Maryland Retirement Taxes: What Income Is Taxed and What Isn’t
Retirement brings opportunities and challenges. For residents of Maryland, understanding how the state taxes retirement income is a core part of planning. Maryland’s tax structure offers important exemptions for retirees that can lower tax bills. Other forms of retirement income remain fully taxable.
Successful retirement planning requires knowledge of these rules and how they interact with federal tax law.
Maryland’s retirement tax rules can feel complicated at first glance, especially because different income sources are treated very differently. Many retirees want quick, clear answers before diving into the details. The questions below address some of the most common concerns and reflect how Maryland currently taxes retirement income.
In this guide, you will learn:
- Which retirement income sources are taxed in Maryland
- Which income is fully exempt
- Special exclusions and credits available to retirees
- How local taxes affect retirement income
- Practical planning strategies to reduce taxes
- Key figures and tables you can use as references for financial planning decisions
Quick Answers: Maryland Retirement Taxes at a Glance
Does Maryland tax Social Security benefits?
No. Maryland does not tax Social Security retirement benefits at any income level.
This exemption applies even if part of your Social Security is taxable at the federal level.
Is pension income taxable in Maryland?
Yes, pension income is generally taxable. However, eligible retirees may reduce taxable pension
income through Maryland’s pension exclusion, which can significantly lower state and local taxes.
Are IRA and 401(k) withdrawals taxed in Maryland?
Yes. Distributions from traditional IRAs, 401(k)s, 403(b)s, and similar pre-tax retirement accounts
are typically taxable as ordinary income unless a specific exclusion applies.
Are Roth IRA distributions taxable in Maryland?
No, as long as the distribution is qualified under federal rules. Qualified Roth IRA withdrawals are
typically exempt from Maryland income tax. However, there are situations where this may not always be
the case. For example, a non-spouse who inherits a Roth IRA may be required to pay tax on the withdrawals
of earnings if the Roth account is less than five years old at the time of withdrawal.
Does Maryland charge local taxes on retirement income?
Yes. In addition to state income tax, Maryland counties and Baltimore City impose local income taxes on
most taxable retirement income. Rates vary by location and can materially affect total tax liability.
Does age automatically make retirement income tax-free in Maryland?
No. Maryland does not exempt income solely based on age. Tax treatment depends on the type of income and whether specific exclusions, deductions, or credits apply.
Maryland’s Income Tax Landscape for Retirees
Maryland imposes a state income tax with graduated rates and local income taxes that vary by county and Baltimore City. For most retirees, total income tax liability depends on the amount and type of retirement income, filing status, and state of residence. Federal adjusted gross income (AGI) serves as the starting point for Maryland taxable income, but then the state allows subtractions for allowable deductions and exemptions that can lower taxable income for retirees.
Retirement income includes income from Social Security, pensions, traditional retirement accounts, investments, annuities, and other sources. Some of these sources receive favorable treatment under Maryland law, while others do not.
Retirement Income That Is Fully Taxed in Maryland
Maryland treats most taxable retirement income as ordinary income, meaning it flows through federal adjusted gross income and is subject to state and local income taxes unless specifically excluded.
Common Types of Taxable Retirement Income
The table below summarizes the key retirement income sources that are typically fully taxable in Maryland unless a specific exclusion applies.
| Income Type | Maryland Tax Treatment | Notes |
| Traditional IRA distributions | Taxable | Counted as ordinary income |
| 401(k) withdrawals | Taxable | Withdrawals are generally taxable |
| 403(b)/457 plan distributions | Taxable | Same treatment as 401(k) plans |
| Pension income (before exclusions) | Taxable | Qualifies for pension exclusion in some cases |
| Annuity payments funded with pre‑tax dollars | Taxable | Earnings are taxed |
| Taxable investment income (interest/dividends) | Taxable | Taxed as ordinary income. Except interest on U.S. obligations such as U.S. treasury bonds is exempt. |
| Capital gains on asset sales | Taxable | Short (held for less than a year) and long‑term (held for more than a year) gains included. Maryland taxes capital gains as ordinary income using state income tax rates plus county-level surtaxes. |
| Rental income in retirement | Taxable | Reported in AGI and taxed as ordinary income. |
| Business income in retirement | Taxable | The taxation will depend on the business structure (corporation vs. pass-through entity such as partnership or limited liability company (LLC). |
These amounts are included in federal adjusted gross income, which Maryland uses as the starting point for taxable income. Unless a specific subtraction is applied, these amounts are subject to Maryland income tax.
