Income Tax - Credit for Income Taxes and Penalties Due to Financial Exploitation
HB0323 would create a Maryland income tax credit for individuals who incur federal early-withdrawal penalties and related state income tax liability because they were forced to take money out of retirement accounts due to financial exploitation. The bill defines an eligible taxpayer as someone subject to the federal early-withdrawal penalty under Internal Revenue Code Section 72(t), and it ties the credit to retirement funds withdrawn because of financial exploitation as defined in Maryland’s Estates and Trusts law.
To claim the credit, a taxpayer would need to document the financial exploitation through materials from Adult Protective Services, law enforcement, a financial institution reporting suspected exploitation under Maryland’s SAFE Act, or court-issued records such as an order or restitution document. The taxpayer would also need to provide an affidavit stating that the federal penalty was incurred because of the exploitation. The credit would be limited to the lesser of the state income tax attributable to the withdrawal or the federal penalty paid, and any unused credit could not be carried forward. The bill would apply to taxable years beginning after December 31, 2025, with an effective date of July 1, 2026.
The bill would add a new Section 10-758 to the Tax-General Article, creating a targeted state income tax credit for victims of financial exploitation who are compelled to access retirement savings early. It also relies on and incorporates the existing Estates and Trusts definition of financial exploitation, linking tax relief to Maryland’s adult protective and elder abuse framework. In practical terms, the measure would affect individual taxpayers, tax administrators, and agencies or institutions that document exploitation, while not changing the underlying federal early-withdrawal penalty rules.
The available record shows no committee testimony, recorded votes, or floor debate, and the bill was ultimately withdrawn by the sponsor in the House. Because of that, there is little direct evidence of legislative support or opposition in the provided materials. The bill’s design suggests a sympathetic policy goal—relief for victims of exploitation—so the general sentiment appears likely to have been favorable in concept, but the withdrawal indicates it did not advance to a vote or final consideration.
The main policy questions likely concern how financial exploitation is proven, what documentation is sufficient, and whether the credit should be limited to cases with formal findings by agencies, financial institutions, or courts. Another possible point of contention is the scope of the credit: it is narrowly tailored to early retirement withdrawals and does not allow unused credits to be carried forward, which may limit its usefulness for some taxpayers. The bill also depends on the existing statutory definition of financial exploitation, so any debate would likely focus on whether that definition is broad enough to capture real-world abuse without opening the credit to misuse.