An Act to Exempt Certain Income from State Income Tax
Maine Legislature, Session 132, LD 1622
Sponsors: ADAMS
Amends: 36 MRSA §5122

Legislative Document
No. 1622
H.P. 1076
House of Representatives, April 15, 2025
An Act to Exempt Certain Income from State Income Tax
Received by the Clerk of the House on April 11, 2025.  Referred to the Committee on 
Taxation pursuant to Joint Rule 308.2 and ordered printed pursuant to Joint Rule 401.
ROBERT B. HUNT
Clerk
Presented by Representative ADAMS of Lebanon.
Be it enacted by the People of the State of Maine as follows:
Sec. 1.  36 MRSA §5122, sub-§2, ¶M-2, as amended by PL 2023, c. 523, Pt. B, 
§1, is further amended to read:
M-2.  For tax years beginning on or after January 1, 2016 and before January 1, 2026:
(1)  For each individual who is a primary recipient of retirement plan benefits, the 
reduction is the sum of:
(a)  Excluding military retirement plan benefits, an amount that is the lesser of:
(i)  The aggregate of retirement plan benefits under employee retirement 
plans or individual retirement accounts included in the individual’s federal 
adjusted gross income; and
(ii)  The pension deduction amount reduced by the total amount of the 
individual’s social security benefits and railroad retirement benefits paid 
by the United States, but not less than $0; and
(b)  An amount equal to the aggregate of retirement benefits under military 
retirement plans included in the individual’s federal adjusted gross income; 
and
(2)  For purposes of this paragraph, the following terms have the following 
meanings.
(a)  "Employee retirement plan" means a state, federal or military retirement 
plan or any other retirement benefit plan established and maintained by an 
employer for the benefit of its employees under the Code, Section 401(a), 
Section 403 or Section 457(b), except that distributions made pursuant to a 
Section 457(b) plan are not eligible for the deduction provided by this 
paragraph if they are made prior to age 55 and are not part of a series of 
substantially equal periodic payments made for the life of the primary recipient 
or the joint lives of the primary recipient and that recipient's designated 
beneficiary.
(b)  "Individual retirement account" means an individual retirement account 
under Section 408 of the Code, a Roth IRA under Section 408A of the Code, 
a simplified employee pension under Section 408(k) of the Code or a simple 
retirement account for employees under Section 408(p) of the Code.
(c)  "Military retirement plan" means retirement plan benefits received as a 
result of service in the active or reserve components of the United States Army, 
Navy, Air Force, Marines, Coast Guard or Space Force.
(d)  "Pension deduction amount" means:
(i)  For tax years beginning prior to January 1, 2022, $10,000;
(ii)  For tax years beginning in 2022, $25,000;
(iii)  For tax years beginning in 2023, $30,000; and
(iv)  For tax years beginning on or after January 1, 2024 and before January 
1, 2026, the maximum annual benefit that an individual eligible to retire at 
the retirement age, as defined in 42 United States Code, Section 416(l), as 
of January 1st of the tax year may receive under the federal Social Security 
Act and amendments to that Act as of June 28, 2023.
(e)  "Primary recipient" means the individual upon whose earnings or 
contributions the retirement plan benefits are based or the surviving spouse of 
that individual.
(f)  "Retirement plan benefits" means employee retirement plan benefits, 
except pick-up contributions for which a subtraction is allowed under 
paragraph E, reported as pension or annuity income for federal income tax 
purposes and individual retirement account benefits reported as individual 
retirement account distributions for federal income tax purposes.  "Retirement 
plan benefits" does not include distributions that are subject to the tax imposed 
by the Code, Section 72(t);
Sec. 2.  36 MRSA §5122, sub-§2, ¶M-3 is enacted to read:
M-3.  For tax years beginning on or after January 1, 2026:
(1)  For each individual who is a primary recipient of retirement plan benefits, the 
reduction is the sum of:
(a)  Excluding military retirement plan benefits, an amount that is the lesser of:
(i)  The aggregate of retirement plan benefits under employee retirement 
plans or individual retirement accounts included in the individual’s federal 
adjusted gross income; and
(ii)  The pension deduction amount reduced by the total amount of the 
individual’s social security benefits and railroad retirement benefits paid 
by the United States, but not less than $0; and
(b)  An amount equal to the aggregate of retirement benefits under military 
retirement plans included in the individual’s federal adjusted gross income; 
and
(2)  For purposes of this paragraph, the following terms have the following 
meanings.
(a)  "Employee retirement plan" means a state, federal or military retirement 
plan or any other retirement benefit plan established and maintained by an 
employer for the benefit of its employees under the Code, Section 401(a), 
Section 403 or Section 457(b), except that distributions made pursuant to a 
Section 457(b) plan are not eligible for the deduction provided by this 
paragraph if they are made prior to age 55 and are not part of a series of 
substantially equal periodic payments made for the life of the primary recipient 
or the joint lives of the primary recipient and that recipient's designated 
beneficiary.
(b)  "Individual retirement account" means an individual retirement account 
under Section 408 of the Code, a Roth IRA under Section 408A of the Code, 
a simplified employee pension under Section 408(k) of the Code or a simple 
retirement account for employees under Section 408(p) of the Code.
(c)  "Military retirement plan" means retirement plan benefits received as a 
result of service in the active or reserve components of the United States Army, 
Navy, Air Force, Marines, Coast Guard or Space Force.
(d)  "Pension deduction amount" means the annual benefit that an individual 
receives pursuant to an employee retirement plan.
(e)  "Primary recipient" means the individual upon whose earnings or 
contributions the retirement plan benefits are based or the surviving spouse of 
that individual.
(f)  "Retirement plan benefits" means employee retirement plan benefits, 
except pick-up contributions for which a subtraction is allowed under 
paragraph E, reported as pension or annuity income for federal income tax 
purposes and individual retirement account benefits reported as individual 
retirement account distributions for federal income tax purposes.  "Retirement 
plan benefits" does not include distributions that are subject to the tax imposed 
by the Code, Section 72(t);
Sec. 3.  36 MRSA §5122, sub-§2, ¶AAA is enacted to read:
AAA.  For tax years beginning on or after January 1, 2026, any income from tips to the 
extent included in federal adjusted gross income.  As used in this paragraph, "tip" has 
the same meaning as in Title 26, section 663, subsection 15.
Sec. 4.  36 MRSA §5122, sub-§2, ¶BBB is enacted to read:
BBB.  For tax years beginning on or after January 1, 2026, any income received as 
overtime pay to the extent included in federal adjusted gross income.  As used in this 
paragraph, "overtime pay" means income paid to an employee in accordance with Title 
26, section 664, subsection 3.
SUMMARY
This bill allows an individual to deduct from federal adjusted gross income for purposes 
of determining Maine income taxes all pension income, tip income and overtime income 
in the same manner as is currently allowed for social security benefits.