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Montgomery County Council debates retroactive 3.3% income tax to close FY26 gap
Summary
Council staff and finance officials briefed the full Montgomery County Council on a proposal from the County Executive to raise the local income tax from 3.2% to 3.3%, retroactive to Jan. 1, 2025, which staff estimated could generate roughly $75 million in FY26 if adopted retroactively; council members raised concerns about volatility, retroactivity and distribution timing.
Montgomery County Council members spent more than an hour on May 5 reviewing a County Executive proposal to raise the local income tax from 3.2% to 3.3%, including an option to make the increase retroactive to Jan. 1, 2025.
Council staff said the retroactive proposal, if approved and made effective for tax year 2025, could generate an estimated $75 million in additional revenue in FY26; if made effective for 2026 instead, staff estimated about $25 million. Mr. Smith, who led the finance briefing, told the council the largest share of any additional revenue would come from filers with adjusted gross income above $200,000 and that income‑tax receipts are especially volatile because capital gains drive a large portion of collections.
“Most of the county’s income tax revenues are generated by returns greater than $100,000 AGI,” Mr. Smith said, noting the state’s recent changes to itemization and how distributions from the Comptroller arrive over multiple fiscal years.
Nancy Feldman of the Department of Finance told members the county receives multiple distributions from the state and that meaningful new information about tax year 2025 collections is unlikely before the fall; she said the Revenue Estimating Group will report to the council on May 15.
Several council members said they were uneasy about a retroactive tax increase. “We do not have the data,” Council Member Fanny Gonzalez said. “You really want to be responsible and make sound decisions based on data.” Council Member Balcom warned that a retroactive increase could force residents to make painful payment choices and called the tax base volatile given ongoing federal layoffs.
Other members said the alternative to raising the income tax would be deep program cuts. Council Member Mink described constituent conversations in which residents said they understood the need to fund schools and services and were willing to consider modest increases; she urged robust outreach before a final vote.
The council president reminded members there will be a public hearing on the Executive’s resolution on May 13 and that the council must act by May 15 if it wants a retroactive effective date for tax year 2025.
The council also unanimously supported a committee recommendation to set the property tax rate at the FY25 level and to retain the County’s income tax offset credit value, actions taken earlier in the session.
Next steps: the council will take public testimony at the May 13 hearing, receive a revenue estimating group report on May 15, then decide whether to adopt the Executive’s proposal, a narrower increase, or no change for FY26.
