For millions of Americans, Social Security benefits provide a crucial financial lifeline in retirement. While these benefits are taxed at the federal level, most states don’t add a layer of burden. However, 11 states still tax Social Security income, and navigating the specifics can feel like a confusing maze. Worry not! This comprehensive guide will equip you with the knowledge to understand how your state handles Social Security taxes and whether you’ll be facing them in 2024.
The 11 States that Tax Social Security Benefits:
Sure, here’s a detailed explanation of the 11 states that tax Social Security benefits, state-by-state:
1. Colorado:
- Taxes Social Security benefits, but exempts all retirees age 65 and older from paying state income tax on their benefits.
- Younger retirees, those under age 65, can deduct up to $20,000 of Social Security benefits from their taxable income.
- Colorado taxes all taxable income at a flat 4.4% rate.
- Colorado: https://tax.colorado.gov/
2. Connecticut:
- Technically still taxes Social Security benefits, but many residents won’t pay state tax on this type of retirement income.
- Whether you pay state income tax on Social Security in Connecticut depends on your adjusted gross income (AGI) and your filing status.
- For married filing separately and single filers, Social Security benefits are not taxed in Connecticut if AGI is under $75,000.
- For married filing jointly and head of household filers, Social Security benefits are not taxed with AGI below $100,000.
- If a taxpayer’s AGI is more than the Connecticut income threshold, no more than 25% of Social Security benefits are taxed.
- Connecticut: https://portal.ct.gov/drs
3. Kansas:
- Another state that uses income to determine the taxability of Social Security benefits, but Kansas doesn’t take your filing status into account.
- All taxpayers with an adjusted gross income (AGI) of $75,000 are exempt from paying state income taxes on Social Security benefits.
- Kansas taxes income above $60,000 at 5.7%.
- So, if your AGI is above the $75,000 threshold to qualify for a tax exemption on Social Security benefits, you can expect to pay the 5.7% tax rate.
- Kansas: https://www.ksrevenue.gov/
4. Minnesota:
- Taxes Social Security income that is considered taxable by the federal government.
- However, some Minnesota retirees qualify for a Social Security income subtraction when filing their state tax return.
- Here are the maximum income subtraction amounts for 2023, according to the Minnesota Department of Revenue:
- Married filing jointly filers may subtract up to $5,840.
- If you are married and filing separately, you may be able to subtract up to $2,920.
- Head of household and single filers can subtract up to $4,560.
- (Note: You must meet income requirements to qualify for the full subtraction amounts above. Minnesota bases the income thresholds on provisional income, which is your federal AGI plus tax-exempt interest and half of Social Security and Tier 1 Railroad Retirement benefits.)
- Minnesota: https://www.revenue.state.mn.us/
5. Missouri:
- Won’t stay on this list for long. Starting in the 2024 tax year, all Social Security benefits will be exempt from Missouri income tax.
- For now, state taxation of Social Security benefits is based on your income and filing status.
- Single filers making up to $85,000 do not pay Missouri income tax on Social Security benefits.
- Social Security benefits are exempt from Missouri income tax for joint filers who make $100,000 or less.
- Missouri: https://dor.mo.gov/
6. Montana:
- Montana’s income tax rate is 6.75% on income over $19,800.
- That’s not great news for some retirees since the income thresholds for exempting Social Security aren’t as generous in Montana as they are in most states.
- Single filers with an AGI below $25,000 won’t pay state income tax on Social Security benefits.
- Joint filers with an AGI below $32,000 won’t pay Montana income tax on Social Security benefits.
- Montana: https://mtrevenue.gov/
7. Nebraska:
- Currently taxes Social Security benefits, but the state will do away with the tax in 2025.
- For now, Nebraskans with Social Security retirement income are subject to state tax rates between 2.46% and 6.84%.
- The top tax rate of 6.84% applies to income greater than $31,160 for single filers.
- Joint filers are subject to the 6.84% tax rate if their incomes exceed $62,320.
- Nebraska: https://revenue.nebraska.gov/
8. New Mexico:
- Technically taxes Social Security benefits, but many retirees won’t pay a dime to the state at tax time. That’s because legislation passed last year provided higher income thresholds for exempting Social Security benefits.
- Single filers earning up to $100,000 per year won’t have their Social Security benefits taxed at the state level.
- New Mexico won’t tax Social Security benefits for joint filers who earn up to $150,000 per year.
- New Mexico: https://www.tax.newmexico.gov/
9. Rhode Island:
- Exempts Social Security benefits from state income tax for many retirees. The state only taxes Social Security income for retirees with AGIs above the income threshold.
- New Rhode Island income guidelines haven’t yet been reported for 2023, but here are the amounts listed for the 2022 tax year:
- For joint filers, only those with a federal AGI greater than $119,750 are subject to Rhode Island state tax on Social Security Benefits.
- For all other filing statuses, only retirees with a federal AGI greater than $95,800 pay state taxes on Social Security benefits.
- Rhode Island: https://tax.ri.gov/
10. Utah:
- Taxes Social Security benefits, but some retirees may qualify for a Social Security benefits credit. There is a Social Security Credit Worksheet on the state’s website you can use to determine the amount of the credit you qualify for.
- Utah also offers a retirement tax credit of $450, but taxpayers can’t take this credit if they claim the Social Security benefits credit.
- Utah taxes all taxable income at a flat 4.65% tax rate.
- Utah: https://incometax.utah.gov/
11. Vermont:
- Not all retirees in Vermont pay state income tax on Social Security benefits. That’s because Vermont allows a full exemption of Social Security income from state taxation for retirees who meet income requirements. Vermont hasn’t published new income guidelines for 2023, but here are the income thresholds for the 2022 tax year:
- If you are married and filing jointly, your Social Security benefits are tax-exempt in Vermont if your AGI is $65,000 or less.
- Single and married filing separately filers qualify for a full exemption with an AGI of $50,000 or less.
- Single filers qualify for a partial exemption with an AGI up to $59,999 ($74,999 for joint filers).
- Vermont: http://tax.vermont.gov/
Remember, these are just summaries of each state’s rules. For the most up-to-date information and details specific to your situation, it’s always best to consult your state’s tax department or a tax professional.
Important Considerations:
- Income thresholds and tax rates can change year-to-year, so checking your state’s official tax website for the latest updates is crucial.
- Many states offer deductions or credits to offset Social Security taxes for low-income retirees.
- Filing status (single, married filing jointly, etc.) often plays a role in determining tax liability.
- Consulting a tax professional can be your best bet for personalized guidance and navigating complex tax situations.
Also, read Social Security Changes in 2024
Conclusion:
While Social Security taxes may seem daunting, understanding your state’s specific rules and exemptions can ease the burden. Remember, this guide serves as a starting point, and further research tailored to your circumstances is essential. With proper planning and knowledge, you can navigate the maze of Social Security taxes and secure your financial future in retirement.