37 States That Don’t Tax Social Security Benefits

Spread the love

In retirement, you can say goodbye to bosses, time clocks, and unpleasant office meetings — but you cannot escape taxes. Uncle Sam wants a chunk of your retirement income, whether it comes from your 401(k), traditional IRA, or Social Security benefits. And your home state might get a piece of the action, too.

Taxes are an easily overlooked retirement expense. You might make plans generally to live off $70,000 annually in your golden years. But if that money is coming from a 401(k), traditional IRA, or Social Security, your first budget line item has to be those income taxes. Otherwise, you may not have enough cash to cover your living expenses, or you’ll owe a bunch come tax day.

Image source: Getty Images

How the feds tax your Social Security benefit

Your “combined income” determines whether you get taxed on a portion of your Social Security benefit. As defined by the Internal Revenue Service, combined income is your adjusted gross income (AGI) plus nontaxable interest plus half of your Social Security benefits. If your combined income is greater than $25,000 for single filers or $32,000 for joint filers, you will owe taxes on up to 85% of your benefit. The table below shows the specific thresholds for combined income.

Filing Status

Combined Income

% of Social Security benefits taxed

Single

Less than $25,000

Benefit is not taxed

Single

$25,000-$34,000

Up to 50% of benefit is taxed

Single

More than $34,000

Up to 85% of benefit is taxed

Married filing jointly

Less than $32,000

Benefit is not taxed

Married filing jointly

$32,000 to $44,000

Up to 50% of benefit is taxed

Married filing jointly

More than $44,000

Up to 85% of benefit is taxed

In addition to any federal taxes, you may also have to pony up state income tax on your Social Security, depending on where you live. Some states consider your Social Security benefit fully taxable, and others don’t tax it at all. Let’s start with the states that are least friendly to Social Security beneficiaries.

These states consider Social Security fully taxable

In Utah, your Social Security benefit is included in your AGI and taxed as normal income at 5%.

New Mexico also taxes your Social Security benefit. Taxpayers over the age of 65 may qualify for an exemption of up to $8,000, depending on their income level.

These states tax Social Security like the feds do

Three states follow the federal government’s tiered system and tax up to 85% of the benefit, based on combined income: Minnesota, North Dakota, and West Virginia.

Minnesota does allow Social Security recipients to exclude a portion of their benefits from state taxes, depending on income level. Single filers whose provisional income is less than $61,080 can subtract $4,020 from their income to calculate their state tax. Married filers who make less than $78,180 can subtract $5,150. Those deductions get reduced at higher income levels and phase out completely at an income of $81,180 for single filers, or $103,930 for joint filers.

These states only tax Social Security at certain income levels

State

When Social Security Benefits Are Taxed

Colorado

Taxpayers aged 55 to 64 years old can exclude $20,000 of Social Security and qualified retirement income from their tax returns. This exclusion amount goes up to $24,000 for taxpayers aged 65 and older.

Connecticut

You do not pay state tax on your Social Security benefit in Connecticut if your federal AGI is less than $75,000 for single filers or $100,000 for joint filers.

Kansas

Kansas taxes Social Security benefits when your income is higher than $75,000 for any filing status.

Missouri

Missouri only taxes Social Security benefits if your AGI is above $85,000 for single filers or $100,000 for joint filers.

Montana

Montana taxes your Social Security benefits when your AGI is higher than $25,000 for single filers or $32,000 for joint filers.

Nebraska

Your Social Security benefits are exempt from Nebraska state taxes if you make less than $43,000 for single filers or $58,000 for married filers.

Rhode Island

Rhode Island taxes your Social Security benefits when your income exceeds $85,150 for single filers, or $106,400 for married filers. Those are the 2019 income levels, and they do get adjusted annually.

Vermont

Vermont does not tax your Social Security benefit if you make less than $25,000 for single filers, or $32,000 for joint filers.

These 37 states don’t tax your Social Security benefits

If you want to protect your Social Security benefit as much as possible, consider relocating to one of these 37 states — your entire benefit will be exempt from state income tax.

37 States That Don’t Tax Social Security Benefits

Alabama

Illinois

Nevada

South Dakota

Arkansas

Indiana

New Hampshire

Tennessee

Arizona

Iowa

New Jersey

Texas

California

Kentucky

New York

Virginia

Delaware

Louisiana

North Carolina

Washington

District of Columbia

Maine

Ohio

Wisconsin

Florida

Maryland

Oklahoma

Wyoming

Georgia

Massachusetts

Oregon

Hawaii

Michigan

Pennsylvania

Idaho

Mississippi

South Carolina

Budget for income taxes

You’re likely to pay some form of taxes in your golden years. Budget for them now so you’re not caught off-guard after you’ve left the workforce.

The $16,728 Social Security bonus most retirees completely overlook

If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $16,728 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after. Simply click here to discover how to learn more about these strategies.


Spread the love