Military Retirement in Maryland: Complete 2026 Tax Guide
$12,500 exemption + prime DC-area job opportunities
🎯 Quick Summary: Maryland Military Retirement Taxes (2026)
- ⚡ Military retirement pay: Up to $12,500 exempt (under 55)
- ⚡ Age 55+ pension exclusion: Up to $39,500 may be exempt
- ✓ VA disability payments: Tax-free (federal and state)
- ✓ Property tax: Full exemption for 100% disabled veterans
- ★ Job market: #1 area for defense contractor careers
Why Maryland Appeals to Military Retirees
Maryland may not be a tax-free state, but it offers something many retirees value even more: unparalleled access to high-paying defense contractor and federal jobs. With NSA headquarters at Fort Meade, proximity to the Pentagon, and dozens of major defense contractors, Maryland retirees can easily double their income with a second career.
The state offers a $12,500 military retirement exemption and additional pension exclusions for those 55+. Combined with excellent schools, strong veteran services, and one of the highest concentrations of military facilities in the country, Maryland is ideal for retirees who want to stay connected to the defense community.
2026 Maryland Military Retirement Tax Breakdown
Military Retirement Pay Exemption
📊 Partial Exemption: Up to $12,500
Maryland allows military retirees to exclude up to $12,500 of military retirement income from state taxation. This applies regardless of age.
Additional benefit for 55+: Maryland's general pension exclusion allows those 55+ to exclude up to $39,500 of pension income (2026). This can be combined strategically with the military exemption.
VA Disability Compensation
✓ Completely Tax-Free
VA disability payments are tax-exempt at both federal and Maryland state levels. This is protected by federal law.
Maryland State Income Tax Rates (2026)
| Taxable Income | State Tax Rate |
|---|---|
| $0 - $1,000 | 2.00% |
| $1,001 - $2,000 | 3.00% |
| $2,001 - $3,000 | 4.00% |
| $3,001 - $100,000 | 4.75% |
| $100,001 - $125,000 | 5.00% |
| $125,001 - $150,000 | 5.25% |
| $150,001 - $250,000 | 5.50% |
| Over $250,000 | 5.75% |
Note: Maryland counties also add local income tax of 2.25% to 3.20%, making the combined rate 7% to 9%.
Other Tax Benefits for Maryland Veterans (2026)
| Benefit | Details |
|---|---|
| Property Tax Exemption |
|
| Sales Tax | 6% state sales tax. No special veteran exemption. |
| Vehicle Registration | Disabled veteran license plates available. Some fee waivers for 100% disabled. |
Real Example: Maryland Military Retirement Taxes (2026)
Example: E-7 Retired After 20 Years
- • Military retirement pay: $33,600/year
- • VA disability (50%): $1,150/month ($13,800/year) - Tax-free
- • Defense contractor job: $95,000/year
Maryland Tax Calculation
Military retirement: $33,600 - $12,500 exemption = $21,100 taxable
Contractor income: $95,000 (fully taxable)
Total taxable: $116,100
State tax (~5%): ~$5,805
County tax (~3%): ~$3,483
Estimated MD tax: ~$9,288/year
The trade-off: Yes, you pay more in state taxes than in Texas. But the contractor job opportunities near DC can add $50,000-$100,000+ to your annual income that wouldn't exist elsewhere.
DC-Area Defense Contractor Job Market
💼 Why Maryland Is the #1 State for Military Second Careers
The DC/Maryland area has the highest concentration of defense contractors and federal jobs in the nation. Military retirees with clearances are in extremely high demand.
