Key figures
Maryland payables
2026, with sources
Two tests for contractors
Maryland’s unemployment insurance law presumes a worker is an employee unless the company shows all three parts of the ABC test: the worker is free from its control and direction, the work is outside its usual course of business or places of business, and the worker is customarily engaged in an independent business of the same nature. The burden is on the employer. The same test applies under the Workplace Fraud Act in construction and landscaping.
Workers’ compensation and the Comptroller use a common-law test instead, so the same person can be a contractor for one Maryland agency and an employee for another. Unemployment is the strictest, so it is the one to plan around.
1099s
Maryland asks for 1099-NEC and 1099-MISC only when Maryland income tax was withheld from the payment. When it was, the forms go in with the annual reconciliation, Form MW508, by January 31, electronically if there are 25 or more. A startup paying contractors without withholding typically sends Maryland nothing.
Use tax on software and IT services
Maryland’s 2025 expansion of the sales tax to data, IT and software publishing services reaches the buyer side too. Hosting, data processing, IT consulting and SaaS used in a business’s systems are taxable at 3%; a digital product bought for an individual’s use is taxable at 6%. When an out-of-state vendor doesn’t charge Maryland tax, the company accrues use tax and reports it on its own sales and use tax return.
An example: a Baltimore startup spends $8,000 a month on cloud hosting and SaaS from vendors who don’t collect Maryland tax. It owes $240 a month in use tax at 3%, and accounts payable needs a step that flags untaxed software invoices each month.
The federal baseline
This page covers what Maryland adds. The federal rules underneath it apply here too.
Common questions
Do we send 1099-NECs to Maryland?
Only if you withheld Maryland tax from the payment. The Comptroller’s instructions say Maryland requires 1099-NEC and 1099-MISC only when Maryland withholding is greater than zero; then they go in with Form MW508 by January 31.
Do we owe Maryland tax on the SaaS tools we buy?
Probably. Since July 1, 2025 Maryland taxes data, IT and software publishing services, including SaaS used in a business’s systems, at 3%. If an out-of-state vendor doesn’t charge it, the buyer owes the same amount as use tax on its Maryland sales and use tax return.
Payables next door
- DCDistrict of Columbia payablesDC wants 1099s only for DC residents paid $600 or more, by January 31. Because DC taxes software and data services, use tax on untaxed SaaS purchases is a real payables item.
- DEDelaware payablesDelaware has no sales or use tax, so there is nothing to accrue on purchases. 1099s for Delaware contractors go directly to the Division of Revenue, and uncashed vendor checks are unclaimed property.
- PAPennsylvania payablesPennsylvania wants 1099s by January 31 and 3.07% withheld from Pennsylvania-source payments of $5,000 or more to nonresident contractors. Because SaaS is taxable, use tax on software is a real payables item.
- VAVirginia payablesVirginia presumes workers are employees, requires new independent contractors to be reported within 20 days, and wants 1099s only when Virginia tax was withheld. SaaS purchases carry no use tax.
- WVWest Virginia payablesWest Virginia treats contractors paid $2,500 or more as reportable new hires, due within 14 days. Its sales tax reaches many services and prewritten software, so use tax on purchases needs a process.
Founder guides on this
- PeopleContractor or employee? Classification for startupsContractor or employee depends on control, not the contract. The IRS test, state rules, 1099s, payroll registration and the cost of getting it wrong.
- ComplianceFirst-year compliance calendar for a Delaware C-corpDelaware franchise tax, 1099s, the federal return, payroll filings, state annual reports and sales tax: the deadlines a young C-corp misses most, by month.
More of the Maryland guide
- AccountingAccounting and state tax in MarylandCorporate tax, conformity to federal rules, apportionment and what it does to your books
- ReceivablesReceivables and sales tax in MarylandSales tax registration, economic nexus, whether SaaS is taxable, and collecting from customers
- PayrollPayroll taxes and employer rules in MarylandWithholding, unemployment insurance, paid leave, minimum wage and the rules on paydays
- ComplianceCompliance and filings in MarylandRegistering to do business, annual reports, franchise tax and the filing calendar
- AdvisoryAdvisory: credits and decisions in MarylandCredits, incentives and the decisions that are cheaper to get right the first time
Sources
Checked against each agency’s own page on . Rates and thresholds change, usually on January 1.
- Comptroller of Maryland — 2025 Employer Reporting of 1099s Instructions
- Maryland Department of Labor — Worker Classification FAQs for Businesses
- Comptroller of Maryland — Technical Bulletin 56, Data or IT Services and Software Publishing
- Comptroller of Maryland — Business Tax Tip #19, Reporting Unclaimed Property
General information for US companies, not tax, legal or accounting advice for yours. Rules and thresholds change; confirm the specifics with a CPA or the agency before you act on them.