Maryland Governor Proposes Major Tax Cut for Retirees

Tax Breaks

Maryland Governor Proposes Major Tax Cut for Retirees

Gov. Hogan hopes $1 billion in additional tax relief will make it more affordable for retirees to stay in Maryland.

Courtesy of the Executive Office of the Governor

Maryland isn't very tax-friendly for retirees, and many seniors are moving to more tax-friendly states as a result. But Maryland Gov. Larry Hogan wants to change that trend. He recently released a plan to lower income taxes by more than $1 billion for retirees in the state.

SEE ALSO: State-by-State Guide to Taxes on Retirees

Currently, Maryland seniors can exclude up to $31,100 of federally-taxed income from a pension or 401(k) 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. 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.

Under the governor's plan, there would be no Maryland tax on the first $50,000 of income for retirees with federal adjusted gross income under $100,000. The tax relief would be phased in over a five-year period. According to the governor, his plan would provide tax relief to 230,000 taxpayers and prevent thousands of Maryland retirees from fleeing the state for a more tax-friendly location.

SEE ALSO: 10 Least Tax-Friendly States for Retirees

Gov. Hogan also wants to fully exempt all pension and retirement income paid to veterans and first responders.

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It's uncertain if the Maryland General Assembly will embrace Gov. Hogan's plan. Maryland Democrats are pushing their own tax reform agenda that would raise up to $2 billion for education reforms. Reaching an agreement on both plans seems unlikely.

SEE ALSO: 50 Best Places to Retire in the U.S.