State and local income taxes are pretty hefty for Maryland residents, partly because the counties and Baltimore City each levy their own income taxes. Below, we explain various Maryland state taxes affecting retirement income, such as sales tax, inheritance tax, and property taxes.
For information regarding taxes in other states, see Retirement Taxes by State.
Maryland Tax Rates
|State Sales Tax||6%|
|Avg State/Local Sales Tax||6%|
|Gas Tax||$0.43 per gallon|
|Diesel Tax||$0.44 per gallon|
|Cigarette Tax||$3.75 per pack|
|Effective Tax Rate:||4.42%|
|Social Security Tax||None|
|Federal Income Tax Deduction:||None|
Maryland State Taxes Explained
Maryland Sales Tax
6%, with no local taxes.
Maryland Income Taxes
The max income tax rate is 5.75%. Twenty-three Maryland counties and Baltimore City also levy a local income tax between 2.25% and 3.20%, based on income.
Maryland Property Taxes
The average effective property tax rate in Maryland is 1.09%. This amounts to $3,430 on the average home value of $314,800.
Maryland’s Homeowners’ Property Tax Credit Program reduces property tax amounts exceeding a combined household income percentage. Currently, there’s no credit on the first $8,000, 4% of the next $4,000 and 6.5% of the next $4,000 of income. Income over $16,000 is figured at 9%.
The Homestead Credit assists homeowners who have a large increase in their property assessment. This program limit increases in annual taxable assessments to a fixed percentage. Each municipality has a homestead cap and may limit taxable assessments increases to a maximum of 10% per year.
Renters who are at least 60 years old or totally disabled are eligible for the Renters’ Tax Credit Program. The tax relief is based on income and the amount of rent less utilities.
The Maryland Property Tax Deferral Program allows property owners aged 65 or over to defer property tax bill increases. Local governments determine income restrictions and the amount of interest on the outstanding taxes. Deferred taxes become a lien on the property. The loan is paid off when the property is transferred due to circumstances such as selling the home or the taxpayer’s death.
See Maryland’s property tax guide for homeowners for details.
Maryland Retirement Taxes
Maryland does not tax Social Security income. Taxpayers who are 65 or older, totally disabled, or have a completely disabled spouse can exclude up to $34,300 of federally taxed income from a pension or 401(k). IRA distributions and out-of-state pensions are excluded from this rule.
Retired correctional or law enforcement officers and fire, rescue and emergency services personnel may take advantage of a separate exclusion. The age bracket for using this exemption is 55 to 64, and the amount is up to $15,000.
Up to $15,000 of military retirement income is tax-exempt for retirees aged 55 and older. The exemption is reduced to $5,000 for those who don’t meet the age threshold.
Maryland residents can take a one-time $500 credit for the cost of long-term care insurance. The insured can be a spouse, parent, stepparent, child or stepchild. Maryland residency, coverage beginning after July 1, 2000, and other qualifications are required.
Maryland also offers taxpayers a credit for the cost of home improvements for aging in place or living with disabilities. The Maryland Independent Living Tax credit amounts to 50% of qualified expenses paid during a taxable year. The maximum credit is equal to $5,000 or the amount of taxes owed. The Maryland Department of Housing and Community Development must certify the expenses.
Maryland Estate and Inheritance Taxes
Maryland has both an estate tax and an inheritance tax. Estate tax ranges from 0.8% to 16%, although the first $5 million is exempt. Maryland’s estate tax rules for those who died after July 1, 2020, exempt property passed to a spouse, child, parent, grandparent, stepchild or stepparent, siblings or other lineal descendants. This rule also applies to property passed on to a corporation listing these relatives as stockholders. Any other individuals pay 10%.
For those who died on or after July 1, 1999, there is a 0.9% tax on the clear value of property passed to a child or other lineal descendant, spouse, parent or grandparent. Siblings pay 8% and all others pay 10%. Maryland has a separate inheritance tax for descendants who died before July 1, 1999.