Explore the Tax-Friendly Shoreline of the Crab Cake Capital
By Jeff Wilson II
As retirees consider their next chapter in Maryland, understanding the state’s tax landscape is crucial. Maryland offers several tax benefits that can significantly affect retirement cash flow, allowing seniors to keep more of their hard-earned income.
From pension exclusions to property tax credits, Maryland can be a surprisingly tax-friendly state for retirees when the rules are properly understood.
Social Security, Medicare and Long-Term Care Insurance
Maryland does not tax Social Security benefits, a major advantage for retirees relying on monthly checks.
For those who itemize deductions on both federal and Maryland state tax returns, Medicare premiums may be deductible as a medical expense if total medical expenses exceed 7.5% of adjusted gross income (AGI).
Retirees who carry long-term care insurance for themselves or qualifying resident family members may also be eligible for an additional Maryland tax credit, depending on policy and income limits.
Maryland Pension Exclusion
For calendar year 2024, Maryland allows retirees to exclude up to $39,500 of qualifying pension and retirement annuity income from state taxable income.
Eligible income sources include:
Defined benefit pension plans
Defined contribution pension plans
401(a), 401(k), 403(b) and 457(b) plans
Not eligible for the exclusion:
Traditional IRAs
Roth IRAs
SEP IRAs
Keogh plans
Example:
Jane, age 66, receives a $50,000 annual pension. Under Maryland’s pension exclusion, she deducts $39,500, leaving only $10,500 subject to Maryland income tax.
Higher Income Allowance Before Filing
Maryland allows seniors a higher income threshold before they are required to file a state income tax return.
If gross income falls below the applicable limit, retirees may not need to file at all.
Example:
John and his wife, both age 65, earned a combined income of $27,000. Because this amount falls below the $24,800 filing threshold for joint filers age 65 and older, they are not required to file a Maryland return, reducing administrative burden and exposure.
Personal Exemptions for Seniors
Taxpayers with a federal adjusted gross income of up to $100,000 (or $150,000 if filing jointly) qualify for a $3,200 personal exemption, which also applies to each qualified dependent.
In addition, Maryland allows taxpayers age 65 or older to claim an extra $1,000 senior exemption.
Example:
Mary, age 70, qualifies for the $1,000 senior exemption. She also claims her adult daughter as a dependent, adding another $3,200 exemption, further reducing her taxable income.
Tax Benefits for Married Seniors
Married couples in which both spouses receive taxable income may subtract up to $1,200 from their combined income or from the income of one spouse, whichever is less.
Example:
Steve and Laura, both 67, report $60,000 in combined taxable income. They subtract $1,200, reducing their Maryland taxable income to $58,800.
Property Tax Credits for Seniors
Some Maryland counties offer property tax credits for seniors, which may apply to property taxes assessed on up to the first $300,000 of home value.
Example:
George owns a home assessed at $280,000. Because he qualifies for the senior property tax credit, the full value of his home falls within the eligible range, reducing his property tax burden.
Senior Property Tax Credit
In many counties, homeowners age 65 and older may apply for a Senior Property Tax Credit, provided the home is their principal residence and income limits are met.
Example:
Linda, age 68, qualifies for Maryland’s Homeowners’ Tax Credit. The credit reduces her annual property tax bill and helps stabilize housing costs in retirement.
Military Retirement Income Tax Benefits
For retirees who served in the military, Maryland offers additional tax benefits. Military retirees can subtract up to $5,000 of their retirement income or $15,000 if they are 55 or older.
Example: Mark, a 56-year-old military retiree, receives $50,000 in military retirement income. He can subtract $15,000 from his federal adjusted gross income before determining his Maryland tax, reducing his taxable income and overall tax liability significantly.
Subtraction for Public Safety Retirement Income
Maryland allows public safety professionals to benefit from both the standard pension exclusion and an additional subtraction specifically for retired correctional officers, law enforcement officers, and fire, rescue, or emergency services personnel. To claim this subtraction, taxpayers use code letter v on Form 502SU.
Example: Susan, a retired law enforcement officer, has a pension of $40,000. She can claim the standard pension exclusion of $39,500 and also qualify for the subtraction for her public safety retirement income. This allows her to exclude an additional amount from her taxable income, enhancing her overall tax benefits.
Conclusion
Maryland provides a variety of tax benefits and exemptions designed to ease the financial burden on retirees. From pension exclusions to property tax credits, understanding these advantages can help retirees in Maryland make informed financial decisions. By taking full advantage of these benefits, retirees can enhance their financial stability and enjoy a comfortable retirement in the Crab Cake Capital.
Planning for retirement is a complex process. Having a financial professional in your corner is a great way to make sure you are on the right track no matter where you are in the process. Find a licensed professional here.
About the author
Jeff Wilson II, CPA/PFS, CGMA, is the founder of The W2 Group, LLC in Upper Marlboro, MD. He is also a member of the American Institute of CPA’s (AICPA)’s PFP Champions task force.