Retirement Tax in Maryland: Complete Guide 2026
Data Notice: Figures, rates, and statistics cited in this article are based on the most recent available data at time of writing and may reflect projections or prior-year figures. Always verify current numbers with official sources before making financial, medical, or educational decisions.
Retirement Tax in Maryland: Complete Guide 2026
Tax information is for educational purposes only and does not constitute tax advice. Consult a licensed tax professional for your specific situation.
Maryland offers a moderately favorable tax environment for retirees, with a pension exclusion that can shield a meaningful portion of retirement income from state tax. Social Security benefits are fully exempt, and the state provides additional benefits for military retirees and lower-income seniors. However, Maryland’s combined state and county income tax rates can be relatively high, and the pension exclusion has income-based limitations. Understanding how these pieces fit together is essential for Maryland retirees.
Maryland Retirement Tax Rates (2026)
| Income Type | State Tax Treatment |
|---|---|
| Social Security | Fully exempt |
| Pension / 401(k) / IRA (age 65+) | Exclusion up to ~$36,200 per person |
| Pension / 401(k) / IRA (under 65) | Limited exclusion |
| Military retirement pay | First ~$12,500 exempt (under 55); up to ~$36,200 (55+) |
| State/local government pensions | Qualify for pension exclusion |
| County income tax | ~1.75% to ~3.20% (additional) |
Maryland’s graduated state income tax ranges from ~2% to ~5.75%. County income taxes add ~1.75% to ~3.20% on top of the state rate, making the combined top rate as high as ~8.95%.
How Retirement Income Is Taxed in Maryland
Maryland’s Pension Exclusion
Maryland allows individuals aged 65+ (or totally disabled, or whose spouse is totally disabled) to exclude up to ~$36,200 per person of qualifying retirement income, including:
- Employer pensions and annuities
- 401(k) and 403(b) distributions
- IRA withdrawals
- Federal government pensions
- State and local government pensions
The exclusion is reduced dollar-for-dollar by the amount of Social Security and Railroad Retirement Tier 1 benefits received. This means retirees receiving significant Social Security may see their pension exclusion reduced or eliminated.
Example: A retiree age 65+ receiving ~$24,000 in Social Security and ~$50,000 in pension income would have their pension exclusion reduced to $12,200 ($36,200 minus ~$24,000 Social Security), leaving ~$37,800 of pension income subject to Maryland tax.
Social Security Benefits
Maryland fully exempts Social Security benefits from state income tax.
Military Retirement Pay
Maryland provides an exclusion for military retirement pay. Retirees under age 55 may exclude the first ~$12,500 annually. Those 55 and older may use the full pension exclusion of up to ~$36,200, reduced by Social Security received.
County Income Tax
All Maryland residents pay a county income tax in addition to the state tax. Rates range from ~1.75% (Worcester County) to ~3.20% (Howard, Montgomery, Prince George’s, and several other counties). County taxes apply to the same taxable income as the state tax, so retirement income above the pension exclusion is subject to both state and county taxes.
Retirement Income Tax Scenarios
| Scenario | State Tax | County Tax (est.) | Combined State/County |
|---|---|---|---|
| SS ~$25K + pension ~$40K, age 65+ | ~$540 | ~$290 | ~$830 |
| SS ~$30K + 401(k) ~$60K, age 65+ | ~$1,575 | ~$1,020 | ~$2,595 |
| Pension only ~$50K, age 65+ (no SS) | ~$540 | ~$350 | ~$890 |
| Military ~$30K, age 56 | ~$0 (within exclusion) | ~$0 | ~$0 |
| MFJ, both 65+, total retirement ~$100K | ~$920 | ~$600 | ~$1,520 |
Comparison to Neighboring States
| State | Social Security | Pension Exclusion | Top Rate (state + local) |
|---|---|---|---|
| Maryland | Exempt | Up to ~$36,200 (reduced by SS) | ~8.95% |
| Virginia | Exempt | Age Deduction up to ~$12,000 | ~5.75% |
| Pennsylvania | Exempt | Fully exempt at retirement age | ~3.07% |
| Delaware | Exempt | ~$12,500 exclusion (60+) | ~6.6% |
| D.C. | Exempt | No exclusion | ~10.75% |
| West Virginia | Exempt | Limited adjustments | ~6.5% |
Maryland’s pension exclusion is more generous than Virginia’s or Delaware’s but comes with the Social Security offset. Pennsylvania stands out by fully exempting retirement income from state tax for qualifying retirees.
Tips for Maryland Retirees
- Understand the Social Security offset — your pension exclusion is reduced by your Social Security benefits. If your SS exceeds ~$36,200, you receive no pension exclusion at all.
- Consider delaying Social Security if doing so would preserve a larger pension exclusion in the near term, though this depends on your overall retirement plan.
- Factor in the county tax — Maryland’s county income taxes add ~1.75% to ~3.20%, significantly increasing the total tax on retirement income. Moving to a lower-county-rate jurisdiction can save hundreds or thousands annually.
- Use Roth conversions before age 65 to shift income into tax-free Roth withdrawals that do not count as taxable retirement income in Maryland.
- Claim the pension exclusion on Form 502 — ensure you complete the pension exclusion worksheet accurately, accounting for the Social Security offset.
- Explore the property tax credit if your retirement income is limited — Maryland’s Homeowners’ Tax Credit provides income-based property tax relief. See the federal income tax guide for details on deducting property taxes federally.
- Consult a tax professional for complex situations, especially if you receive retirement income from multiple states. See find a CPA near you.
Key Takeaways
- Maryland exempts Social Security benefits from state income tax.
- The pension exclusion of up to ~$36,200 per person (age 65+) is reduced by Social Security benefits received.
- County income taxes of ~1.75% to ~3.20% apply to taxable retirement income in addition to state rates.
- Military retirees aged 55+ qualify for the pension exclusion; those under 55 receive a ~$12,500 exemption.
- Maryland has no state estate or inheritance tax on direct heirs (estates under ~$5 million are exempt from Maryland estate tax).
- The combined state and county top rate of ~8.95% makes Maryland one of the higher-tax states in the region for retirees with income above the exclusion.
Next Steps
- Federal Income Tax Guide 2026 — learn how federal retirement income rules affect your Maryland taxes.
- State Income Tax Rates Comparison 2026 — compare Maryland’s retirement tax environment to other states.
- Tax Bracket Calculator — estimate your combined federal and Maryland retirement tax liability.
- Find a CPA Near You — work with a Maryland tax professional on retirement income strategies.