Maryland Tax Elimination Act
The Maryland retirement tax elimination act of 2022, which faced significant barriers, was signed into law by Governor Larry Hogan, and contained tax relief offering the largest tax cut package for Maryland’s retirees.
This new state income tax credit is available to individuals aged 65 and over who receive pension income, income from a qualified retirement plan, such as a 401(k), IRA, or a defined benefit plan. Governor Hogan hopes this act will help Maryland become more tax-friendly for retirees, particularly our seniors, offering substantial relief.
In this post, we’ll explore the tax relief measures of this credit and how you can take advantage of it.
Qualifications for the Maryland Tax Elimination Act
Qualification is determined using your Federal Adjusted Gross Income, and is designed to help alleviate the tax burden on retired individuals, particularly during these uncertain times.
Starting in 2022, to qualify, Taxpayers 65+ must have Federal Adjusted Gross Income less than:
- $100,000 – Single / Married Filing Separate
- $150,000 – Married Filing Jointly, Qualified Survivor, Head of Household
How Does The Act Work
The savings will come from a nonrefundable tax credit against your state income taxes. A nonrefundable tax credit reduces your tax liability, but they cannot be used to generate a tax refund if the credit exceeds the amount of taxes owed.
The credit amount is $1,000 for an individual filer or a couple with only one spouse aged 65 or older. For joint filers both 65 or older, the credit amount is $1,750.
However, it’s important to understand this credit amount may be reduced if the ‘September General Fund Estimate’ for the fiscal year is more than 7.5% below the ‘March General Fund Estimate’ for the current fiscal year.
In addition to this new tax credit, Maryland residents benefit from other tax relief opportunities.
Maryland Pension Exclusion for 2023
Maryland currently taxes retirement income, including pension income, at the same rates as other types of income. Maryland’s progressive income tax rates range from 2% to 5.75%.
It’s important to note that all Maryland Counties (and Baltimore City) levy a local income tax that ranges from 2.25% and 3.20%.
However, Maryland offers a pension exclusion for certain types of retirement income, including qualified defined benefit and defined contribution pension plans, 401(a) plans, 401(k) plans, 403(b) plans, and 457(b) plans.
It’s important to note that Traditional IRAs, Roth IRAs, simplified employee plans (SEP), Keogh Plans, or ineligible deferred compensation plans do not qualify for the pension exclusion.
In 2022, the exclusion amount is $34,300. And who qualifies for this exclusion? Those 65 and older, or those who are fully disabled (or have a disabled spouse) can qualify for this pension exclusion.
However, it’s important to note Maryland’s pension exclusion does consider untaxed Social Security benefits and the pension exclusion can be reduced or eliminated. This pension exclusion is separate from the new state income tax credit explained in this article.
Does Maryland Tax Social Security?
Do you pay taxes on Social Security in Maryland? Social Security income is not taxed at the state level – you do not have to pay Maryland state taxes on those benefits.
In general, Social Security benefits are not subject to federal income tax. However, if you have other sources of income, such as wages or investment income, your benefits may be partially taxable. Retirees must also monitor Medicare IRMAA surcharges at the federal level.
Conclusion
In summary, the largest tax cut package for Maryland Income Tax offers a significant tax relief opportunity for retirees to reduce their tax burden and improve their financial wellbeing during their golden years.
To take advantage of this new tax credit and other tax savings opportunities, it’s essential to understand your income, dividends, and capital gains can affect this credit.
Therefore, we encourage you to consult with a qualified financial advisor who can provide personalized guidance and help you navigate the complex tax landscape!
