Does Maryland Tax Social Security? The 2026 Retiree Guide to Tax Exemptions

Does Maryland Tax Social Security? The Quick Answer & Comparison

Maryland does not tax Social Security benefits, nor does it tax Railroad Retirement benefits. This is a definitive 'no' from the Maryland Comptroller, ensuring that the federal Social Security income you receive each month stays entirely in your pocket at the state level. However, while your Social Security is protected, Maryland’s broader tax landscape for retirees is nuanced, particularly regarding pensions, 401(k) distributions, and local 'piggyback' taxes that vary by county.

### 2026 Quick Answer for Maryland Retirees

• Social Security Taxability: 0% (Fully exempt from state and local income tax).
• Railroad Retirement: 100% exempt.
• Pension Exclusion: Up to $39,500 for those 65+ (subject to specific eligibility rules).
• Local Taxes: Vary by county (2.25% to 3.20%) and are applied to most retirement income except Social Security.
• Selection Rule: If you are over 65, prioritize Social Security and qualifying pensions to minimize your Maryland Adjusted Gross Income (MAGI).
• Warning: 401(k) and IRA distributions do not qualify for the standard Pension Exclusion, which can lead to a 'tax cliff' for the unprepared.

This landscape provides a significant 'win' for those relying heavily on Social Security, but it requires a strategic approach to other assets to avoid the hidden drain of local levies.

The Psychology of Fixed-Income Preservation in Maryland

Imagine sitting at your kitchen table at 2 AM, the blue light of a laptop screen illuminating a spreadsheet that doesn't quite seem to balance. You’ve worked forty years for this 'finish line,' yet the fear of a 'hidden drain'—that slow erosion of your monthly spending power by state and local taxes—feels like a betrayal of your hard-earned autonomy. This isn't just about math; it's about the psychological weight of preservation. In my practice, I often see this 'Shadow Pain' in retirees: the anxiety that a single legislative change or a misunderstood tax form could force a lifestyle downgrade, moving you away from the grandkids or the community you love.

Maryland’s decision to exempt Social Security is a powerful psychological validator. It signals that the state respects the 'Social Contract' of your working years. However, the anxiety often shifts to the 'Pension Exclusion Cliff.' When you realize that your 401(k) is treated differently than your neighbor’s government pension, it can trigger a sense of unfairness. We must address this duality: the relief of the Social Security exemption versus the frustration of the complex local tax structure. By naming this pattern, we move from reactive fear to proactive management. You aren't just 'paying taxes'; you are protecting a legacy and a lifestyle that you've earned every right to enjoy without apology.

The Pension Exclusion: Protecting Your Other Retirement Buckets

Let’s talk about the 'Maryland Pension Exclusion,' because this is where most people get tripped up. While the state is generous with Social Security, it uses a specific formula to determine how much of your other retirement income is protected. For the 2024-2026 tax years, if you are 65 or older (or totally disabled), you may be able to exclude up to $39,500 of your retirement income from state taxation. This is designed to level the playing field, but there’s a catch: it only applies to 'employee retirement systems'—think defined benefit plans and certain 401(a) setups.

Unfortunately, traditional IRAs, 401(k)s, and Keogh plans do not qualify for this specific exclusion. This creates a strategic necessity for Marylanders. If you are planning your withdrawals, you need to understand which bucket you are dipping into first. To help you navigate this, here is a step-by-step checklist for the exclusion:

• Verify Age: You must be 65 or older by the last day of the tax year.
• Source Check: Ensure the income is from a qualified 'employee retirement system' (not a standard IRA).
• Social Security Offset: Note that your maximum exclusion ($39,500) is reduced by any Social Security or Railroad Retirement benefits you received.
• Disability Status: If you are under 65, you must be 'totally and permanently disabled' to qualify.
• Joint Filing: If both spouses are 65+, each may be eligible for their own exclusion based on their individual retirement income.

Understanding this 'offset' is crucial. If you receive $20,000 in Social Security, your maximum pension exclusion for other income types drops significantly. It’s a balancing act that the Maryland Comptroller monitors closely.

Local Piggyback Taxes: The Hidden Drain on Your Spending Power

We need to talk about the 'Piggyback Tax'—the local income tax that every Maryland county and Baltimore City levies on top of the state tax. For a retiree, this is often the most surprising part of the tax bill. While your Social Security is exempt from these local taxes, your other income is not. These rates range from 2.25% in Worcester County to 3.20% in places like Howard or Montgomery County. Psychologically, this creates a 'Geographic Resentment.' You might love the culture of Bethesda, but the tax delta between there and a neighboring state—or even a neighboring county—can feel like a penalty for your success.

