Maryland does not tax Social Security benefits, but it does tax most pension income
Maryland has a significant distinction between how it treats Social Security and how it treats other retirement income. Social Security benefits are completely exempt from Maryland state income tax — this applies to all recipients, regardless of age or total income. Pension income, however, is taxed as ordinary income under Maryland's standard tax brackets.
The one exception to pension taxation is military pensions. If you receive a pension from the U.S. military, Maryland excludes up to $15,000 per year from your taxable income. This exclusion applies only to military service pensions, not to civilian federal pensions or pensions from private employers.
Understanding which income streams are taxed matters because it changes how much you owe on your Maryland state return. Many people moving to or retiring in Maryland assume all retirement income gets the same treatment, but the rules differ significantly by source.
Key Takeaways
- Social Security income is not taxed by Maryland, no matter how much you receive or what your other income is.
- Pensions from private employers, state governments, and civilian federal agencies are taxed as regular income at Maryland's standard rates.
- Military pensions receive a $15,000 annual exclusion, meaning only the amount above $15,000 is subject to Maryland tax.
- You report taxable pension income on your Maryland Form 502 return using the same income brackets as wages.
How Maryland taxes pension income at the state level
Maryland treats pension income the same way it treats wages for tax purposes. Your pension payment is added to your other income, and the total is taxed using Maryland's progressive tax brackets. For the 2024 tax year, those brackets range from 2% on the lowest income to 5.75% on income above a certain threshold (the exact threshold depends on your filing status).
If you receive a pension from a state government, a city government, a private company, or a civilian federal agency like the Social Security Administration or the Veterans Benefits Administration, that income is fully taxable. There is no age-based exclusion — a 65-year-old with a pension pays the same tax rate as a 45-year-old with the same pension amount.
The only way to reduce your taxable pension income is through the military pension exclusion or through standard deductions and credits that apply to all Maryland taxpayers. You cannot exclude or defer pension income based on when you retired or how long you worked.
The military pension exclusion: how it works
If you served in the U.S. Armed Forces and receive a military retirement pension, Maryland allows you to exclude up to $15,000 of that pension from your taxable income each year. This exclusion is automatic — you do not need to request it or file a separate form, but you do need to clearly identify the pension as military income on your return.
The exclusion applies only to the pension itself, not to other military-related income. If you receive Survivor Benefit Plan (SBP) payments, Dependency and Indemnity Compensation (DIC), or other military benefits, those are handled separately and are generally not subject to Maryland income tax anyway because they are federal benefits.
If your military pension is less than $15,000 per year, you exclude all of it. If it is $20,000 per year, you exclude $15,000 and pay tax on the remaining $5,000. If you are married and both spouses have military pensions, each spouse can use the $15,000 exclusion on their own pension.
Federal tax treatment versus Maryland state tax
Maryland's rules differ from federal rules, and you need to follow both. At the federal level, Social Security is also not taxed for most people, but some higher-income retirees do pay federal tax on a portion of their benefits. Pensions are fully taxable at the federal level with no military exclusion.
This means you might owe federal income tax on a pension while owing nothing to Maryland, or vice versa. Your federal return and your Maryland return are separate calculations. When you file your Maryland Form 502, you are reporting only Maryland taxable income, which starts with your federal adjusted gross income but then applies Maryland-specific rules like the military pension exclusion.
If you are unsure whether your specific pension qualifies for any exclusion, the Maryland Department of Revenue publishes guidance for different pension types. You can also contact the department directly or work with a tax preparer familiar with Maryland rules.
What documents you need to report pension income
Your pension provider sends you a Form 1099-R each January, which reports the total amount you received in the previous year. This form shows the gross pension payment and may indicate whether any portion is nontaxable (for example, if you contributed to your pension with after-tax dollars). You use this form to report the income on both your federal and Maryland returns.
If you have a military pension, keep documentation showing the pension is from military service. This might be a letter from the Department of Defense, your military discharge papers, or a statement from your pension provider. You do not submit this with your return, but you should have it available in case Maryland audits your return and questions the military pension exclusion.
If you receive multiple pensions — for example, a military pension and a civilian federal pension — you report each one separately on your return. The military exclusion applies only to the military pension, not to the other income.
How retirement income affects other Maryland tax benefits
Pension and Social Security income can affect whether you may have access to for other Maryland tax credits and deductions. The Earned Income Tax Credit (EITC), for instance, has income limits, and your pension counts toward those limits even though it is not "earned" income. Similarly, certain property tax credits and senior tax credits have income thresholds that include all retirement income.
If you are over 65, Maryland offers a tax credit for residents with limited income, but the income limits are strict and include both taxable and nontaxable income. Social Security counts toward the income limit even though it is not taxed. This means you could have a relatively modest total income but still exceed the threshold for the credit.
When you file your return, review all available credits and deductions to see which ones you might use. A tax preparer or the Maryland Department of Revenue can help you determine which credits apply to your situation.
Frequently Asked Questions
Will I owe Maryland tax if I only receive Social Security?
No. Social Security is not taxed by Maryland under any circumstances. If Social Security is your only income, you will not owe Maryland state income tax. You may still need to file a federal return depending on your total income and filing status.
Is my federal employee pension taxed by Maryland?
Yes, unless it is a military pension. Pensions from civilian federal agencies like the U.S. Postal Service, the FBI, or the Social Security Administration are taxed as regular income by Maryland. Only military service pensions receive the $15,000 exclusion.
Can I exclude my pension if I am over 65?
No. Maryland does not have an age-based pension exclusion. The only exclusion is the $15,000 military pension exclusion. Your age does not change how much of your pension is taxed, though you may may have access to for other age-related credits if your income is low enough.
What if I moved to Maryland after I retired?
Your tax obligation depends on where you lived when you earned the pension, not where you live now. If you earned a pension while working in another state and now live in Maryland, you owe Maryland tax on that pension. Maryland taxes all income of its residents, regardless of where the income was earned.
Do I report my pension on a separate form from my wages?
No. Pension income and wage income both go on your Maryland Form 502 return and are combined for tax purposes. You report the total on line 1 of the return. The only special handling is identifying military pension income separately so you can claim the $15,000 exclusion.