Maryland is trying to become more tax friendly to retirees

Maryland is trying to become more tax friendly to retirees

| July 11, 2020
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Maryland isn't very tax-friendly for retirees, and many seniors are moving to more tax-friendly states as a result. Maryland exempts some types of retirement income from state income taxes, including Social Security. But it fully taxes others, such as income from IRAs. Maryland is the only state in the country with both an estate and an inheritance tax.

Currently, Maryland residents 65 and above can exclude up to $31,100 of federally-taxed income from a pension or 401(k) or 403b plan or other employer plan (but not from an IRA). There are also income tax exclusions available for the first $15,000 of military pensions and retirement income for certain first responders through the Hometown Heroes Act of 2020, which exempts law enforcement, fire, rescue, corrections, and emergency response personnel from state tax on all retirement income specific to their service in those professions. 

However, when you add in local taxes, which can be as high at 3.2%, many Maryland retirees are taxed heavily on income that is not excluded from tax.

Maryland's proposed Retirement Tax Reduction Act of 2020 would cut retirement taxes for Marylanders by more than $1 billion over five years. The legislation will eliminate all state tax on the first $50,000 of income for retirees making up to $100,000 in federally adjusted gross income. Retirees with Maryland income up to $50,000 will pay no state tax whatsoever in the state of Maryland. This tax reduction, if passed, would be phased in over five years, beginning in FY22.

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