Maryland does not tax most pension income, with a narrow exception for federal pensions

Maryland excludes most pension and retirement distributions from state income tax. If you receive a pension from a private employer, a state or local government job, or the military, Maryland will not tax that money. The one exception is pensions paid by the federal government — those are taxable in Maryland.

This means your pension check arrives without Maryland state tax withheld, and you do not report it on your Maryland tax return. Federal income tax still applies to all pensions, and you will owe that to the IRS. But the state itself takes nothing from pension income in most cases.

Key Takeaways

  • Maryland does not tax pensions from private employers, state government, local government, or the military.
  • Federal pensions — those paid by the U.S. government to its employees or retirees — are taxable under Maryland law.
  • Federal income tax applies to all pensions regardless of source; Maryland's exemption covers only state tax.
  • You will not see Maryland tax withheld from most pension paychecks, but you should verify the source of your pension to be certain.

Which pensions are exempt from Maryland tax

Maryland's pension exemption covers pensions from private companies, state agencies, county and municipal governments, and the U.S. military. This includes teachers' pensions, police and fire pensions, state employee pensions, and military retirement pay. The exemption also covers distributions from certain retirement plans tied to government or military service.

The exemption is broad because Maryland law treats most earned pension income as a return of contributions you already paid into the system during your working years. The state considers this money already taxed when you earned it, so it does not tax it again when you receive it.

Federal pensions are taxable in Maryland

If you worked for the federal government — the U.S. Postal Service, the Department of Veterans Affairs, the Social Security Administration, or any other federal agency — your pension is subject to Maryland income tax. This is the main exception to the state's general pension exemption.

Federal pensions are taxed at Maryland's standard income tax rates, which range from 2% to 5.75% depending on your total income. You will owe this tax whether you live in Maryland or moved out of state after retirement. If you live outside Maryland, you still owe Maryland tax on federal pension income if you were a Maryland resident when you retired or if the pension is based on work performed in Maryland.

How to report pension income on your Maryland tax return

Most retirees do not report pension income on their Maryland return because it is exempt. You only report pension income if it comes from the federal government. Federal pensions go on Maryland Form 502 (the state income tax return) as taxable income, just like wages.

Your pension provider sends you a Form 1099-R each January showing the total amount paid in the previous year. Keep this form for your records. If your pension is exempt, you do not need to attach anything to your return — you simply do not include it. If your pension is from the federal government, you report the full amount as income.

What happens if your pension provider withholds Maryland tax by mistake

Some pension administrators mistakenly withhold Maryland tax from exempt pensions. This happens most often when a retiree moves to Maryland after retirement or when the pension provider's system is not updated. If this occurs, you can request a refund from the Maryland Department of Revenue.

To recover the money, file your Maryland tax return and claim the overpayment as a refund. Include a note explaining that the withholding was made in error because your pension is exempt. You can also contact your pension provider and ask them to stop withholding Maryland tax going forward. Provide them with a copy of Maryland's pension exemption law or a letter from the Department of Revenue confirming your pension is exempt.

Social Security and other retirement income

Maryland does not tax Social Security benefits. This is separate from the pension exemption and applies to all retirees regardless of where the money comes from. Distributions from IRAs and 401(k) plans are taxable in Maryland as ordinary income, unlike pensions, which receive special treatment.

If you have a mix of income sources in retirement — a pension, Social Security, IRA withdrawals, and investment income — only the federal pension portion is taxed by Maryland. Everything else either is exempt or taxed as regular income depending on its type.

Frequently Asked Questions

Do I have to pay federal income tax on my Maryland-exempt pension?

Yes. Maryland's exemption covers only state income tax. The federal government taxes all pension income, including pensions that Maryland does not tax. You will owe federal tax on your entire pension amount regardless of whether Maryland taxes it.

I moved to Maryland after I retired. Do I still get the pension exemption?

Yes, as long as your pension is not from the federal government. Maryland taxes pensions based on the source of the pension, not on where you live or where you worked. If you receive a state, local, military, or private pension, it remains exempt even if you moved to Maryland years after retirement.

My pension provider is withholding Maryland tax. How do I stop it?

Contact your pension provider's payroll department and ask them to stop Maryland withholding. Tell them your pension is exempt under Maryland law. You may need to provide documentation. If they refuse or say they cannot change it, file your tax return and claim the overpayment as a refund with the Maryland Department of Revenue.

Is my military pension taxed by Maryland?

No. Military pensions are exempt from Maryland income tax. This applies to active-duty military, reserve, and National Guard pensions. You will not owe Maryland tax on military retirement pay even if you live in the state.

What if I receive both a state pension and a federal pension?

Only the federal pension portion is taxable in Maryland. Your state or local pension remains exempt. Report only the federal pension amount as income on your Maryland tax return.