Maryland Taxation of “Ginnie Mae” Income

Prior to the date of publication, the information in this document was published as “Administrative Release 10: Maryland Taxation of Income from ‘Ginnie Mae’s.’” This publication has been renamed “Technical Bulletin No. 10 Maryland Taxation of ‘Ginnie Mae Income,” and the content has been verified.

I. General

Interest income from securities sold by private issuers (sometimes called “Ginnie Maes”) and guaranteed by the Government National Mortgage Association (“GNMA”) is not exempt from Maryland taxation. Tax-General Article § 10-207(c) provides a subtraction for interest or dividends attributable to an obligation of the United States or an authority, commission, instrumentality, possession, or territory of the United States. Ginnie Mae securities are guaranteed by the United States, not by U.S. obligations.

II. Background

GNMA was organized as a government agency in 1968 to perform certain functions in the secondary mortgage market. GNMA is involved in two different types of securities sold to investors in the open market:

1. directly-issued GNMA securities, guaranteed by GNMA; and 

2. private seller-issued securities, guaranteed by GNMA.

III. Interest Income Subject to Maryland Income Tax

1. Securities issued directly by GNMA provided for governmental management and were component guaranteeing payments of mortgage pools owned by GNMA. This type of direct government involvement and promise to the underlying security holders made these securities exempt from Maryland tax as obligations of the United States. However, since GNMA has ceased issuing such obligations, this exemption is no longer relevant for Maryland tax purposes.

2. Interest income from securities that are sold by private issuers with payment guaranteed by GNMA is not exempt from Maryland taxation. These securities, although commonly referred to as “Ginnie Maes,” are only guaranteed by the United States; they are not U.S. obligations. Governmental liability for the payment of interest is contingent upon the nonperformance of the private issuer, who is the payer of the interest.

3. For all tax years beginning after December 31, 1983, interest received from securities of private issuers is taxable because it is not considered interest on U.S. obligations and therefore cannot be subtracted from federal adjusted gross income on the Maryland return.