What Tax Breaks Do Veterans and Military Retirees Get in Maryland?
Last reviewed: July 2026
Veterans and military retirees in Maryland get a state income tax subtraction on their military retirement pay, property tax credits for disabled veterans, and exemptions on certain benefits like VA disability compensation, which Maryland does not tax at all. The biggest lever for most retirees is the military retirement income subtraction, which lets you exclude a meaningful chunk of your pension from state taxable income regardless of age. If you live near Aberdeen Proving Ground or anywhere in Harford County, these breaks can add up to thousands of dollars a year if you claim them correctly.
Key Takeaways
- Maryland does not tax VA disability compensation or military retirement pay above the state subtraction limit you qualify for.
- Military retirees 55 and older can subtract up to $20,000 of retirement pay in 2026.
- Maryland offers property tax credits for disabled veterans, with full exemptions for those rated 100% permanently disabled.
- Filing the wrong subtraction line is the most common mistake Jeff sees with new APG-area retirees.
About the Author: Jeff Judge, CFP®, AEP®, ChFC®, CLU® is Managing Partner of Chesapeake Financial Planners in Forest Hill, Maryland. He has been helping families and business owners in Harford County and the Baltimore metro area navigate retirement and tax planning since earning his CFP® certification in 2013, by using Chesapeake Financial Planners’ signature process, the R.U.D.D.E.R. method™. Jeff sees a lot of Aberdeen Proving Ground retirees who leave Maryland tax breaks on the table simply because nobody walked them through which form line to use.
Maryland gets a reputation as a high-tax state. For veterans and military retirees, that reputation is only half the story. The state carves out several specific breaks for people who served, and they matter most in the years right after you separate or retire. Here is how to claim each one, step by step.
Step 1: Claim the Military Retirement Income Subtraction on Your Maryland Return
Maryland lets military retirees subtract a portion of their retirement pay from state taxable income. For tax year 2026, retirees under age 55 can subtract up to $12,500 of military retirement income, and retirees 55 and older can subtract up to $20,000, according to the Comptroller of Maryland. This applies whether you served in the Army, Navy, Air Force, Marines, Coast Guard, Space Force, the commissioned corps of NOAA or the Public Health Service, or the National Guard and Reserves.
You claim this subtraction on Maryland Form 502SU using the correct subtraction code for military retirement. It is separate from the general Maryland pension exclusion, and you cannot double-dip the same dollars. Jeff Judge tells new clients near Aberdeen Proving Ground to bring their 1099-R and last year's return to the first meeting, because the single most common error he sees is military pay reported under the wrong line, which either overstates tax or triggers a notice from the state.
If you live in Harford County and recently separated, this subtraction alone can save several hundred to over a thousand dollars depending on your bracket. It is worth getting right the first year.
Step 2: Confirm VA Disability Compensation Is Excluded From All Taxes
VA disability compensation is not taxable at the federal level or in Maryland. The IRS excludes VA disability benefits from gross income entirely, which means Maryland never sees those dollars as taxable income either, since the state starts from your federal adjusted gross income.
This matters for retirees in Harford County who receive both a military pension and VA disability. The pension portion may be partly taxable after the subtraction, but the disability portion is fully tax-free. Jeff has watched clients overpay for years because they assumed all their monthly deposits were taxable. They were not. If your DFAS pay was reduced to offset a VA award, only the taxable pension piece counts toward your Maryland subtraction calculation.
Does Maryland tax VA disability or Combat-Related Special Compensation?
No, Maryland does not tax VA disability compensation or Combat-Related Special Compensation. These payments are excluded from federal gross income, and because Maryland builds its return on your federal AGI, they never enter your state taxable income. You do not need a special subtraction line for them.
Step 3: Apply for Disabled Veteran Property Tax Relief in Maryland
Maryland offers real property tax exemptions for disabled veterans. A veteran rated 100% permanently and totally disabled due to a service-connected condition can qualify for a full exemption on the dwelling house and surrounding yard, per the Maryland Department of Veterans and Military Families. Surviving spouses may also qualify in certain cases.
You apply through your local county assessment office. In Harford County, that means filing with the State Department of Assessments and Taxation along with documentation of your disability rating from the VA. This is a county-level filing, so the local connection matters. Chesapeake Financial Planners sits in Forest Hill, minutes from the Harford County offices where these applications are processed, and a meaningful share of our military clients come from the Aberdeen Proving Ground community.