Consider these common scenarios to see how this plays out in real life:

• Scenario A: The Social Security Dependent. Mary lives in Anne Arundel County and relies 90% on Social Security. Her tax liability is near zero because her primary income source is fully exempt at both state and local levels. She feels a high sense of security.
• Scenario B: The Diverse Portfolio. Robert in Prince George's County has a 401(k) and a small private pension. Even though his Social Security is exempt, he pays both state tax and a 3.2% local tax on his 401(k) withdrawals. He feels the 'drain' and often questions if he should move to Delaware.
• Scenario C: The Disabled Veteran. James lives in Frederick County. Maryland recently increased exemptions for military retirement. Between his Social Security and his $20,000 military exemption, he keeps nearly 100% of his income.

This disparity often leads to 'Retiree Flight'—the phenomenon where seniors move just across the border to avoid the local piggyback. However, before you pack your bags, we must weigh the 'social capital' of your current home against the literal capital you'd save.

Legacy Planning: Inheritance and Estate Tax Nuances

Maryland is unique—and not necessarily in a way that makes your estate planner happy. It is currently the only state in the U.S. that has both an estate tax and an inheritance tax. While this doesn't affect your monthly Social Security check, it is a massive factor in your 'Legacy Confidence.' The inheritance tax is particularly aggressive, hitting distant relatives or non-relatives at a rate of 10%. However, there is a silver lining for your closest family: direct descendants (children, grandchildren) and spouses are generally exempt from the inheritance tax.

The estate tax has a higher threshold (currently $5 million), but it’s something to watch if you’ve seen your home value in the DC-Baltimore corridor skyrocket. When we talk about whether 'Maryland taxes Social Security,' we have to look at the 'Total Cost of Living.' You might save $2,000 a year on Social Security taxes but lose significant portions of your estate's value later. This is why many retirees choose to stay in Maryland for the quality of life but utilize 'Gifting Strategies' to reduce their taxable estate while they are still around to see their family enjoy the benefits. High-authority sources like CNBC often point out that while Maryland is 'Social Security friendly,' its overall death tax profile is one of the most complex in the nation.

The Decision Framework: Choosing Maryland for the Long Haul

So, does Maryland tax Social Security? No. But does that mean you should stay? This is the 'Stay or Go' framework I walk through with my clients. We often focus on the financial numbers because they are 'hard' data, but the decision to retire in Maryland is usually 'soft.' It’s about the proximity to the Inner Harbor, the history of Annapolis, or the specific healthcare system you’ve used for decades. The financial 'win' of the Social Security exemption serves as a psychological anchor—it makes you feel like the state wants you there.

To make a clear-headed decision, use this three-part framework:

• The 85% Rule: If more than 85% of your income is Social Security, Maryland is effectively a tax haven for you. The complexity of other taxes doesn't apply.
• The Lifestyle-to-Levy Ratio: Does the quality of life (healthcare, safety, community) in your specific county justify the 3.2% local tax on your other assets?
• The Legacy Buffer: Are you prepared to structure your assets to protect your heirs from the inheritance tax, or is that a dealbreaker for your 'Future Self' goals?

When you stop viewing taxes as an unavoidable theft and start seeing them as a 'subscription fee' for your community, the resentment often fades. You are in control of your financial narrative. Maryland offers a significant shield for your most basic benefit; your job is to manage the rest with the same intentionality.

Join the Maryland Retiree Squad

Navigating the 'Old Line State' as a retiree is a lot easier when you have a crew that’s been there, done that. While I've given you the tax breakdown, there’s nothing quite like hearing from someone in Montgomery County who found a loophole in their local assessments or a couple in Ocean City who mastered the art of the pension exclusion. You don't have to crunch these numbers in a vacuum. Transitioning into this new chapter is as much about social connection as it is about financial solvency.

If you've found these tax answers helpful, you'll love the Maryland Retiree Squad. It’s a dedicated space where we talk about everything from the best tax-friendly spots in the state to share tips on making the most of your exempt benefits. Why do it alone when you can join a group of people who are navigating the same local piggyback taxes and legacy hurdles? Let’s make sure your retirement is about thriving, not just calculating. Come join the conversation and let's protect that nest egg together.

