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

If you worked for the state of Maryland and receive a pension from the Maryland State Retirement and Pension System (MSRPS), that income is exempt from Maryland state income tax. This exemption applies to pensions paid to retirees and their surviving spouses. However, if you receive a pension from a source other than the state — such as a federal pension, military retirement pay, or a pension from a private employer — Maryland taxes that income like any other income.

The exemption is broad but not unlimited. It covers the full amount of your state pension check, regardless of how much you receive. You will still owe federal income tax on your state pension, and you may owe taxes to other states if you moved after retirement. Maryland itself, though, will not tax the state pension portion of your retirement income.

Key Takeaways

  • Maryland state pensions are fully exempt from Maryland state income tax for all retirees and surviving spouses.
  • This exemption applies only to pensions from the Maryland State Retirement and Pension System, not to federal, military, or private pensions.
  • You will still owe federal income tax on your state pension even though Maryland does not tax it.
  • If you receive multiple pensions from different sources, only the Maryland state pension portion is exempt from Maryland tax.

What counts as a Maryland state pension

A Maryland state pension is retirement income paid by the Maryland State Retirement and Pension System to someone who worked for a state agency or institution. This includes employees of state universities, state hospitals, the Department of Transportation, the Department of Human Services, and other executive branch agencies. Teachers who worked in Maryland public schools and receive pensions through the Teachers' Retirement System of Maryland also may have access to for the exemption.

The exemption covers your monthly pension check in full. If you receive a lump-sum distribution instead of monthly payments, that lump sum is also exempt. Survivor benefits paid to your spouse or dependent after your death are likewise exempt from Maryland tax.

Pensions that Maryland does tax

Maryland taxes pensions from sources other than the state of Maryland. If you worked for the federal government and receive a Civil Service Retirement System (CSRS) or Federal Employees Retirement System (FERS) pension, Maryland will tax that income. Military retirement pay — whether you served in the U.S. Army, Navy, Air Force, Marines, Coast Guard, or Space Force — is also subject to Maryland income tax.

Private employer pensions are taxed as well. If you worked for a corporation, nonprofit, or other non-governmental employer and receive a pension from that employer's plan, Maryland treats that income as taxable wages. The same applies to pensions from unions, professional associations, or other private retirement plans.

If you receive income from an Individual Retirement Account (IRA), a 401(k), or a similar retirement savings account, Maryland taxes those withdrawals as income. The exemption applies only to pensions from the state system itself, not to retirement savings you accumulated on your own.

How to report your state pension on your Maryland tax return

When you file your Maryland state income tax return, you will report your total income from all sources. Your state pension amount goes on the return, but you then claim an exemption for the Maryland state pension portion. The Maryland Department of Revenue provides a line on the return specifically for this exemption.

Your pension administrator — the Maryland State Retirement Agency or the Teachers' Retirement System — will send you a Form 1099-R each January showing the amount of your pension paid during the previous year. Use this form to complete your tax return. You do not need to submit a separate form to claim the exemption; you simply report the pension income and then subtract it as an exempt amount.

If you have questions about how much of your income qualifies for the exemption, contact the Maryland Department of Revenue directly. They can clarify whether a specific pension source is exempt or taxable under Maryland law.

Federal tax on your state pension

Even though Maryland does not tax your state pension, the federal government does. You will owe federal income tax on the full amount of your state pension, just as you would on any other income. Your pension administrator may withhold federal tax from your monthly check if you request it, or you can pay estimated federal taxes quarterly.

Some retirees are surprised to learn that the federal exemption for military pensions does not apply to state pensions. If you are a retired military officer who also worked for the state and receives both a military pension and a state pension, Maryland taxes the military portion but not the state portion. The federal government taxes both.

State taxes if you moved after retirement

If you retired from the Maryland state system and then moved to another state, Maryland will not tax your state pension regardless of where you live. The exemption follows you. However, your new state of residence may tax your Maryland state pension. Some states exempt all pensions; others tax all pensions; still others have rules specific to public employee pensions.

Before you move, research the tax laws of your destination state. States like Florida, Texas, and Tennessee do not tax pensions at all. States like California and New York tax most pension income. A few states, like Pennsylvania, exempt public pensions but tax private ones. Knowing the rules before you move can help you plan your retirement finances.

Frequently Asked Questions

Do I have to file a Maryland tax return if my only income is my state pension?

No. Because your state pension is exempt from Maryland tax, it does not count toward the income threshold that requires you to file. However, if you have other income — such as Social Security, investment earnings, or a part-time job — you may still need to file. Check the current filing requirements on the Maryland Department of Revenue website or contact them directly.

What if I worked for Maryland and also for the federal government?

You would receive two separate pensions. Your Maryland state pension is exempt from Maryland tax. Your federal pension is taxable in Maryland. Report both on your return, claim the exemption for the state portion, and pay tax on the federal portion.

Does the state pension exemption apply to my surviving spouse?

Yes. If you pass away and your spouse receives survivor benefits from your state pension, those benefits are also exempt from Maryland income tax. The exemption continues for as long as your spouse receives the payments.

If I take a lump-sum distribution instead of monthly payments, is it still exempt?

Yes. Whether you receive your state pension as monthly checks or as a single lump-sum payment, the entire amount is exempt from Maryland state income tax. You will still owe federal tax on the distribution.

Can I move my state pension to an IRA to avoid taxes?

You cannot move a state pension itself into an IRA — a pension is a fixed payment stream, not an account you control. However, some retirees roll over lump-sum distributions into IRAs. If you do, the money in the IRA becomes subject to Maryland tax when you withdraw it, because IRA withdrawals are taxable income. The state pension exemption applies only to payments from the state system itself.