What Maryland Tax Exemptions Can You Claim?

A tax exemption is a provision in the state’s tax code that reduces the amount of income, property, or a transaction subject to taxation. These exemptions provide financial relief to residents and support specific groups of taxpayers. Understanding which exemptions you qualify for can lower your annual tax obligations, as Maryland offers a variety of provisions with unique eligibility requirements.

Maryland Income Tax Exemptions

Maryland’s income tax system allows individuals to reduce their taxable income through several exemptions. Every taxpayer can claim a personal exemption of $3,200 for themselves, their spouse, and each qualifying dependent. This amount can be phased out for higher-income individuals, with the reduction beginning for single filers with a federal adjusted gross income (AGI) over $100,000 and for joint filers with a federal AGI over $150,000.

In addition to the personal exemption, Maryland provides further relief for certain individuals. Taxpayers who are 65 or older on the last day of the tax year, or who are legally blind, can claim an additional exemption of $1,000. This is a separate exemption and is not subject to the same income-based phase-outs. Furthermore, if a dependent claimed on a return is 65 or older, the taxpayer may claim an extra exemption of $3,200 for that dependent.

A benefit for retirees is Maryland’s pension exclusion, which allows eligible individuals to subtract a portion of their taxable pension and retirement annuity income. To qualify, a taxpayer must be at least 65 years old, totally and permanently disabled, or have a spouse who is totally and permanently disabled. The maximum exclusion amount is $39,500 for the 2024 tax year. This applies to income from qualified pension plans, but distributions from IRAs do not qualify for this exclusion.

Military retirees also receive a targeted tax benefit. Individuals receiving military retirement income can subtract a portion of that income from their Maryland AGI. For those under age 55, the subtraction is up to $12,500. For military retirees age 55 and over, the subtraction increases to up to $20,000. Other income subtractions are available for income from U.S. government obligations, like Treasury bonds, which are not taxable at the state level.

Maryland Property Tax Exemptions

The state offers several programs to lessen the property tax burden, with the most widely used being the Homestead Tax Credit. This program limits the annual increase in a property’s taxable assessment rather than eliminating the tax. For a property to be eligible, it must be the owner’s principal residence. The credit caps the increase in taxable assessment at a certain percentage each year, preventing sharp spikes in property tax bills.

A full property tax exemption is available for certain disabled veterans and their families. To qualify, a veteran must have a 100% permanent and total service-connected disability as determined by the Department of Veterans Affairs. This benefit eliminates the state and local property tax liability on the veteran’s principal residence. The exemption can also be transferred to a surviving spouse.

Other specific property tax relief is available to targeted groups. Individuals who are legally blind are eligible for an exemption that reduces the assessed value of their property. The surviving spouses of law enforcement officers or emergency responders killed in the line of duty may receive a credit for 100% of the county property tax on their dwelling.

Common Sales and Use Tax Exemptions

Maryland residents benefit from several exemptions to the state’s 6% sales and use tax. One of the most common applies to the sale of most food items intended for home consumption, meaning grocery staples like bread, milk, and produce are not taxed. The exemption does not extend to all food-related purchases; items such as candy, soda, and prepared hot foods are taxable.

Another exemption is for prescription drugs and certain medical equipment. The sale of residential utilities, including gas, electricity, and steam for residential use, is also not subject to the state sales tax. This provides direct savings to households on monthly utility bills.

The state’s use tax applies to items purchased from out-of-state retailers for use within Maryland when no sales tax was collected at the time of purchase. The exemptions that apply to the sales tax also apply to the use tax. This means items like prescription drugs or exempt food purchased from another state would not be subject to Maryland’s use tax.

Claiming Your Maryland Tax Exemptions

The process for claiming tax exemptions in Maryland varies by tax type. For income tax, exemptions are claimed on the annual Maryland Resident Income Tax Return, Form 502. Standard personal, dependent, and additional exemptions for age or blindness are calculated on the form. For specific income subtractions, like the pension exclusion, you must complete and attach Schedule M (Form 502SU) to your return.

Claiming property tax exemptions requires an application with the State Department of Assessments and Taxation (SDAT). For the Homestead Tax Credit, a one-time application is usually mailed to new homeowners but can be completed online if not received. For exemptions related to a veteran’s disability or blindness, a specific application must be filed with the SDAT, which requires submitting official documentation, such as a VA benefits letter, to verify eligibility.

Claiming sales tax exemptions requires no action from the consumer. These exemptions are applied automatically at the point of sale by the seller. When you purchase an exempt item, such as qualifying groceries or a prescription medication, the retailer is responsible for not charging the 6% sales tax.