Maryland does not automatically exempt income simply because it is earned in retirement. Tax rules focus on the source and character of the income rather than the retiree’s age.
Social Security Benefits Are Fully Exempt
Social Security retirement benefits are not taxed in Maryland at any income level. This exemption applies even if Social Security benefits were taxed on the federal return.
Maryland’s official guidance specifies that all benefits received under the Social Security Act, including Railroad Retirement benefits under the U.S. Railroad Retirement Act, are exempt and must be entered correctly on Maryland tax forms to ensure the exemption applies.
This rule provides meaningful tax relief for many retirees, particularly those who rely heavily on Social Security as a primary income source.
Pension Income and the Maryland Pension Exclusion
Pension income is generally taxable. However, Maryland offers a pension exclusion that reduces taxable pension and retirement annuity income for eligible taxpayers.
Who Qualifies
You may qualify for the pension exclusion if:
- You are age 65 or older by the end of the tax year, or
- You are totally disabled, or
- Your spouse is totally disabled.
The pension exclusion applies only to income that qualifies as a pension or retirement annuity from an employee retirement system. This includes employer‑sponsored pension plans and some annuity types.
Importantly, traditional IRAs, Roth IRAs, rollover IRAs, SEP plans, Keogh plans, and foreign retirement income do not qualify for the pension exclusion under current rules.
How the Pension Exclusion Works
Maryland sets a maximum exclusion amount each tax year. For 2025, that maximum is $41,200. The pension exclusion worksheet determines how much of your pension income can be excluded.
The computation starts with your total pension and annuity income (Line 1) and subtracts total Social Security and Railroad Retirement benefits (Line 3). The smaller of your net pension income or this tentative exclusion becomes the pension exclusion you claim.
Example
- Pension income included in federal AGI: $30,000
- Social Security benefits: $20,000
- Max pension exclusion: $41,200
- Tentative exclusion: $41,200 − $20,000 = $21,200
- Pension exclusion allowed: $21,200
The remaining pension amount ($30,000 − $21,200 = $8,800) is taxable in Maryland.
This exclusion can significantly reduce taxable income for many retirees.
Deductions and Credits for Retirees
Beyond the pension exclusion and Social Security exemption, Maryland offers additional deductions and credits that may reduce taxable retirement income.
Senior Tax Credit
Maryland provides a nonrefundable tax credit for residents aged 65 or older. The credit amount varies based on filing status and federal adjusted gross income threshold:
- $1,000 credit if single or filing separately with AGI up to $100,000
- $1,750 credit if married filing jointly, surviving spouses, or heads of household with AGI up to $150,000
This credit reduces state tax liability directly and is claimed on Maryland tax forms.
Military Retirement Income Subtraction
Maryland allows a subtraction for military retirement income for eligible retirees:
- Age 55 and older: up to $20,000 of military retirement income may be subtracted
- Under age 55: up to $12,500 may be subtracted
This benefit applies to retirement income received as a result of active duty military service and may provide tax relief for many veterans residing in Maryland.
Public Safety Retirement Subtraction
Maryland allows a subtraction for certain public safety retirees. If you are a retired correctional officer, law enforcement officer, fire or emergency services personnel, you may qualify to subtract up to $15,000 of eligible retirement income if you meet age requirements.
Two‑Income Married Couple Subtraction
Married senior citizens filing jointly may subtract up to $1,200 or the income of the lower‑earning spouse when both spouses receive income. This helps reduce taxable income for couples in retirement.
