Maryland Tax Reduction on Penions

Maryland Tax Reduction on Penions

President of the MTA Brian Blubaugh submitted new information about the Pension Reduction Tax laws
Brian found a few different articles about the tax deduction modification from the Comptroller site as well as others.  Rick is going to post something on the listserve too.

PENSION SUBTRACTION MODIFICATION FOR RETIRED PUBLIC SAFETY

Posted on Wed 01/03/2018 by fopAdmin

In 2017 Governor Hogan signed the bill passed by the state legislature to provide for a $15,000.00 Pension Subtraction Modification for Retired Law Enforcement, Fire, Rescue or Emergency Services Personnel starting at age 55. Information can be located in the 2017 Maryland State and Local Tax Forms Instructions booklet published by the Comptroller of Maryland. Specifically, instruction #13, Subtraction from Income, section rr, pages 9 and 10.

PENSION EXCLUSION FOR RETIRED LAW ENFORCEMENT OFFICER OR FIRE, RESCUE, OR EMERGENCY SERVICES PERSONNEL. Note: An individual taxpayer may not claim BOTH the standard Pension Exclusion and the Pension Exclusion for Retired Law Enforcement Officer or Fire, Rescue, or Emergency Services Personnel. If you are 65 or older on the last day of the calendar year, you are totally disabled, or your spouse is totally disabled, and you have received qualified pension income, you should complete the Pension Exclusion Computation Worksheet (13A) regardless of your prior work history. It is permissible for one spouse to claim the standard Pension Exclusion and the other spouse to claim the Pension Exclusion for Retired Law Enforcement Officer or Fire, Rescue, or Emergency Services Personnel if each spouse meets the applicable required criteria. If you meet the below criteria, use the Pension Exclusion Worksheet (13E) to calculate your eligible pension exclusion:

  1. You were 55 or over on the last day of the tax year, AND b. You were not 65 or older, or totally disabled, or have a spouse who is totally disabled, AND c. You included on your federal return taxable income received as a pension, annuity or endowment from an “employee retirement system” qualified under Section 401(a), 403 or 457(b) of the Internal Revenue Code, AND d. The retirement income is attributable to your service as a law enforcement officer or fire, rescue, or emergency services personnel of the United States, the State of Maryland, or a political subdivision of Maryland. Each spouse who meets the above requirements may be entitled to the exclusion. If each spouse is eligible, complete a separate column on the RETIRED LAW ENFORCEMENT OFFICER OR FIRE, RESCUE, OR EMERGENCY SERVICES PERSONNEL PENSION EXCLUSION COMPUTATION WORKSHEET (13E). Combine your allowable exclusions from line 8 of the worksheet and enter the total amount on line rr, Form 502SU.

Each member is encouraged to consult with their individual tax preparer to determine how these provisions apply.

Maryland Pension Exclusion
If you are 65 or older or totally disabled (or your spouse is totally disabled), you may qualify for Maryland’s maximum pension exclusion of $29,900 under the conditions described in Instruction 13 of the Maryland resident tax booklet. If you’re eligible, you may be able to subtract some of your taxable pension and retirement annuity income from your federal adjusted gross income.

This subtraction applies only if:

A.      You were 65 or older or totally disabled, or your spouse was totally disabled, on the last day of the tax year; and

B.   You included on your federal return income received as a pension, annuity or endowment from an “employee retirement system.” Please note that these include defined benefit and defined contribution pension plans, 401(a) plans, 401(k) plans, 403(b) plans, and 457(b) plans.

C.   A traditional IRA, a Roth IRA, a simplified employee plan (SEP), a Keogh Plan or an ineligible deferred compensation plan does not qualify.

Complete the Pension Exclusion Computation Worksheet shown in Instruction 13 in the Maryland resident tax booklet. Be sure to report all benefits received under the Social Security Act and/or Railroad Retirement Act on line 3 of the pension exclusion worksheet – not just those benefits you included in your federal adjusted gross income.

To receive the benefit of the pension exclusion, be sure to transfer the amount from line 5 of the worksheet to line 10 of Form 502, and complete the remainder of your return, following the line-by-line instructions.

Pension Exclusion for Retired Law Enforcement Officer or Fire, Rescue, and Emergency Services Personnel

Note: An individual taxpayer may not claim BOTH the standard Pension Exclusion and the Pension Exclusion for Retired Law Enforcement Officer or Fire, Rescue, or Emergency Services Personnel.

If you are 65 or older on the last day of the calendar year, you are totally disabled, or your spouse is totally disabled, and you have received qualified pension income, you should complete the Pension Exclusion Computation Worksheet (13A) regardless of your prior work history. It is permissible for one spouse to claim the standard Pension Exclusion and the other spouse to claim the Pension Exclusion for Retired Law Enforcement Officer or Fire, Rescue, or Emergency Services Personnel if each spouse meets the applicable required criteria.

If you meet the below criteria, use the Retired Law Enforcement Officer or Fire, Rescue, or Emergency Services Personnel Pension Exclusion Worksheet (13E) to calculate your eligible pension exclusion:

a.    You were 55 or over on the last day of the tax year, AND

b.    You were not 65 or older, or totally disabled, or have a spouse who is totally disabled, AND

c.    You included on your federal return taxable income received as a pension, annuity or endowment from an “employee retirement system” qualified under Section 401(a), 403 or 457(b) of the Internal Revenue Code, AND

d.    The retirement income is attributable to your service as a law enforcement officer or fire, rescue, or emergency services personnel of the United States, the State of Maryland, or a political subdivision of Maryland.

Each spouse who meets the above requirements may be entitled to the exclusion. If each spouse is eligible, complete a separate column on the Retired Law Enforcement Officer or Fire, Rescue, or Emergency Services Personnel Pension Exclusion Worksheet (13E).  Combine your allowable exclusions from line 8 of the worksheet and enter the total amount on line rr, Form 502SU.

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