Maryland leaves your Social Security alone. The rest of your retirement income is taxable, but a Pension Exclusion can shield a large chunk of it. The Maryland retirement income tax falls on pensions, IRA, and 401(k) income at state rates from 2% to 5.75%, plus a county tax on top.
This guide explains what Maryland taxes, how the Pension Exclusion works, and why the county piece matters.
Maryland Retirement Income Tax at a Glance
Here is how Maryland handles each common source of retirement income.
| Income source | How Maryland treats it |
|---|---|
| Social Security | Not taxed. |
| Pensions (employment-related) | Taxable, but eligible for the Pension Exclusion. |
| IRA and 401(k) withdrawals | Taxed at 2% to 5.75% state, plus county. |
| Senior exclusion | Pension Exclusion up to $41,200 (2024) for those 65+ or disabled, reduced by Social Security received. |
Social Security is fully exempt in Maryland. The state does not tax any portion of your benefit. It reaches you free of state and county income tax.
Pensions, IRA withdrawals, and 401(k) distributions are taxable. The Pension Exclusion can shield a large slice of qualifying pension and retirement-plan income, but it does not cover everything, and it shrinks for people who collect Social Security. The details decide how much you actually save.
Maryland Retirement Income Tax: How It Works
Maryland has a graduated state income tax running from 2% to 5.75%. On top of that, every Maryland county and Baltimore City levies its own income tax. So your true rate is the state rate plus your county rate. That county layer is easy to forget and it raises the real cost of a taxable withdrawal.
The relief built for retirees is the Pension Exclusion. For tax year 2024, it lets qualifying taxpayers exclude up to $41,200 of eligible pension and retirement-plan income. You qualify if you are 65 or older, or totally disabled, or your spouse is disabled.
But there is a catch that surprises people. The exclusion is reduced by the amount of Social Security or Railroad Retirement benefits you receive. The more Social Security you collect, the smaller your Pension Exclusion gets. And if your Social Security exceeds $41,200, the exclusion drops all the way to zero.
That design matters. Maryland reasons that your Social Security is already untaxed, so it offsets the pension break against it. Retirees with large Social Security benefits get little or no Pension Exclusion. Retirees with modest Social Security and a sizable pension benefit the most.
This is the opposite of what many retirees expect. A bigger Social Security check feels like good news, and it is for your budget. But it quietly shrinks the Pension Exclusion, so the state tax break narrows as your Social Security grows. The two move in opposite directions by design. Knowing that lets you read your own situation correctly instead of assuming the full $41,200 is yours.
Work an example. Say you are 67 and receive $15,000 in Social Security and $30,000 from a pension. Your starting Pension Exclusion of $41,200 is reduced by the $15,000 in Social Security, leaving a $26,200 exclusion. That covers your entire $30,000 pension minus $3,800, which stays taxable. These figures are illustrative, not a prediction of your own return.
What the Exclusion Covers
The Pension Exclusion applies to eligible employment-related pension and qualifying retirement-plan income. Distributions from IRAs and 401(k)s above what the exclusion absorbs are taxed at Maryland's state rate plus your county rate.
So the order of operations is: total your eligible retirement income, apply the Pension Exclusion reduced by your Social Security, and tax whatever is left at the combined state-and-county rate. The Comptroller of Maryland provides the worksheet that runs this calculation on your return.
The County Tax Nobody Mentions
Maryland's county income tax is the piece that catches retirees off guard. It is not a flat statewide add-on; each county sets its own rate, and it stacks on top of the state's 2% to 5.75%.
That means a $50,000 taxable IRA withdrawal costs more in a high-county-rate jurisdiction than a low one, even though the state rate is identical. When you budget a withdrawal to pay for care, use your combined rate, not just the state number. Otherwise you will under-budget the tax.
The county tax follows where you live, not where the account is held. If a move is on the table for care reasons, the destination county's rate is part of the comparison.
What This Means for Paying for Care
If you are drawing on retirement savings to pay for senior care, Maryland's layered rates and the Pension Exclusion both shape your bill.
A large IRA or 401(k) withdrawal is taxed at the state rate plus your county rate, and only the part covered by your Pension Exclusion escapes. A one-time spike can also push more income above the exclusion than a steady drawdown would.
Spreading withdrawals across tax years often keeps more income inside the exclusion and the lower state brackets. For the federal mechanics of these withdrawals, including the early-withdrawal penalty and required distributions, see our guide to using retirement accounts for care.
Because the Pension Exclusion interacts with your Social Security, the right withdrawal order is not obvious. Our guide to building a senior care funding plan covers sequencing income sources to keep the tax low. If you are just beginning, start with how to pay for senior care.
A tax professional can run your Pension Exclusion against your Social Security and county rate before you withdraw. Given how the pieces interact, that is worth doing.
Where Maryland Stands for Retirees
Maryland is a mixed bag for retirees. The full Social Security exemption is a strong plus, and the Pension Exclusion is genuinely generous for the right retiree, up to $41,200 of shielded income. But two features pull the other way.
First, the exclusion is offset by Social Security. A retiree with a large Social Security benefit may see the Pension Exclusion shrink to nothing, which blunts the headline number. The break helps pension-heavy, Social-Security-light retirees most.
Second, the county income tax adds a layer many other states do not have. Even with the exclusion, taxable retirement income carries both a state and a county rate. That combined rate is the number that actually hits your withdrawal.
The takeaway: Maryland rewards retirees whose income leans on a pension that fits inside the exclusion, and it costs more for those with large taxable withdrawals in a high-rate county. Knowing which group you fall into tells you what to expect, and where the planning effort pays off.
Frequently Asked Questions
No. Maryland does not tax Social Security. Your benefit reaches you free of state and county income tax.
Up to $41,200 for tax year 2024, for taxpayers 65 or older or totally disabled. The exclusion is reduced by the Social Security or Railroad Retirement benefits you receive, and it is zero if those benefits exceed $41,200.
Yes. Every Maryland county and Baltimore City levies its own income tax on top of the state's 2% to 5.75%. Taxable retirement income, including IRA and 401(k) withdrawals, is subject to both.
Yes, above what the Pension Exclusion covers. The taxable portion is taxed at Maryland's state rate plus your county rate.
Learn More
- How to Pay for Senior Care
- Building a Senior Care Funding Plan
- Using Retirement Accounts to Pay for Care
Find personalized help planning how to pay for senior care at brevy.com.
The information on Brevy.com is for educational purposes only and is not a substitute for professional legal, financial, or medical advice. Rules vary by state and program and change frequently. Always verify with the relevant agency or a qualified professional. Brevy is not a law firm, financial advisor, or healthcare provider.