Which States Tax Social Security Benefits?
Category: Financial and taxes in retirement
March 30, 2023 — It might come as an unpleasant surprise to many people that Social Security benefits can be taxed on both the federal and the state level. But which states tax social security income? While there is no escaping the federal tax if your income exceeds certain levels, the good news is that there are only 12 states which tax Social Security benefits.
The federal threshold for taxation:
- file a federal tax return as an “individual” and your combined income is
- between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.
- more than $34,000, up to 85 percent of your benefits may be taxable.
- file a joint return, and you and your spouse have a combined income that is
- between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits.
- more than $44,000, up to 85 percent of your benefits may be taxable.
Which States Tax Social Security Benefits
There are 12 states that tax Social Security. Most of them have generous exemptions and fairly high income thresholds, so in reality most people will pay little or no state tax on their SS benefits.
Colorado: Residents over 65 years of age pay no tax on their Social Security. People aged 55-64 can deduct up to $20,000 of retirement income, including Social Security.
Connecticut: Married filers who have an Adjusted Gross Income (AGI )of $100,000 or more pay CT income taxes on 25% on their SS benefits.
Kansas: Those with an AGI more than $75,000 pay state taxes on their SS benefits.
Minnesota: The State follows the federal rules for taxation of Social Security, with a small exemption for lower income individuals.
Missouri: Residents 62 and over pay no tax on their SS income if their AGI is less than $100,000 (couples).
Montana: The State follows the federal rules for taxation of Social Security (see above), although it uses a different method to determine income.
Nebraska. By 2025 Social Security taxation will be phased out. Currently it kicks in with a couple’s AGI exceeding $61,760.
New Mexico. Couples with an AGI over $150,000 pay taxes on their SS benefits, everyone else is exempt.
Rhode Island. Those who have reached Full Retirement Age and an AGI less than $119,750 for a couple filing jointly do not have to pay state income tax on their Social Security.
Vermont. Thanks to a new law, the only people paying tax on their SS benefits are singles earning $60,000 or more and couples making $75,000 or more.
West Virginia. The inflection point for state taxation of Social Security is $50,000 for single filers and $100,000 for couples.
Utah. The State offers partial exemptions for Social Security, with the credit amount depending on AGI.
Bottom line – Which states tax Social Securitt benefits
. As a reason to choose a state for retirement, it seems like taxation of Social Security benefits is a very unimportant reason to do so. Twelve states tax portions of SS benefits, but in reality the AGI levels are usually so high and the state tax rates low enough that in most cases the only people paying much state tax are wealthy ones. As an example, in CT, a married couple filing jointly with an AGI of $100,000 would pay no state income tax on their SS benefit – if they made $101,000 they would pay only income tax on 25% of their SS benefit. Higher earning taxpayers may have to pay federal taxes on up to 85% of their benefits, regardless of what state they reside in.
Comments: Have you noticed that you pay state tax on your Social Security income? How does that stack up for a reason to pick a state for retirement? Please add your Comments below.
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