Maryland retired military pay exclusion offset by SSA payments.

[gubknap]

Turbotax deducts the total SSA payments from the retired pay exclusion in MD tax code. I can't find support for this on the internet. I worked another career after retiring, so my SSA retirement is more than the exclusion so I get no benefit. Just want to confirm that this is what MD lagislation calls for.

[dmertz]

No, Maryland's exclusion for military retirement income (Form 502SU code U) is not offset by Social Security income.  Only the regular Maryland pension exclusion limit is reduced by Social Security income.

Make sure that during the entry of the Form 1099-R in the Federal section of TurboTax that you have marked the box to indicate that the pension is from Active or reserve military retirement, otherwise TurboTax will treat the distribution as ordinary pension income.

Also, you can't claim both the retired military pension exclusion and the regular pension exclusion on the same dollars, any amount subtracted with the military pension exclusion cannot also be subtracted with the regular Maryland pension exclusion.

[gubknap]

The way the MD pamphlet I found explained it, MD does not tax SSA payments. Therefore, if you have SSA payments and Military retirement, the SSA payments are used for the exclusion and the military exclusion is effectively reduced by the excluded SSA payments. 

[dmertz · Accepted solution]

I think you are confusing this with the regular pension exclusion.  The exclusion for Social Security income is independent of the exclusion for military retirement on your Maryland tax return.

You can see this in TurboTax by examining line 11 of Form 502 where the Social Security income is excluded and line 13 where the subtraction for military retirement is shown with code U.  You can see this behavior by entering a Form 1099-INT showing $100,000 of income, a Form 1099-R showing $15,000 of taxable income (the maximum military retirement exclusion), and $40,000 of Social Security income, $34,000 of which is federally taxable.  Line 11 will show $34,000 being excluded and line 13 will show $15,000 being excluded, leaving only the $100,000 of interest income as the Maryland AGI.  Even if the military retirement income was higher than $15,000  in this example you would get no regular pension exclusion because the excluded military pension plus the excluded Social Security income exceed the maximum allowable regular pension exclusion.

[gubknap]

Thanks, I was using the TURBOTAX worksheet, which has a lot less information. With your explanation of the 502 itself, I see everything I hoped to see. Thanks again.