SDAT Has Some Explaining to Do
A recent audit of the State Department of Assessments and Taxation (SDAT) reveals that they improperly calculated tax credits, resulting in low-income households being overcharged by millions of dollars, beginning in 2005. The report shows how SDAT improperly calculated Homeowners’ Tax Credits (HTC) in both Montgomery County and Baltimore City. The HTCs are set in place to help low-income families afford property taxes; this is especially helpful for seniors whose property value has risen while their income hasn’t.
What Are Homeowners’ Tax Credits?
Homeowners' Tax Credits are tax benefits made available to those who own a home. These credits allow individuals to reduce their income tax rate, deduct certain home-related expenses, or receive a tax credit through a tax credit program. Specifically for Maryland, the state has developed a tax credit program that allows credits against the homeowner's property tax bill if the property taxes exceed a fixed percentage of the person's gross income.
To quote SDAT, “The [homeowners’] tax credit is based upon the amount by which the property taxes exceed a percentage of your income according to the following formula: 0% of the first $8,000 of the combined household income; 4% of the next $4,000 of income; 6.5% of the next $4,000 of income; and 9% of all income above $16,000.”
Maryland’s Homeowners’ Tax Limit by Household Income
For example, if your combined gross household income was $30,000, your tax limit would be $1,680. You would be entitled to receive a credit for any taxes above the $1,680 limit. If your actual property tax bill was $1,800, you would receive a tax credit in the amount of $120. Among other eligibility requirements is the maximum combined gross income, which must be under $60,000 annually to qualify for the program. In other words, these tax credits set a limit on the amount of property taxes any homeowner must pay based upon their income, and they’re intended to help lower-income families maintain their property.
How Did This Miscalculation Happen?
The SDAT failed to calculate additional losses to taxpayers in other jurisdictions or for prior years, resulting in tax credits not being applied correctly to the applicants who received them. Over 5,388 applicants were affected in 2019 alone, and there is not yet a clear data point on the total number of homeowners who are owed refunds.
This error first occurred back in 2005 and has now just been caught by SDAT. However, emails between SDAT and Louis Wilen, a retired programmer and Montgomery County resident, show that SDAT was aware of this miscalculation as early as 2016. Wilen discovered that property tax credits were being miscalculated and notified the department, but he was met with silence. For years, he tried to report this to the Office of Legislative Audits (OLA), the County Council, and his state delegate, but his efforts yielded nothing. It appeared that no one was willing to work with him to bring this matter to light and correct the issue.
The missed calculation reduced HTCs awarded to applicants from Montgomery County by $4.4 million for the 2019 fiscal year.
How Is Maryland Moving Forward?
In October 2020, the audit was released revealing the issues Wilen had reported. While Wilen is pleased that SDAT now agrees with his assessment, he’s concerned about those individuals who are now worse off.
“Here we have the people who are the worst off financially and they’re getting these credits taken from them and they don’t even know it,” said Wilen. “The state, the government, I hope does not just get to say, ‘Oops, we made a mistake but too bad we get to keep the money.’”
Unfortunately, that’s exactly what happened. SDAT refused to issue refunds to taxpayers who were affected. After two months, lawmakers led by state delegate Al Carr came together to hold hearings on the audit and to introduce legislation that would require SDAT to go back three years, re-calculate the credits, and assess refunds to the individuals who were over-taxed. “If the situation were reversed, if you or I or anyone out there and we made a mistake on our taxes, the state would surely ask us to pay, so it’s the right thing to do for the state to go back retroactively and make those people whole,” said Delegate Carr about the audit’s findings.
How You Can Help
If you or a client were affected by this error, reach out to your county to see what steps you should take to claim what is owed. If your clients are dealing with this issue, be understanding and patient. Listen to them and help where you can; at the least, let them know that you are there for them during this infuriating debacle.
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