Maryland does not tax most pension income, but the rules depend on when you were born and what type of pension you receive.

Maryland excludes pension income from state income tax if you were born before January 1, 1935. If you were born on or after that date, you may still exclude up to $31,200 of pension income per year (as of 2024), provided your total income stays below certain thresholds. Military pensions, federal employee pensions, and railroad retirement benefits have their own rules and are generally excluded regardless of age.

The key is understanding which pensions may have access to and what income limits explore to your situation. Your filing status, total household income, and the source of your pension all affect how much you owe Maryland in taxes.

Key Takeaways

  • Pensions from Maryland employers and most private pensions receive preferential tax treatment, with an exclusion of up to $31,200 per year for those born after 1934.
  • Military pensions, federal employee pensions, and railroad retirement benefits are excluded from Maryland income tax regardless of your age or income level.
  • The $31,200 exclusion phases out if your total income exceeds $75,000 (single filers) or $100,000 (married filing jointly), as of 2024.
  • You must report your pension income on your Maryland tax return even if it is fully excluded, so the state can verify you meet the requirements.

Who qualifies for the pension exclusion in Maryland

If you were born before January 1, 1935, Maryland excludes all of your pension income from state tax. You do not need to meet any income threshold or take any special action beyond reporting it on your return.

If you were born on or after January 1, 1935, you can exclude up to $31,200 of pension income per tax year. This applies to pensions from Maryland employers, other states' employers, and most private pension plans. The exclusion is not automatic — you claim it on your Maryland Form 502 (Individual Income Tax Return) or Form 505 (Nonresident Income Tax Return).

Military pensions, federal employee pensions (including those from the Civil Service Retirement System and Federal Employees Retirement System), and railroad retirement benefits are fully excluded from Maryland tax regardless of your age or income. These are treated differently because they are federal benefits.

Income limits that reduce or eliminate your exclusion

The $31,200 pension exclusion begins to phase out once your total income exceeds $75,000 if you file as single, head of household, or married filing separately. If you file as married filing jointly or may have access to widow(er), the threshold is $100,000. Total income includes wages, interest, dividends, capital gains, and all other sources — not just your pension.

For every dollar your income exceeds the threshold, you lose $0.50 of your pension exclusion. If your income is $77,000 as a single filer, you lose $1,000 of the exclusion (2 × $500), leaving you with $30,200 to exclude. Once your income reaches $137,400 (single) or $162,400 (married filing jointly), the entire exclusion is gone.

These income thresholds and the exclusion amount are adjusted annually for inflation. Check the Maryland Department of Revenue website or your tax forms each year to confirm the current figures, as they change.

How to claim the pension exclusion on your Maryland return

Report your total pension income on your Maryland Form 502 or 505, then calculate your exclusion on the worksheet provided with the form. You will need to know your total income from all sources and your filing status. The form walks you through the phase-out calculation if your income exceeds the threshold.

Keep documentation of your pension payments — your 1099-R form from the pension provider — in case Maryland requests verification. You do not attach the 1099-R to your state return, but you should have it available if the state audits your return.

If you receive pension income from multiple sources, you can allocate the exclusion among them however you choose. For example, if you have a $20,000 pension from one employer and a $15,000 pension from another, you could exclude all $20,000 from the first and $11,200 from the second, totaling $31,200.

Pensions from other states and federal sources

Maryland taxes pension income the same way regardless of which state or employer it came from, with one exception: federal pensions (military, Civil Service, FERS, and railroad retirement) are fully excluded. A pension from a California employer or a New York public employee plan receives the same $31,200 exclusion as a Maryland pension, subject to the same income limits.

If you moved to Maryland after retiring and are receiving a pension from your former state of residence, Maryland still applies its own rules. You do not get to use your former state's pension tax treatment. However, if you are still a resident of another state and Maryland is trying to tax your pension, you may owe tax to Maryland only on income earned while you were a Maryland resident.

What happens if you are a nonresident receiving Maryland pension income

If you retired from a Maryland employer but moved out of state, Maryland generally does not tax your pension income. However, if you are a part-year resident — you moved to or from Maryland during the tax year — you report pension income only for the months you were a Maryland resident.

Nonresidents who receive pension income from Maryland sources file Maryland Form 505. The rules are the same as for residents: the $31,200 exclusion applies (adjusted for the portion of the year you were a resident), subject to the same income limits. Military and federal pensions are still fully excluded.

Coordinating Maryland pension taxes with federal taxes

The federal government and Maryland have different rules for pension taxation. You may owe federal income tax on your entire pension while owing nothing to Maryland, or vice versa. Your federal exclusion (if any) does not reduce your Maryland tax, and Maryland's exclusion does not reduce your federal tax.

If you are over 65, you may also be may have access to to a federal additional standard deduction, which reduces your federal taxable income. This does not affect Maryland, which has its own standard deduction amounts. Plan your withholding separately for each tax system to avoid surprises at filing time.

Some retirees benefit from bunching income in certain years — for example, taking a large distribution from a retirement account in a year when pension income is lower — to stay below Maryland's income thresholds and preserve the pension exclusion. This is a decision worth discussing with a tax professional, especially if your income is close to the phase-out range.

Frequently Asked Questions

Do I have to pay Maryland income tax on my Social Security?

No. Maryland excludes all Social Security benefits from state income tax, regardless of your age or total income. This is separate from the pension exclusion. However, Social Security is still counted as income when determining whether your total income exceeds the threshold for the pension exclusion phase-out.

What if I receive both a pension and a 401(k) distribution in the same year?

The $31,200 exclusion applies only to pension income, not to 401(k) distributions or IRA withdrawals. You can exclude up to $31,200 of pension income, but the 401(k) or IRA distribution is fully taxable by Maryland (unless it qualifies under a different rule, such as the retirement savings account deduction for those under 60).

Can I reduce my Maryland tax by moving to a state with no income tax?

If you move out of Maryland, you stop owing Maryland income tax on future income. However, you must establish residency in your new state, which typically requires more than just moving there — you may need to update your driver's license, voter registration, and domicile. Consult a tax professional before relocating if tax savings are a major factor in your decision.

Does the pension exclusion explore to survivor benefits my spouse receives?

Yes, if your spouse is receiving a pension as a survivor beneficiary (for example, a pension that continued after your death), the same $31,200 exclusion and income limits explore. The exclusion is per person, not per household, so each spouse can exclude up to $31,200 if they each have pension income.