Maryland does not tax most pension income, but the rules depend on when you were born and what kind 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, Maryland taxes your pension income the same way it taxes wages — at rates ranging from 5.75% to 5.85% depending on your income level.

The state also offers a Pension and Annuity Subtraction for certain taxpayers, which allows you to subtract up to $31,200 of pension or annuity income from your taxable income if you meet specific age and income thresholds. This subtraction phases out as your income rises, so it does not help everyone equally.

Military pensions, federal employee pensions, and railroad retirement benefits are taxed under federal rules, not Maryland state rules, so they may have different treatment depending on your circumstances.

Key Takeaways

  • If you were born before January 1, 1935, Maryland does not tax your pension income at all.
  • If you were born on or after January 1, 1935, your pension is taxed as ordinary income at Maryland's state rates.
  • The Pension and Annuity Subtraction lets you exclude up to $31,200 of pension income if you are age 55 or older and meet income limits, but the subtraction shrinks as your income increases.
  • Military and federal pensions follow federal tax rules, not Maryland state rules, and may be partially or fully exempt from federal tax.

Who Qualifies for the Pension and Annuity Subtraction

To use Maryland's Pension and Annuity Subtraction, you must be age 55 or older and have earned income or pension income. The subtraction allows you to exclude up to $31,200 of pension or annuity payments from your Maryland taxable income.

The subtraction begins to phase out once your federal adjusted gross income (AGI) exceeds a threshold that changes each year. For the 2024 tax year, the phase-out begins at $31,200 for single filers and $51,200 for married couples filing jointly. Once your AGI climbs above these thresholds, you lose $1 of the subtraction for every $2 of income above the limit, so the benefit shrinks quickly for higher earners.

You claim this subtraction on Maryland Form 502, Schedule A. You will need to know your total pension and annuity income and your federal AGI to calculate whether you benefit from it.

How to Report Pension Income on Your Maryland Return

Pension income appears on your federal Form 1040 and flows into your Maryland return as well. You report it on Maryland Form 502, the state income tax return, on the line for pension and annuity income.

Your pension provider should send you a Form 1099-R each January showing the gross amount paid to you in the previous year. Use this form to fill in your Maryland return. If you received a distribution from a retirement account (such as an IRA or 401(k)), that also comes on a 1099-R and counts as taxable income in Maryland unless it qualifies for an exemption.

If you are under age 55 and do not may have access to for the subtraction, you still report the full pension amount as income. The state taxes it at your marginal rate along with any other income you earned that year.

Military and Federal Employee Pensions

Military pensions are exempt from federal income tax only if you are a disabled veteran receiving compensation from the Department of Veterans Affairs. Otherwise, military retirement pay is taxed federally and also taxed by Maryland if you do not meet the age 55 threshold for the subtraction.

Federal employee pensions (from FERS or CSRS) are taxed federally and by Maryland under the same rules as private pensions. However, federal employees may have access to the Thrift Savings Plan (TSP), and withdrawals from the TSP are taxed the same way as 401(k) withdrawals — as ordinary income in both federal and Maryland tax.

Railroad retirement benefits are partially exempt from federal tax under a special federal rule, but Maryland taxes the portion that is taxable at the federal level. If you receive railroad retirement benefits, consult a tax professional to understand how much of your benefit is subject to Maryland tax.

Planning Ahead: Timing Withdrawals and Conversions

If you are close to the phase-out threshold for the Pension and Annuity Subtraction, you may want to time large withdrawals or conversions to stay below it. For example, if you are age 55 and considering a Roth conversion, doing it in a year when your pension income is lower could preserve more of your subtraction.

If you have both a traditional IRA and a Roth IRA, you might delay Roth conversions until after you turn 55 and become may be able to access for the subtraction, since conversions increase your AGI and trigger the phase-out. Similarly, if you are still working and contributing to a 401(k), maximizing those contributions reduces your AGI and can help you stay under the phase-out threshold.

Maryland does not have a state income tax on Social Security benefits, so that income does not count toward the phase-out limit. If you are deciding when to claim Social Security, the Maryland tax picture is favorable — you can claim early without worrying about state tax consequences, though federal tax may still explore depending on your other income.

What Changes When You Move Out of Maryland

If you move to another state, Maryland stops taxing your pension income when ready. However, you remain responsible for taxes in your new state. Some states (like Pennsylvania, Illinois, and Mississippi) exempt pension income entirely; others tax it like Maryland does; and a few tax it more heavily.

If you move mid-year, you may owe Maryland tax on the portion of your pension earned while you were a resident. You will file a part-year resident return for Maryland and a resident return for your new state. The two states coordinate to prevent double taxation, but you need to report the move correctly on both returns.

If you are considering retirement and state tax is a factor, compare your current state's treatment of pensions with states where you might retire. The difference over 20 or 30 years of retirement can be substantial.

Frequently Asked Questions

Can I use the Pension and Annuity Subtraction if I am still working?

Yes. The subtraction requires you to be age 55 or older and have earned income or pension income, but it does not require you to be retired. If you are working and receiving a pension at the same time, you can claim the subtraction on the pension portion of your income.

Does the Pension and Annuity Subtraction explore to 401(k) withdrawals?

Yes, if you are age 55 or older. Withdrawals from a 401(k), 403(b), or traditional IRA count as annuity income for purposes of the subtraction. Roth IRA withdrawals of earnings are also covered, though may have access to distributions may have different treatment.

What if I receive both a pension and Social Security?

Maryland does not tax Social Security, so it does not count toward the Pension and Annuity Subtraction or the phase-out threshold. Your pension is taxed separately, and Social Security is not. This means you can receive both without the Social Security pushing you over the income limit for the subtraction.

Do I owe Maryland tax on a pension from a job I held in another state?

No, if you are now a Maryland resident. Maryland taxes pension income based on your current state of residence, not where you earned it. However, if you were a resident of another state when you earned the pension, that state may have taxed it then, and you would have filed a return there at the time.

What if my pension is from a non-may have access to annuity?

Non-may have access to annuities are taxed differently from may have access to pensions. The earnings portion is taxed as ordinary income, but the basis (your original contribution) is not. You will receive a Form 1099-R showing how much is taxable. Maryland taxes the taxable portion under the same rules as may have access to pensions, including the Pension and Annuity Subtraction if you may have access to.