What Is the Tax Rate on Pensions in Maryland?
Pensions are an important source of income for many retirees, and understanding the tax implications of these benefits is crucial. If you are a Maryland resident or considering retiring in the state, it is essential to be aware of the tax rate on pensions. In this article, we will explore the tax rules surrounding pensions in Maryland and provide answers to frequently asked questions on this topic.
Maryland is known for its high taxes, and unfortunately, pensions are not exempt from this. The state has a progressive income tax system, which means that the tax rates increase as your income rises. However, the exact tax rate on pensions in Maryland depends on various factors, including your filing status and total income.
For most Maryland residents, pensions are subject to the state income tax. The tax rates range from 2% to 5.75%, depending on your income level. The rate you pay will depend on the combined income of you and your spouse if you are married and filing jointly. If you are a single filer or married and filing separately, your individual income will determine the applicable tax rate.
It is important to note that Maryland offers a few tax breaks for retirees. If you are at least 65 years old or disabled, you may be eligible for a subtraction modification on your pension income. This means that you can exclude a portion of your pension income from your taxable income, thereby reducing your tax liability.
The subtraction modification for pension income is based on your age and your total income. If you are 65 or older, you can subtract up to $31,100 from your pension income if your total income is below $100,000. The subtraction gradually phases out as your income exceeds $100,000, and it is fully eliminated if your income reaches $150,000 or more.
If you are under 65 but disabled, you can subtract up to $29,900 from your pension income if your total income is below $100,000. Similar to the age-based subtraction, the amount gradually phases out as your income increases and is fully eliminated at $150,000 or above.
Q: Are Social Security benefits taxable in Maryland?
A: Yes, Maryland taxes Social Security benefits. However, there is a modification that allows you to exclude a portion of your benefits from your taxable income. The exclusion amount depends on your filing status and total income.
Q: Are military pensions taxed in Maryland?
A: Military pensions are generally subject to Maryland income tax. However, retired military personnel who are at least 65 years old or disabled may qualify for the pension subtraction modification mentioned earlier.
Q: Are out-of-state pensions taxed in Maryland?
A: Yes, Maryland taxes out-of-state pensions if you are a resident of the state. However, if you are a Maryland resident receiving a pension from another state that does not tax its own residents’ Maryland pensions, you may be eligible for a credit on your Maryland tax return.
Q: Are public employee pensions taxed in Maryland?
A: Yes, public employee pensions, including those from the federal government, state, and local governments, are subject to Maryland income tax. However, the pension subtraction modification is available for eligible retirees.
Q: Do I have to pay taxes on my 401(k) withdrawals in Maryland?
A: Yes, 401(k) withdrawals are generally taxable in Maryland. The income tax rate will depend on your total income and filing status.
In conclusion, the tax rate on pensions in Maryland varies depending on your income level and filing status. Most pensions are subject to the state income tax, with rates ranging from 2% to 5.75%. However, retirees may qualify for a subtraction modification that allows them to exclude a portion of their pension income from their taxable income. It is essential to consult with a tax professional or use tax software to ensure accurate and compliant reporting of pension income on your Maryland tax return.