Is military retirement taxed in Maryland?

How it works in Maryland

Your age on December 31 decides the limit, not your age when the first check arrived. Under 55 on the last day of the tax year, you subtract up to $12,500 of military retirement income received that year. At 55 or older on that day, the limit is $20,000 for the whole year, including the months before your birthday.

On the 2025 return, enter the amount on line u of Form 502SU, Subtractions From Income, then carry the Form 502SU total to Line 13 of Form 502 and write code letter u in the code boxes. The resident booklet lets a filer whose only subtraction is code u put the amount and letter straight on Line 13, which makes Form 502SU optional.

Attach Form 502R. Anyone with pension or annuity income on federal Form 1040 lines 4b or 5b must complete it, and Part 5, line 10 of the 2025 Form 502R asks for the military retirement you subtracted under code u. The amounts on the two forms must agree.

Maryland's county income tax is figured on the same taxable income, so the subtraction lowers both taxes. The 2025 local rates run from 2.25% in Worcester County to 3.30% in Dorchester County, and 12 of the 24 local jurisdictions, Baltimore City, Montgomery and Prince George's among them, charge 3.20%. Take an assumed retiree aged 56 with a $30,000 pension: $20,000 comes off. At the 4.75% state bracket (taxable income of $3,001 to $100,000 for a single filer) plus a 3.20% county rate, that saves about $1,590 a year.

If you skipped code u in an earlier year, file Form 502X with a copy of your federal return and the corrected Form 502SU. The claim generally must come within three years of the date you filed the original return, or two years from the date you paid the tax, whichever is later. A return filed before its due date counts as filed on the due date.

What trips Maryland retirees up

• The 65-and-older pension exclusion on Form 502, Line 10a (up to $41,200 for 2025) is a separate benefit. Its worksheet tells you to leave out of Line 1 any amount already subtracted under code u, and Tax-General § 10-209(d)(1) bars only those code u dollars, so the same dollars cannot be excluded twice. Neither the statute nor the booklet says outright that retired pay above the code u limit counts toward Line 10a, so check before relying on it.
• Two 2026 House bills to raise the subtraction, HB 761 (up to $40,000 at any age) and HB 857 ($20,000 under 55), got a committee hearing on February 19, 2026 and no further action on the General Assembly's site. The statute still reads $12,500 and $20,000 (read October 9, 2026).
• The limit follows the person, not the household. Tax-General § 10-207(q) measures military retirement income received by an individual against that individual's age, so on a joint return each spouse's own retired pay gets its own $12,500 or $20,000 limit.