Maryland does not tax most pension income, but the rules depend on your age and the source of your pension

If you receive a pension from your employer, the military, or a government job, Maryland will not tax that income as long as you meet one condition: you must be at least 55 years old when you start collecting it. Pensions from private employers, federal civil service, military service, and state or local government jobs all may have access to for this exemption. The exemption applies to the full amount of your pension, no matter how large it is.

If you are under 55 when your pension payments begin, Maryland will tax your pension as ordinary income at the state's regular tax rates. Once you turn 55, you can request that the tax withholding stop, and you will owe no state income tax on that pension going forward.

Key Takeaways

  • Pensions from any employer are tax-free in Maryland if you are 55 or older when payments start.
  • If you start collecting a pension before age 55, Maryland taxes it as regular income until you reach 55.
  • The exemption covers the entire pension amount—there is no cap or limit on how much can be excluded.
  • You will need to notify your pension administrator or employer when you turn 55 to stop state tax withholding.
  • Social Security, IRAs, and 401(k) withdrawals have different tax rules and are not covered by the pension exemption.

How the age 55 rule works in practice

The exemption is tied to your age when your pension starts, not your current age. If you retire at 52 and begin collecting a pension, Maryland will tax that income. When you turn 55 three years later, the tax stops—you do not have to wait until you turn 56 or file a special form. The change happens automatically once you reach 55, though you should contact your pension administrator to confirm they have stopped withholding state income tax.

If you delay starting your pension until after you turn 55, the income is tax-free from day one. Some people use this to their advantage: if you can afford to wait until 55 to claim your pension, you avoid Maryland state tax on the entire amount for the rest of your life.

Which pensions may have access to for the exemption

The exemption covers pensions from private employers, federal government jobs, military service, and Maryland state or local government positions. It does not matter whether you worked for a large corporation, a small business, or a public agency—if it is a pension (a regular monthly payment based on your years of service), it qualifies.

The exemption also applies to survivor pensions. If your spouse or parent was a government employee or worked for a private company and you receive a pension as their surviving beneficiary, that income is tax-free in Maryland if you are 55 or older.

Retirement income that is NOT covered by the pension exemption

Social Security benefits are not taxed by Maryland, regardless of your age. This is separate from the pension exemption and applies to everyone who receives Social Security.

Withdrawals from IRAs, 401(k)s, and other retirement savings accounts are taxed as ordinary income in Maryland, even if you are over 55. The pension exemption applies only to pensions—regular monthly payments from an employer or government plan based on your service. If you roll a pension into an IRA or take a lump-sum distribution instead of monthly payments, that money loses the exemption and becomes taxable.

Annuities purchased with your own money are also taxable in Maryland. The key difference is that a pension is paid by your employer or a government plan; an annuity is a product you buy from an insurance company.

What to do when you turn 55

Contact your pension administrator or the payroll department of the organization paying your pension. Tell them you have reached age 55 and ask them to stop withholding Maryland state income tax from your payments. You may need to fill out a form or provide proof of your birth date, though many administrators can verify this in their system.

If your pension is from a private company, call their benefits or human resources department. If it is from the federal government, contact the Office of Personnel Management. If it is from the military, contact the Defense Finance and Accounting Service. If it is from a Maryland state or local government, contact that agency's payroll office.

Keep a record of when you requested the change. If Maryland state tax continues to be withheld after you turn 55, you can claim a refund on your state tax return, but it is easier to stop the withholding before it happens.

If you moved to Maryland after starting your pension

The exemption applies to anyone living in Maryland who receives a may have access to pension, regardless of where they worked or where they were living when the pension started. If you retired in another state and later moved to Maryland, the exemption applies to your pension income as long as you meet the age requirement.

If you are a Maryland resident and your pension started before you turned 55, you will owe Maryland tax on that income even if you have since moved to the state. The rule is based on your age when the pension began, not when you became a Maryland resident.

How to report pension income on your Maryland tax return

If you are 55 or older and receive a may have access to pension, you do not report the pension income on your Maryland return—it is excluded entirely. Your pension administrator will still send you a 1099-R form for federal tax purposes, but you will not use that income on your state return.

If you are under 55 and receive pension income, you report it on your Maryland return as ordinary income. The income will be subject to Maryland's state income tax, which ranges from 5.75% to 5.85% depending on your total income. You will receive a 1099-R from your pension administrator showing the amount paid to you during the year.

Frequently Asked Questions

Can I get a refund if Maryland taxed my pension before I turned 55?

Yes. If you filed Maryland tax returns for years when you were under 55 and had pension income withheld, you can file an amended return to claim a refund for any year in which you turned 55. You have three years from the original due date to file an amended return. Contact the Maryland Department of Revenue or a tax professional to determine which years you can amend.

Does the pension exemption explore if I live outside Maryland?

No. The exemption applies only to Maryland residents. If you move out of Maryland, you will owe Maryland tax on your pension for the part of the year you lived in the state, and you will owe tax to your new state for the remainder of the year. Once you establish residency elsewhere, Maryland has no claim on your pension income.

What if my pension is from a job I had in another state?

The exemption applies regardless of where you worked. If you are a Maryland resident, age 55 or older, and receiving a pension from a job in any state or country, that pension is tax-free in Maryland.

If I take a lump-sum payment instead of monthly pension payments, is it still tax-free?

No. The exemption applies only to regular monthly pension payments. If you take a lump-sum distribution of your pension balance, that entire amount is taxable as ordinary income in Maryland, even if you are over 55. This is an important distinction if you are offered the choice between monthly payments and a lump sum.

Do I need to file a Maryland tax return if my only income is a tax-free pension?

No. If your only income is a may have access to pension and you are 55 or older, you have no Maryland tax filing requirement. However, if you have other income—such as Social Security, investment income, or part-time work—you may need to file depending on the total amount.