with three or more qualifying children;
 $47,440 ($53,330 married filing jointly) with two qualifying children;
 $41,756 ($47,646 married filing jointly) with one qualifying child; and
 $15,820 ($21,710 married filing jointly) with no qualifying children.
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The income phase outs shown above are about 2% lower for tax year 2019.
In tax year 2020, a taxpayer may elect to use 2019 earned income for the purposes of
calculating the earned income credit if the taxpayer’s tax year 2020 earned income is less
than the earned income in 2019. This provision will assist individuals who have
experienced a loss in employment or a decrease in earnings.
Taxation of Unemployment Insurance Benefits
Prior to tax year 2020, UI benefits received by an individual were required to be included
as income and generally subject to federal and State taxation. The American Rescue Plan
Act of 2021, which was signed into law on March 11, 2021, allows a taxpayer to exclude
up to $10,200 of unemployment compensation received in tax year 2020 ($10,200 for each
spouse if filing jointly). In order to qualify, a taxpayer must have adjusted gross income of
less than $150,000.
Sales and Use Tax Vendor Credit
In order to cover expenses for collecting the State sales and use tax, persons filing timely
returns are allowed to take a vendor credit against the gross tax remitted in an amount equal
to 1.2% of the first $6,000 collected and 0.9% of the excess, capped at $500 per filing
period (monthly basis).
Employer State Unemployment Insurance Taxes
UI is administered and funded through a federal-state partnership. Funding for each state
program is provided by employers through UI taxes paid to both the federal government
for administrative and other expenses and to the states for deposit in their UI trust funds.
Most Maryland employers pay State UI taxes, although State and local governments and
some nonprofit organizations reimburse UITF for claims paid in lieu of paying taxes.
Therefore, for most Maryland employers, the State UI tax rate is a function of:
 the employer’s specific unemployment claims history; and
 the applicable tax table, which is based on the State’s UITF balance and applies to
most taxable employers.
The typical process is as follows. On July 1 each year, the relative amount of UI claims in
the three immediately preceding fiscal (“rating”) years is used to determine an employer’s
benefit ratio. For example, calendar 2020 employer taxes were based on UI claims made
from fiscal 2017 through 2019. Specifically, the benefit ratio is calculated as the sum of
the benefits charged to an employer’s account (i.e., the amounts paid to unemployed
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individuals) divided by the employer’s taxable wages during that time. Taxable wages are
defined as the first $8,500 earned by each covered employee in a calendar year. The benefit
ratio is then applied to the tax rate table, which is determined