Income Tax - Addition Modification for Federal Tax-Exempt Income - Study

EXPLANATION: CAPITALS INDICATE MATTER ADDED TO EXISTING LAW.
[Brackets] indicate matter deleted from existing law.
Underlining indicates amendments to bill.
Strike out indicates matter stricken from the bill by amendment or deleted from the law by
amendment.
*hb0694*

HOUSE BILL 694
Q3 6lr3443
CF SB 163
By: Delegate Bhandari
Introduced and read first time: February 2, 2026
Assigned to: Ways and Means
Committee Report: Favorable with amendments
House action: Adopted
Read second time: March 23, 2026

CHAPTER ______

AN ACT concerning 1

Income Tax – Addition Modification for Federal Tax–Exempt Income – 2
Alterations Study 3

FOR the purpose of providing that requiring the Office of the Comptroller, on or before a 4
certain date, to study and report to the Governor and the General Assembly 5
regarding certain matters related to an addition modification under the Maryland 6
income tax for certain income exempt from fe deral tax by federal law or treaty but 7
not State tax does not apply to certain foreign earned income; and generally relating 8
to the calculation of Maryland adjusted gross income and a study on the taxation of 9
federal tax–exempt income. 10

BY repealing and reenacting, without amendments, 11
Article – Tax – General 12
Section 10–204(a) 13
Annotated Code of Maryland 14
(2022 Replacement Volume and 2025 Supplement) 15

BY repealing and reenacting, with amendments, 16
Article – Tax – General 17
Section 10–204(c)(1) 18
Annotated Code of Maryland 19
(2022 Replacement Volume and 2025 Supplement) 20

SECTION 1. BE IT ENACTED BY THE GENERAL ASSEMBLY OF MARYLAND, 21
That the Laws of Maryland read as follows: , on or before December 1, 2026, the Office of 22
2 HOUSE BILL 694

the Comptroller shall study and report to the Governor and, in accordance with § 2 –1257 1
of the State Government Article, the General Assembly regarding: 2

(1) the number of residents who have foreign earned income within the 3
meaning of § 911(b)(1) of the Internal Revenue Code; 4

(2) the number of residents who have foreign earned income that exceeds 5
the limitation under § 911(b)(2) of the Internal Revenue Code and the aggregate amount of 6
that income; and 7

(3) the countries from which the residents described under items (1) and 8
(2) of this sect ion earned foreign earned income within the meaning of § 911(b) of the 9
Internal Revenue Code. 10

Article – Tax – General 11

10–204. 12

(a) To the extent excluded from federal adjusted gross income, the amounts under 13
this section are added to the federal adjuste d gross income of a resident to determine 14
Maryland adjusted gross income. 15

(c) (1) (I) THIS PARAGRAPH DOES N OT APPLY TO FOREIGN EARNED 16
INCOME WITHIN THE MEANING OF § 911(B)(1) OF THE INTERNAL REVENUE CODE, 17
SUBJECT TO THE LIMIT ATION UNDER § 911(B)(2) OF THE INTERNAL REVENUE 18
CODE. 19

(II) If exempted by federal law or by treaty from federal but not State 20
tax on income, the addition under subsection (a) of this section includes salary, wages, or 21
other compensation for personal services. 22

SECTION 2. AND BE IT FURTHER ENACTED, That this Act shall take effect July 23
1, 2026, and shall be applicable to all taxable years beginning after December 31, 2025. 24

Approved:
________________________________________________________________________________
Governor.
________________________________________________________________________________
Speaker of the House of Delegates.
________________________________________________________________________________
President of the Senate.