These 12 States Don’t Tax Social Security As Much As You Think

No one likes to pay income tax, but for retirees, a Social Security tax bill can only make matters worse. For those living on a steady income, having to pay part of their monthly Social Security checks to the IRS means a lot less money to cover basic living expenses.

Fortunately, most states do not follow federal rules when levying Social Security income taxes. Currently, 38 states do not levy any income tax on distributions at all. That leaves a dozen states with a bad reputation for retirees, but if you take a closer look at their rules, most of those 12 holdouts don’t tax their seniors as much as you might think.

The 12 States Currently Taxing Social Security

As of 2022, you will find state-level Social Security taxes in Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, and West Virginia. That adds to the burden of some seniors, with federal benefits taxes coming into play for single filers with incomes as low as $25,000 and married joint filers with incomes of $32,000 or more. Depending on your combined income — defined for federal purposes as half of your Social Security plus most other forms of taxable income — you might need to take up to 85% of your benefits as taxable income on which your federal tax rate will apply.

However, almost all of these 12 states follow rules that are less draconian than what the IRS prescribes. In most cases, even some retirees who pay federal income tax on their Social Security will escape state-level taxes.

Three social security cards with a brass key on them.

Image source: Getty Images.

Higher Income Limits

Most states that charge Social Security income taxes have higher income thresholds than the $25,000 and $32,000 limits at the federal level. For example, Connecticut residents who earn less than $75,000 as single filers or $100,000 as joint filers pay no state income tax, and even seniors above those levels get a 75% tax exemption. Kansas has a similar income threshold of $75,000 regardless of filing status, while Missouri’s limits are $85,000 and $100,000, respectively.

You will find similar provisions in other states. Rhode Island’s higher limits will only apply to those who have reached full retirement age, while Vermont has raised the income threshold in 2022 and West Virginia is gradually introducing an exemption for those earning less than $50,000 for singles and $100,000 for joint ventures. submitters.

Credits and Deductions

Other states take a different approach to giving seniors a break. Colorado allows recipients ages 55 to 64 to deduct $20,000 in retirement income, including Social Security and other income such as pensions. Those 65 or older get a $24,000 deduction, with married couples getting a double dip. Minnesota offers a less generous deduction of just over $4,000 for singles and over $5,000 for joint filers, though it gradually expires above certain income limits. New Mexico has an $8,000 deduction for those over 65.

Utah offers a tax credit that essentially amounts to a full exemption for those below certain income limits. Those above the limits may still receive partial credit in some cases.

Are state social security taxes on the brink of extinction?

Best of all, many of these 12 states are taking initiatives to reduce or eliminate state income taxes. The complete exclusion of West Virginia under certain income limits will take effect this year as New Mexico looks at new income thresholds. Nebraska hopes to completely abolish taxes on benefits by 2025, after accelerating previous efforts to abolish taxes by the end of the decade.

For those on a fixed income, state social security taxes are painful. But even in the few states that still levy such taxes, there are many provisions that mitigate the impact for those most struggling to make ends meet.

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