Roth IRA Distributions
Qualified distributions from a Roth IRA are not taxable in Maryland. Roth accounts are funded with after‑tax dollars, and when distributions meet federal requirements (generally age 59 ½ and the 5‑year rule), they avoid both federal and state taxes.
Maryland respects the federal treatment of qualified Roth distributions.
How Local Taxes Affect Retirement Income
In addition to the Maryland state income tax, retirees often pay a local income tax. Counties and Baltimore City set local tax rates as a percentage of taxable income. These local taxes apply to most forms of taxable income, including retirement distributions after exemptions and subtractions.
Because local tax rates vary, total tax on retirement income can differ significantly depending on your home address. This makes retirement location within Maryland an important planning consideration.
Maryland’s Income Tax Brackets and Rates
Maryland’s income tax system is progressive. For the 2025 tax year, the state tax rates range from 2.00% up to a new high of 6.50% representing the top marginal bracket, which was recently updated to impact high-income earners. This progressive system applies the marginal rate only to the portion of income that falls within that specific bracket, not to your entire income.
In addition to the state tax, local governments impose their own income tax, often called a “piggyback tax” because it’s calculated on the same taxable income as the state tax. Local rates are flat within each county and generally range from 2.25% to 3:30% as of 2025. To find your true Maryland tax rate, you must add the applicable state marginal rate and your county’s flat local rate.
While retirees may qualify for deductions and exemptions, taxable retirement income remaining after those adjustments is subject to these progressive rates.
Planning Strategies for Maryland Retirees
Effective retirement tax planning goes beyond knowing what is taxable. It requires strategy and forecasting. Below are several useful approaches.
Timing Retirement Income
Delaying withdrawals from taxable retirement accounts until after claiming exemptions or until a favorable tax year can help reduce lifetime taxes. For example, delaying pension income until after age 65 can make you eligible for the pension exclusion.
Use of Roth Conversions
Converting traditional retirement assets to a Roth IRA during lower‑income years can reduce future taxable distributions. Although conversions increase taxable income in the year they occur, they may reduce total lifetime tax by shrinking required minimum distributions.
Coordinate Social Security and Pension Income
Managing the timing of Social Security commencement relative to pension income is advantageous while retirement planning. Social Security benefits are part of the pension exclusion calculation.
Qualified Charitable Distributions (QCDs)
If eligible, IRA owners age 70 ½ and older can make QCDs directly to charities. QCDs count toward required minimum distributions and exclude the distribution from taxable income.
Donor Advised Funds (DAFs)
A donor advised fund (DAF) is a tax-smart strategy that lets you contribute a large, tax deductible gift now, and then distribute grants to charities of your choice over time. You contribute cash or appreciated investments into the account, often during a high-income year. That contribution counts as a charitable gift right away, which might qualify for an immediate tax deduction. The funds can then be invested and potentially grow tax-free. For some retirees who have built up an impressive stock portfolio, instead of selling stock and paying capital gains taxes, they can contribute the shares directly to a DAF.
They avoid the tax on the gain, receive a deduction for the full fair market value, reduce risk and allow the portfolio to be rebalanced, all while giving back to charity.
Maryland’s approach to retirement income taxes blends a progressive income tax system with specific exclusions designed to protect retirees. Social Security benefits are fully exempt. Pension and other retirement distributions may be partially exempt through the pension exclusion or other targeted subtractions. Additional credits and exemptions provide tax relief for eligible retirees. Understanding these rules and strategic planning can materially reduce lifetime tax liability.
For most retirees, coordinating federal and Maryland tax planning is essential. Working with a financial advisor who understands Maryland’s tax code can help ensure your retirement income lasts as long as you do.
Sources
- Maryland Technical Bulletin No. 51, Senior Citizens and Maryland Income Tax (Comptroller) (Maryland Comptroller)
- Maryland Taxpayer Services FAQ, Seniors and Retirees (Comptroller) (services.marylandcomptroller.gov)
- Maryland Pension Exclusion Worksheet (Comptroller) (Maryland Comptroller)
- How to Plan for Taxes in Retirement (MSRP) (msrp.maryland.gov)
