Survivors and beneficiaries

Taxes - Lump Sum Benefit

This section is applicable to those entitled to all or a portion of a lump sum death benefit from the ERS. The death benefit is not life insurance and is taxable. The payment may be paid in a direct rollover or directly to the beneficiary. 

If the payment is paid directly to the beneficiary, a mandatory 20% will automatically be withheld for Federal tax and 7.75% will be withheld for Maryland State tax. The state tax varies for beneficiaries who reside outside of Maryland. There is also a 10% additional income tax on early distributions for any payment from the ERS that is not rolled over, unless an exception applies. This tax is in addition to the regular income tax. 

Please refer to the Fact Sheet, Special Tax Notice Regarding Plan Payments which describes the rollover and tax rules that apply to payments from the ERS.