Partly taxed
How Maine taxes retirement income
Maine does not tax Social Security, and it lets each person deduct a large amount of other retirement income. For 2024 the cap was $45,864 per person, and lawmakers have been raising it in steps. The deduction covers state and federal pensions, including the Maine Public Employees Retirement System, company pensions, 401(k), 403(b) and 457(b) plans, and traditional and Roth IRAs.
The catch is that the cap is reduced by every dollar of Social Security you receive, whether or not it is taxable. That design helps MainePERS retirees most: most Maine teachers and many state workers have no Social Security from their public jobs, so they keep the full deduction for their pension. A retiree with $24,000 of Social Security has a much smaller deduction left.
Military retirement pay is fully exempt in addition to the cap. Income above the deduction is taxed at Maine’s rates, which run from 5.8% to 7.15%.
Questions
Does Maine tax MainePERS pensions?
Partly. Each person can deduct pension income up to the yearly cap, minus any Social Security received.
Why does Social Security reduce my pension deduction?
Maine designed the deduction to give a similar break to people with and without Social Security, so benefits received count against the cap.
Does Maine tax Social Security?
No.