Is Social Security Taxed in Maryland? Complete 2026 Retiree Guide

For retirees, understanding how state income tax affects fixed retirement income is crucial. One of the first questions retirees ask when moving to or living in the Old Line State is: Is Social Security taxed in Maryland?

Maryland is one of the majority of U.S. states that offers favorable tax treatment to retirees receiving Social Security benefits. This guide explains exactly how Maryland taxes Social Security, pensions, and other retirement accounts for the 2026 tax year, and how you can maximize your tax savings.

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Direct Answer: Does Maryland Tax Social Security?

No. Maryland does not tax Social Security benefits.

Under Maryland law, 100% of your Social Security benefits—both retirement and disability benefits—are fully exempt from Maryland state and local (county) income taxes.

Even if a portion of your Social Security benefits is subject to federal income tax, you subtract that taxable amount on your Maryland state tax return (Form 502) using the tax subtraction lines. This ensures your Social Security check remains untouched by Maryland tax agencies.

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How it Works: The Social Security Subtraction

When you file your federal return, up to 85% of your Social Security benefits may be taxed depending on your provisional income.

However, when you file your Maryland State Income Tax Return (Form 502):

1. You start with your Federal Adjusted Gross Income (AGI), which includes any taxable federal Social Security benefits.
2. You claim a subtraction on Form 502, Line 11 (or the corresponding subtraction schedule) to deduct the exact portion of Social Security that was taxed on your federal return.
3. This subtraction reduces your Maryland taxable income to ensure that your Social Security is effectively taxed at 0%.

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How Other Retirement Income Is Taxed in Maryland

While Social Security is completely tax-free at the state level, other types of retirement income are subject to varying tax rules.

1. Traditional Pensions and Employer 401(k) / 403(b) Plans

Unlike Social Security, pension payouts and traditional 401(k)/403(b) distributions are taxable by Maryland. However, retirees aged 65 or older, or those who are permanently disabled, may qualify for the Maryland Pension Exclusion.

• The Pension Exclusion (2026): Qualified individuals can exclude up to a certain maximum amount of their pension or employee retirement system income from state tax. The maximum exclusion amount is linked to the maximum Social Security benefit and is updated annually.
• Eligible Accounts: Traditional defined-benefit pension plans, and qualifying employer retirement plans (such as a W-2 employer-sponsored 401(k)).
• Ineligible Accounts: IRA accounts and Keogh plans do not qualify for the standard pension exclusion subtraction.

2. Traditional IRAs and Roth IRAs

• Traditional IRAs: Withdrawals from traditional IRAs are fully taxed as ordinary income at your progressive state rate (2% to 6.5%) and county piggyback rate (2.25% to 3.30%). They do not qualify for the pension exclusion.
• Roth IRAs: Qualified Roth IRA distributions are completely tax-free at both the federal and Maryland state levels, provided you meet the IRS 5-year holding rules and age requirements.

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Common Retiree Tax Mistakes in Maryland

• Failing to Claim the Subtraction: Some retirees mistakenly assume that since Social Security is tax-free in Maryland, they do not need to do anything. You must actively claim the subtraction on your state return to deduct it from your federal AGI.
• Assuming IRAs Qualify for the Pension Exclusion: Under Maryland tax law, standard Traditional IRAs are excluded from the pension exclusion benefit. Only employer-sponsored qualified plans (like 401ks) qualify.
• Overlooking County Taxes: Keep in mind that all retirement income that is taxable at the state level is also subject to your local county piggyback tax. Living in a lower-tax county (like Talbot or Worcester) can save you significant money compared to higher-tax jurisdictions.

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Frequently Asked Questions (FAQs)

What is the maximum Maryland pension exclusion for 2026?

The maximum pension exclusion changes each tax year based on the maximum Social Security benefit. For tax year 2025/2026, the exclusion cap is approximately $39,000 to $41,000 per qualified individual. Both spouses can claim this exclusion on a joint return if both meet the age and plan eligibility rules.

Does Maryland tax out-of-state pensions?

Yes. If you are a resident of Maryland, all taxable pension income you receive is subject to Maryland income tax, even if the pension was earned while working in another state.

Are federal civil service pensions (CSRS / FERS) taxed in Maryland?

Federal pensions are subject to Maryland state tax, but they are eligible for the Maryland Pension Exclusion if you meet the age (65+) or disability requirements.

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Expert Retirement Tax Tips for Maryland Residents

1. Leverage Roth Conversions Wisely: If you plan to live in Maryland during retirement, consider doing Roth conversions in years when your income bracket is low. This will allow you to withdraw tax-free Roth income later, completely bypassing Maryland's state and county taxes.
2. Consider Your Residency Location: Since Maryland counties levy local income taxes up to 3.30%, retirees can optimize their tax burden by residing in counties like Worcester (2.25% local rate) or Talbot (2.40% local rate) rather than Montgomery or Baltimore City (3.30% local rate).
3. Plan for the Exemption Caps: Make sure you track your standard pension exclusion limits and coordinate withdrawals with your advisor to keep your taxable income below the state surcharge brackets.