I claim exemption from Maryland local tax because I live in a local Pennysylvania jurisdiction within York or Adams counties. As an employer, you must record sums that are withheld from employee wages in a ledger account to clearly indicate the amount of state tax withheld.Key Takeaways: Form MW507 is the state of Maryland's Withholding Exemption Certificate that allows employees to select how much is withheld from their paycheck. How do I fill this out? The Maryland Form MW 507, Employee's Maryland Withholding Exemption Certificate, must be completed so that you know how much state income tax to withhold. This file provides detailed instructions and worksheets for completing federal and state withholding forms for Maryland State employees. Employee's Maryland Withholding Exemption Certificate. FORM. MW507. Section 1 – Payroll System – RG – Regular. Complete Form MW507 so that your employer can withhold the correct Maryland income tax from your pay. Employee Withholding Allowance Certificate.