The Maryland pension exclusion lets residents who are at least 65 or totally disabled subtract up to $41,200 of qualifying pension income from their state return for the 2025 tax year.1Comptroller of Maryland. 2025 Pension Exclusion Computation Worksheet 13A The cap is tied to the maximum Social Security benefit and adjusts each year.2Maryland General Assembly. Fiscal and Policy Note for House Bill 355 Two things determine what you actually save: whether your retirement income comes from a qualifying source, and how much Social Security you collect. The exclusion shrinks dollar-for-dollar as your Social Security rises.
Who Qualifies
You need to clear two tests. First, on the last day of the tax year you must have been at least 65, or totally disabled at any age. You also qualify if your spouse was totally disabled on the last day of the tax year.3Comptroller of Maryland. Maryland Pension Exclusion
Total disability means a mental or physical condition that keeps you from doing any substantial work and is expected to last indefinitely or end in death. The first year you claim on disability grounds, attach a physician’s certification describing the impairment.4Comptroller of Maryland. Maryland Resident Tax Booklet
Second, you must be a Maryland resident. Part-year residents can still claim it, with the amount prorated for the months they lived in the state.
Which Retirement Income Counts
The exclusion applies only to income from an “employee retirement system” that shows up in your federal adjusted gross income. That means employer-sponsored plans: 401(k)s, 403(b)s, 457(b) plans, and traditional defined-benefit pensions.3Comptroller of Maryland. Maryland Pension Exclusion What they share is that your employer set them up or contributed on your behalf.
These common accounts do not qualify:
- Traditional IRAs and Roth IRAs
- SEP IRAs (Simplified Employee Pensions)
- Keogh plans for the self-employed
- Ineligible deferred compensation plans
- Foreign retirement income
The IRA rule catches the most people. Money you rolled from a 401(k) into an IRA loses eligibility once it lands in the IRA. If you’re near retirement and weighing a rollover, keeping funds in the employer plan preserves access to this subtraction.
Social Security and Railroad Retirement benefits are fully exempt from Maryland tax and are subtracted separately on Line 11 of Form 502.5Comptroller of Maryland. Seniors and Retirees Frequently Asked Questions They don’t qualify for the pension exclusion because they already get better treatment, but they still drive the calculation, as described next.
How the Social Security Offset Reduces Your Exclusion
The $41,200 figure is a ceiling, not the amount you subtract. Your exclusion is reduced dollar-for-dollar by every dollar of Social Security and Railroad Retirement benefits you received, not just the portion taxed on your federal return.1Comptroller of Maryland. 2025 Pension Exclusion Computation Worksheet 13A
The math runs in three steps:
- Start with $41,200 (for 2025).
- Subtract your total Social Security and Railroad Retirement benefits. That’s your tentative exclusion.
- Your actual exclusion is the smaller of the tentative figure or your qualifying pension income.
An example. A retiree gets $28,000 in Social Security and $25,000 from a state employee pension. The tentative exclusion is $41,200 minus $28,000, or $13,200. That’s less than the $25,000 pension, so the exclusion is $13,200.
Another. A retiree gets $10,000 in Social Security and $20,000 in pension income. The tentative exclusion is $31,200, but the pension is only $20,000, so the exclusion is $20,000. The full pension is sheltered.
If your Social Security benefits alone exceed $41,200, your pension exclusion is zero. The Social Security itself is still tax-free under the separate exemption on Line 11.
When Both Spouses Qualify
On a joint return, each qualifying spouse fills out their own Worksheet 13A. Each spouse’s exclusion is offset only by that spouse’s Social Security, not the combined household total.1Comptroller of Maryland. 2025 Pension Exclusion Computation Worksheet 13A Add the two results and put the total on Line 10a of Form 502.
If both spouses collect Social Security but only one has a qualifying pension, enter only the pension-receiving spouse’s Social Security on the worksheet. The other spouse’s benefits don’t reduce the exclusion.
Separate Subtractions That May Serve You Better
Two other Maryland subtractions overlap with the pension exclusion, and one of them may be a better fit. Income claimed under either of these is not entered on Worksheet 13A.
Military retirement income has its own subtraction with no age-65 requirement. If you were at least 55 on the last day of the year, you can subtract up to $20,000 of military retirement pay; under 55, the limit is $12,500. It covers service in the U.S. Armed Forces, reserve components, the Maryland National Guard, and certain federal uniformed services.6Department of Veterans and Military Families. Retirement Pay and Pension Tax Deductions and Exclusion A veteran who is 65 or older with additional employer pension income can claim the military subtraction first and then apply the standard exclusion to the remaining pension.1Comptroller of Maryland. 2025 Pension Exclusion Computation Worksheet 13A
Retired law enforcement officers, correctional officers, and fire and rescue personnel who are at least 50 may qualify for the Hometown Heroes subtraction. For eligible retirees, it can cover up to 100% of qualifying pension income, still reduced by Social Security benefits. Both of these are claimed on Line 13 of Form 502 using their own code letters.
Part-Year Residents
If you moved into or out of Maryland during the year, complete Worksheet 13A as if you were a full-year resident, then multiply the result by your months of Maryland residency divided by 12.7Comptroller of Maryland. 2022 Resident Booklet Instructions
There’s a wrinkle if your pension started the same year you became a resident. The proration factor is Maryland months divided by months you received pension payments, capped at 1. Move to Maryland on March 1 with a pension also starting March 1, and the factor is 10 over 10, giving you the full exclusion for those months.
How to Claim It on Form 502
The exclusion runs through three pieces of paper:
- Worksheet 13A does the calculation. Line 1 is qualifying pension income, Line 2 is the $41,200 maximum, Line 3 is total Social Security and Railroad Retirement benefits.1Comptroller of Maryland. 2025 Pension Exclusion Computation Worksheet 13A
- Form 502, Line 10a is where the final number from the worksheet lands.
- Form 502R must be completed and attached if you received taxable pension, IRA, or annuity income.8Comptroller of Maryland. 2025 Maryland Form 502 Resident Income Tax Return
Tax software handles the mechanics. Paper filers will find the worksheet in the Form 502 instruction booklet.
Watch Line 3 carefully. Enter the full amount of Social Security you received, not just the federally taxable portion. Using the smaller federal number inflates the exclusion and invites a correction from the Comptroller.
If You Get the Exclusion Wrong
Overclaiming, whether by folding in IRA income, understating Social Security, or claiming before age 65, produces an underpayment. The Comptroller’s office sends a notice, then assesses the tax owed. Ignore it and formal assessment follows, with penalty charges of up to 25% of the unpaid tax and interest running from the original due date.9Comptroller of Maryland. Penalty and Interest Charges Answering the first notice usually limits things to tax plus interest.
If you were eligible in a prior year and didn’t claim it, file Form 502X. Maryland generally allows amended returns within three years of the original due date.