Taxes in Maryland for Retirees

When it comes to retirement, where you live is obviously important. You may want to be close to family or friends, or near certain amenities or attractions, or any other number things that dictate your decision. But where you live can also have a major impact on your retirement income, thanks to different state tax laws.

What this means for retirees is that picking a specific state to live in requires careful study of their retirement tax laws. For example, taxes in Maryland for retirees are on the more attractive side compared to other states. Social Security income is not taxed, and withdrawals from retirement accounts are only partially taxed. Plus, there are some new tax provisions that directly benefit retirees.

So, if you’re considering retiring to Maryland, let’s take a look at how taxes might help stretch your nest egg.

Is Maryland Tax-Friendly for Retirees?

Maryland is considered tax friendly for retirees thanks to the many tax benefits designed to ease the financial burden during retirement. Some of the most notable tax benefits in Maryland include: 

Other tax benefits for retirees in Maryland include: 

• Pension Exclusion: Retirees can exclude up to $36,200 of their pension income from their taxable income. 

• Senior Citizen Tax Credit: Retirees 65 and over may be eligible for a nonrefundable tax credit of up to $1,000. 

• Property Tax Credit: Retirees who meet certain income requirements can claim a property tax credit of up to $1,680. 

Is Retirement Income Taxed in Maryland?

Yes, some retirement income is taxed in Maryland. While Social Security benefits are fully exempt from Maryland state income taxes, other forms of retirement income, including pensions, IRAs, and 401(k) withdrawals, may be taxable. However, Maryland offers pension exclusions and retirement income deductions for eligible retirees, which can help lower the overall tax burden.

Is Military Retirement Pay Taxed in Maryland?

While military retirement pay is fully taxable in Maryland, there are some tax deductions and exclusions available for military retirees in Maryland. According to the Maryland Department of Veteran Affairs, if you or your military retiree spouse receives military retirement income, you can subtract up to $12,500. There is also "an increase to the first $20,000 for individuals who are at least 55 years old on the last day of the taxable year, of your military retirement income from your federal adjusted gross income before determining your Maryland tax."

What is the Maryland Retirement Tax Elimination Act?

The Maryland Retirement Tax Elimination Act is a law that gradually reduces state income taxes for eligible retirees. Passed in 2023, the legislation increases retirement income exemptions each year, with the goal of eventually eliminating Maryland state income taxes for many retirees by 2028.

To qualify, residents generally must be at least 65-years-old or receiving Social Security benefits. The law was created to make Maryland more affordable and tax-friendly for retirees.

Indirect Tax Benefits of Retiring to Maryland

Taxes in Maryland for retirees are indeed quite advantageous. This offers a major incentive for older adults looking to maximize their retirement income by limiting their tax liabilities through residency in Maryland. Yet there are more advantages available to people retiring in Maryland than just direct tax benefits.

One of the biggest and perhaps most influential aspects of the state of Maryland is that the relative cost of healthcare in the state is more affordable than the national average. According to Sperling’s Best Places, Maryland healthcare costs are listed at 84.2, which is below the average of 100 for the United States. The price of healthcare is an obvious concern for anyone, but for retirees it’s especially important considering that a person’s medical care needs change as they age. With lower healthcare costs in Maryland, your retirement savings can go even further – especially when taking tax benefits into account as well.

Advantages of Retirement in Maryland

Maryland is a moderately tax-friendly state for retirees. And there are many other advantages to retiring in Maryland, including:

• Access to high-quality healthcare and senior services
• Proximity to major cities like Washington, D.C. and Philadelphia without living in higher-tax urban areas
• Wide variety of retirement destinations, from coastal towns to suburban communities
• Strong public transportation options in many areas
• Four-season climate with relatively mild winters compared to northern states
• Numerous senior discounts and community programs
• Abundance of cultural attractions, museums, parks, and waterfront recreation
• Convenient access to beaches, mountains, and outdoor activities
  Estate planning opportunities through exemptions for certain family inheritances

If you’re thinking about relocating, there are countless reasons to consider retiring in Maryland. The best towns to retire in Maryland offer cultural appeal, small-town feel, and four mild seasons.

Retirement Communities in Maryland

If you’ve decided that Maryland is the best place for you to retire, have you considered moving into a retirement community? Today’s retirement communities serve almost like cruise ships without the sea — wonderful accommodations, non-stop activities and excursions, and all the amenities you need for an ideal retirement. With Maryland’s tax friendliness and a quality retirement community, you can stretch your dollars even further and live your Golden Years to the fullest.

The communities at Acts Retirement-Life Communities are Continuing Care Retirement Communities, meaning they go a step further and provide future health services such as assisted living or skilled nursing, as well as security, fitness and socialization benefits, and more.

Explore any of Acts’ Maryland retirement communities conveniently located in Chestertown, Adamstown, Easton, and Sykesville, or contact us with any inquiries or questions you have.

Maryland Retirement Taxes Frequently Asked Questions

Does Maryland tax Social Security benefits?
No. Maryland does not tax Social Security retirement benefits, making it a more tax-friendly state for many retirees.

Does Maryland tax pensions?
Yes, Maryland may tax pension income. However, many retirees qualify for pension exclusions and deductions that can reduce the amount of taxable retirement income.

Are IRA and 401(k) withdrawals taxable in Maryland?
Yes. Withdrawals from traditional IRAs and 401(k) accounts are generally subject to Maryland state income tax, although certain exemptions may apply depending on age and income level.

What is the retirement age in Maryland?
Maryland does not have an official retirement age. However, many retirement-related tax benefits in the state begin at age 65.

What is Maryland’s pension exclusion?
Maryland offers a pension exclusion for eligible residents age 65 and older or those who are permanently disabled. Qualified retirees may exclude a portion of pension income from state taxes.

Does Maryland have state income tax?
Yes. Maryland has a graduated state income tax system, with rates based on income level. Counties and Baltimore City also impose local income taxes.

What is the Maryland Retirement Tax Elimination Act?
The Maryland Retirement Tax Elimination Act is a law designed to gradually reduce state income taxes for eligible retirees, with expanded retirement income exemptions phased in over several years.

Does Maryland tax military retirement income?
Maryland offers tax benefits for military retirees, including exemptions on certain military retirement income.

Does Maryland have estate or inheritance taxes?
Maryland is one of the few states that imposes both an estate tax and an inheritance tax, although many close family members are exempt from inheritance taxes.

Is Maryland tax-friendly for retirees?
Maryland can be moderately tax-friendly for retirees because it exempts Social Security benefits and offers retirement income deductions, though some retirement income and property taxes may still apply.

Are property taxes high in Maryland?
Property taxes in Maryland are generally close to the national average, though rates can vary significantly depending on the county or city.

At what age do retirees qualify for Maryland retirement tax deductions?
Many Maryland retirement tax benefits and pension exclusions begin at age 65, though some disabled individuals may qualify earlier.

What are the best retirement communities in Maryland?
Some of the best retirement communities in Maryland include Heron Point of Chestertown, Buckingham’s Choice, Bayleigh Chase, and Fairhaven. These continuing care retirement communities stand out because of their great amenities and exceptional care.