Step 4: Coordinate Federal and Maryland Tax Planning in Retirement
Federal rules layer on top of the Maryland breaks. Military retirement pay is generally taxable at the federal level, and the federal standard deduction for a married couple filing jointly is $32,200 in 2026. Stacking your federal deduction against the Maryland subtraction is where coordinated planning pays off, especially in the bracket-management years before you start Social Security or required minimum distributions.
At Chesapeake Financial Planners, we run this coordination through the R.U.D.D.E.R. Method™, which is Chesapeake Financial Planners' six-step planning process: Review and Recognize, Uncover and Understand, Design and Develop, Discuss and Decide, Execute and Empower, and Reassess and Refine. For a military retiree, that means reviewing every income source, understanding which pieces Maryland taxes, and designing a withdrawal order that keeps more of your pension working for you. Jeff often tells APG retirees that the real money is not in the pension subtraction alone. It is in sequencing your other accounts so you do not waste a low-bracket year.
How Can Maryland Retirees Reduce Their State Tax Burden?
How do I coordinate all my retirement income sources to minimize taxes and maximize income?
Frequently Asked Questions
Does Maryland tax military retirement pay?
Maryland taxes military retirement pay only above the subtraction limit you qualify for. For 2026, retirees under 55 can subtract up to $12,500, and retirees 55 and older can subtract up to $20,000 of military retirement income on Maryland Form 502SU. Any pension amount above your limit is taxable at the state level.
Do veterans in Harford County get property tax breaks?
Yes, disabled veterans in Harford County can apply for real property tax relief through the State Department of Assessments and Taxation. Veterans rated 100% permanently and totally disabled from a service-connected condition may qualify for a full exemption on their primary residence, and some surviving spouses qualify as well.
Is VA disability income taxable in Maryland?
No, VA disability compensation is not taxable in Maryland or at the federal level. Because Maryland calculates state tax from your federal adjusted gross income, and the IRS excludes VA disability from gross income, those dollars never enter your Maryland taxable income. You do not need a separate subtraction code for them.
What form do I use to claim the Maryland military retirement subtraction?
You claim the Maryland military retirement subtraction on Form 502SU using the subtraction code designated for military retirement income. Report it separately from the general pension exclusion, since you cannot subtract the same dollars twice. Bring your 1099-R to confirm the taxable amount before filing in Maryland.
Do military retirees near Aberdeen Proving Ground qualify for special Maryland breaks?
Military retirees near Aberdeen Proving Ground qualify for the same statewide Maryland tax breaks: the military retirement subtraction, the VA disability exclusion, and county-level disabled veteran property tax relief. There is no separate APG-specific tax break, but the Harford County assessment office processes local property tax applications for this community.
Does Maryland tax Survivor Benefit Plan (SBP) payments?
Maryland generally treats Survivor Benefit Plan annuity payments as military retirement income, which means they may qualify for the same subtraction on Form 502SU. The taxable amount above your subtraction limit is subject to Maryland income tax. Confirm your specific situation with a tax professional before filing.
Ready to Keep More of Your Military Retirement?
These Maryland breaks are real, but claiming all of them in the right order takes a plan. If this was helpful, our guide on Maryland retirement tax strategies walks through every subtraction and credit available to veterans and retirees in depth. Download it at chesapeakefp.com and put a real number on what you could be saving.
Want to go deeper? Our Federal Employee Benefits Maximizer walks through this step by step.
Disclosures
The information provided is for educational purposes only and should not be construed as investment advice. Investment strategies should be tailored to individual circumstances, risk tolerance, and goals. Past performance doesn't guarantee future results. Consult with qualified financial professionals regarding your specific situation.
Variable annuities are long-term, tax-deferred investment vehicles designed for retirement purposes and contain both an investment and insurance component. They have fees and charges, including mortality and expense risk charges, administrative fees, and contract fees. They are sold only by prospectus. Guarantees are based on the claims paying ability of the issuer. Withdrawals made prior to age 59 ½ are subject to 10% IRS penalty tax and surrender charges may apply. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. The investment returns and principal value of the available subaccount portfolios will fluctuate so that the value of an investor's unit, when redeemed, may be worth more or less than their original value.
This information is not intended to be a substitute for specific individualized tax, investment or legal advice. We suggest that you discuss your specific situation with a qualified tax, legal or financial advisor.
Advisors associated with Chesapeake Financial Planners may be either (1) LPL Financial Registered Representatives offering securities through LPL Financial, Member FINRA and SIPC, and investment advisor representatives offering investment advice through Great Valley Advisor Group; or (2) solely investment advisor representatives offering investment advice through Great Valley Advisor Group and not affiliated with LPL Financial. Great Valley Advisor Group, and Chesapeake Financial Planners are separate entities from LPL Financial.
