What actually happens
An employee who lives in Delaware and performs work in Maryland sits in two tax systems at once. The residence state claims the right to tax all of a resident's income wherever earned; the work state claims the right to tax income sourced within its borders. Absent an agreement, both claims stand, and the conflict is resolved after the fact through a credit on the resident return rather than up front in payroll.
When Maryland withholding starts
Maryland requires withholding from the first dollar of in-state compensation. There is no de minimis day count to shelter a short assignment. Withholding required from the first dollar of Maryland-source wages; no de minimis day or dollar safe harbor.
The trap is that thresholds are usually retroactive to the first day once crossed. An employee who spends 40 days in a 30-day-threshold state does not owe tax on 10 days; they owe it on all 40, and the employer is the one who failed to withhold.
Unemployment insurance goes to one state only
Income tax can be split between states. Unemployment insurance cannot. Under the localization test used by every state, an employee whose services are performed entirely in Maryland is covered by Maryland for unemployment purposes, and all wages are reported there — regardless of where they live, where you are headquartered, or which state's income tax you withhold. Maryland's 2026 taxable wage base is $8,500. The four-factor test in order.
Local taxes are a separate problem
Maryland: EVERY Maryland county and Baltimore City imposes a local income tax, collected together with the state tax through payroll withholding at combined state+local rates. Nonresidents working in Maryland who are not covered by reciprocity pay a special nonresident rate (state rate plus a statutory nonresident surcharge) in lieu of a county rate.
Delaware: The City of Wilmington imposes a 1.25% earned income (wage) tax on residents and on nonresidents working in Wilmington, plus a separate employer head tax. Administered by the City of Wilmington, not the Delaware Division of Revenue.
What you have to register for
| Obligation | State | Agency |
|---|---|---|
| Income tax withholding | Maryland | Comptroller of Maryland |
| Unemployment insurance | Maryland | Maryland Department of Labor, Division of Unemployment Insurance |
Frequently asked
Do Maryland and Delaware have a reciprocal tax agreement?
No. There is no reciprocal agreement between Maryland and Delaware. Maryland taxes wages earned in the state by nonresidents, and Delaware taxes the same wages as resident income while allowing a credit for tax paid to Maryland.
Which state's income tax should be withheld?
Maryland, as the state where the work is performed. Delaware also taxes the income as a resident, but the employee claims a credit on the Delaware return for tax paid to Maryland.
Which state gets the unemployment insurance wages?
Maryland. Unemployment coverage is never split between states for a single job. The localization test assigns the whole job to the state where services are performed, which here is Maryland, regardless of residence or where the employer is headquartered.
How many days can an employee work in Maryland before withholding starts?
There is no safe harbour. Maryland requires nonresident withholding from the first dollar of compensation earned in the state, so even a single day of in-state work creates an obligation in principle.