FAQ

1. Is Social Security taxable in Maryland at the state level?

Social Security benefits are 100% exempt from Maryland state income tax. This means you do not need to pay any state-level income tax on the Social Security payments you receive, regardless of your total income level.

When filing your Maryland tax return, you will typically subtract your taxable Social Security benefits (as reported on your federal return) from your Maryland adjusted gross income. This ensures the state does not 'double dip' into your federal benefits.

2. Are local Maryland taxes applied to Social Security benefits?

No, Maryland counties and Baltimore City do not apply local income taxes to Social Security benefits. While local governments levy a 'piggyback tax' on most other types of income, Social Security remains protected at both the state and local levels.

This makes Maryland a very attractive state for retirees who rely primarily on Social Security, as they avoid the 2.25% to 3.20% local tax rates that would otherwise apply to their earnings.

3. Who is eligible for the Maryland pension exclusion?

To qualify for the Maryland pension exclusion, you must be at least 65 years old or totally disabled. This exclusion allows you to shield a portion of your retirement income from state taxes, provided the income comes from a qualified employee retirement system.

The maximum exclusion amount is updated annually (approximately $39,500 for 2025). However, this amount is reduced by any Social Security or Railroad Retirement benefits you receive during the year.

4. Does Maryland tax retirement income from a 401(k)?

Traditional IRA and 401(k) distributions are generally fully taxable in Maryland and do not qualify for the standard pension exclusion. Unlike defined benefit pensions, these individual retirement accounts are viewed as deferred compensation that is subject to both state and local income taxes.

Retirees should plan for a tax liability of roughly 2% to 5.75% for state taxes, plus their specific county's piggyback tax, when withdrawing from these accounts.

5. What are the Maryland income tax rates for seniors?

Maryland state income tax rates for seniors are the same as for other residents, ranging from 2% to 5.75%. However, seniors benefit from several specific subtractions and exemptions that younger residents do not, such as the pension exclusion and the Social Security exemption.

Additionally, Maryland offers an extra personal exemption for individuals aged 65 or older, which further reduces the taxable income for seniors living in the state.

6. How to report Social Security on a Maryland tax return?

You report Social Security on your Maryland return by first including the taxable portion on your federal return (Form 1040). Then, on the Maryland Resident Tax Return (Form 502), you use the 'subtractions from income' section to remove that Social Security amount from your Maryland taxable income.

Specifically, you will look for the line labeled 'Social Security and/or Railroad Retirement benefits included in Federal Adjusted Gross Income' to ensure these are not taxed by the state.

7. Does Maryland tax Railroad Retirement benefits?

Railroad Retirement benefits (Tier 1 and Tier 2) are fully exempt from Maryland state and local income taxes. Like Social Security, these benefits are subtracted from your federal adjusted gross income when calculating your Maryland tax liability.

This exemption is codified in Maryland law to align with federal protections for railroad workers, ensuring they receive the same tax-free status on their core benefits as Social Security recipients.

8. What is the Maryland inheritance tax for retirees?

Maryland is the only state in the nation that imposes both an estate tax and an inheritance tax. While the estate tax has a $5 million threshold, the inheritance tax can apply to smaller estates if the assets are left to 'collateral' heirs like nieces, nephews, or friends.

Fortunately, 'lineal' heirs—such as spouses, children, and grandchildren—are exempt from the 10% inheritance tax, providing significant relief for those passing wealth to their immediate family.

9. How does Social Security affect the Maryland pension exclusion?

The maximum pension exclusion is reduced dollar-for-dollar by the amount of Social Security or Railroad Retirement benefits you receive. For example, if the max exclusion is $39,500 and you receive $20,000 in Social Security, you can only exclude up to $19,500 of other qualified pension income.

This 'offset' is one of the most important calculations for Maryland retirees to understand, as it prevents the 'double-dipping' of tax exemptions on retirement income.

10. Is Maryland considered a tax-friendly state for retirees?

Maryland is considered moderately tax-friendly for retirees. While the exemption of Social Security and the pension exclusion are major pros, the presence of local piggyback taxes and the unique inheritance tax structure are significant cons compared to states like Florida or Nevada.

However, for seniors who rely heavily on Social Security and have modest pension income, Maryland can be a very affordable place to live from a tax perspective.

References

marylandcomptroller.gov — Technical Bulletin 51 - Maryland Comptroller

marylandcomptroller.gov — Maryland Pension Exclusion FAQ

cnbc.com — CNBC: States That Don't Tax Retirement Income