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My Maryland rebate reduces when SSA-1099 benefits are added to income in the Federal return.
Unless you have not reported any Forms 1099-R for distributions from employer plans, the behavior that you are observing is likely the result of the limit for the Maryland pension exclusion being reduced by the amount of the individual's Social Security income, resulting in an increase in the amount of taxable pension distributions. It's not that the Social Security payments themselves are being taxed. The Maryland pension exclusion appears on Form 502 line 10a.
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