Major Employers:
- NSA/CSS (Fort Meade)
- Booz Allen Hamilton
- Northrop Grumman
- Lockheed Martin
- General Dynamics
- SAIC
- Leidos
- ManTech
Average Salaries (2026):
- Cyber Security: $110,000-$160,000
- Intel Analyst: $85,000-$130,000
- Program Manager: $120,000-$180,000
- Systems Engineer: $100,000-$150,000
- Logistics Manager: $80,000-$120,000
🎓 Education Benefits for Veterans & Families in Maryland
Edward T. Conroy Memorial Scholarship
- For children of veterans who died or are 100% disabled from service
- Covers tuition and fees at Maryland public colleges
- Up to 5 years of benefits
Veterans of Afghanistan and Iraq Conflicts Scholarship
- For veterans who served in Afghanistan/Iraq operations
- Up to 50% tuition reduction at Maryland public universities
- Renewable for up to 5 years
In-State Tuition for Veterans
- Veterans qualify for in-state tuition immediately (no waiting period)
- Maryland participates fully in Yellow Ribbon Program
- Strong veteran services at University of Maryland campuses
Cost of Living in Maryland (2026)
Maryland's cost of living is 20% above the national average, but salaries are correspondingly higher:
| Category | vs. National Average | Notes |
|---|---|---|
| Housing | +40% higher | Median home: $420,000. More affordable in Frederick, Hagerstown. |
| Groceries | +8% higher | Commissary access at Fort Meade helps. |
| Healthcare | +10% higher | Excellent VA facilities and Johns Hopkins nearby. |
| Salaries | +25% higher | Defense contractor salaries offset higher costs. |
Major Military Installations in Maryland
🔐 Fort George G. Meade
- Location: Anne Arundel County
- NSA/CSS Headquarters
- U.S. Cyber Command
- Defense Information Systems Agency
- Over 57,000 employees
🧪 Aberdeen Proving Ground
- Location: Harford County
- Army Research Laboratory
- Chemical/biological defense center
- Major testing and evaluation hub
✈️ Joint Base Andrews
- Location: Prince George's County
- Home of Air Force One
- 89th Airlift Wing
- Presidential support operations
⚓ U.S. Naval Academy
- Location: Annapolis
- Naval Support Activity Annapolis
- Historic naval heritage
- Growing cyber warfare programs
VA Healthcare in Maryland
🏥 VA Maryland Health Care System
- • Baltimore VA Medical Center: Full-service hospital, specialty care
- • Perry Point VA Medical Center: Long-term care, rehabilitation
- • Loch Raven VA Outpatient Clinic: Primary care, mental health
- • Cambridge, Glen Burnie, Pocomoke City CBOCs: Community clinics
- • Walter Reed National Military Medical Center: Bethesda (for TRICARE)
- • Johns Hopkins: World-class care available nearby
Pros and Cons of Retiring in Maryland
✅ Pros
- ✓ #1 area for defense contractor jobs
- ✓ $12,500 military retirement exemption
- ✓ NSA, Fort Meade, Aberdeen job opportunities
- ✓ Excellent schools and universities
- ✓ Close to DC, Baltimore, Annapolis
- ✓ Strong veteran support network
- ✓ Full property tax exemption for 100% disabled
- ✓ Four seasons, beaches, mountains nearby
❌ Cons
- ✗ Only $12,500 exemption (not tax-free)
- ✗ High state + county income tax (7-9%)
- ✗ Expensive housing market
- ✗ High cost of living overall
- ✗ Heavy traffic in DC suburbs
- ✗ Property taxes higher than average
- ✗ Not ideal if you don't want a second career
Frequently Asked Questions
Is Maryland increasing the military retirement exemption?
Maryland legislators have proposed increases to the military retirement exemption in recent sessions. Bills to increase it to $20,000+ or make it fully exempt have been introduced. Check current status before making decisions.
Can I live in a lower-tax state and commute to DC jobs?
Some retirees live in Virginia (better tax situation) and commute to Maryland jobs. However, Maryland's reciprocity rules mean you generally pay tax to your state of residence. Virginia now offers 100% exemption for age 55+.
What's the best area for military retirees in Maryland?
Anne Arundel County (near Fort Meade) and Harford County (near Aberdeen) offer the best combination of proximity to bases, reasonable housing costs, and quality of life. Howard County is excellent but more expensive.
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