Are You Living in One of the 10 States That Still Tax Social Security Benefits? Also 2 States That Finally Stopped in 2024
While many envision tax-friendly golden years, residents in ten states face a harsh reality as their Social Security benefits are taxed. In contrast, two states are offering relief by ending their practice of taxing these benefits. And one state has a phased implementation to end taxation of Social Security benefits.
This shift highlights the complexities of retirement planning in the U.S. and underscores the importance of staying informed about changing tax laws. Are you living in one of these states? Discover how these tax changes might impact your retirement strategy and whether it’s time to reconsider your locale for those serene post-work years.
Colorado
In Colorado, individuals younger than 65 by the end of the tax year can deduct either $20,000 or their taxable pension/annuity income included in the federal taxable income, whichever is less. For those aged 65 and above by the end of the tax year, Social Security benefits are not subject to state taxes.
Connecticut
For Connecticut residents, Social Security benefits become taxable when your adjusted gross income (AGI) exceeds $75,000, or $100,000 for those filing jointly. Beyond this income threshold, 25% of Social Security income becomes taxable at the state level.
Kansas
In Kansas, Social Security income is taxable for individuals whose AGI exceeds $75,000.
Minnesota
Social Security income in Minnesota is subject to state taxes for individuals with an AGI over $82,190, or $105,380 for joint filers, and $52,690 for those married but filing separately.
Montana
Montana includes Social Security income in state taxable income to the same extent it is included in federal taxable income.
New Mexico
For New Mexicans, Social Security benefits are taxable for those earning more than $100,000, or $75,000 for those filing separately, and $150,000 for surviving spouses or those filing as head of household or jointly.
Rhode Island
Social Security benefits in Rhode Island are taxable if retirement benefits are received before reaching full retirement age (typically 67) or if the AGI exceeds $101,000 for singles or heads of household, $126,250 for joint filers, or $101,025 for those married filing separately for the 2023 tax year. Individuals below these income thresholds may exempt up to $20,000 of their retirement income.
Utah
Utah imposes taxes on Social Security benefits for individuals earning more than $45,000, or $75,000 for heads of household or those married filing jointly, and $37,500 for married filing separately. Those under these income levels may be eligible for a nonrefundable tax credit.
Vermont
In Vermont, Social Security is taxable for individuals with AGIs above $60,000, or $75,000 for those married filing jointly. A partial exemption applies for incomes between $50,000 and $59,999 ($65,001 and $74,999 for joint filers).
West Virginia
West Virginia passed a law to progress from partially taxing Social Security to completely eliminating taxation in 3 years.
West Virginia won’t tax your Social Security benefits if your federal adjusted gross income is $100,000 or less for married couples filing jointly or $50,000 or less for all other taxpayers
However, if your income is greater than the applicable dollar amount, West Virginia will levy a state income tax on your Social Security payments to the same extent you must pay taxes on that income to the federal government.
Good news for West Virginia resident is the bill phasing out tax on Social Security benefits has been signed into law. Retroactive to Jan. 1 of this year, it applies to 35% deduction for 2024, 65% for 2025 and 100% deduction on Social Security income for 2026 taxes and beyond.
Welcome Relief for Missouri and Nebraska
As of 2024, Missouri and Nebraska join the list of states that no longer tax social security income.
Balancing Taxes and Lifestyle
In the ever-evolving landscape of tax laws and retirement planning, staying informed and consulting with a tax advisor for the most current information is paramount. While the tax implications of where you choose to retire are significant, remember that taxes are just one piece of the puzzle. Quality of life, access to healthcare, proximity to loved ones, and recreational opportunities also play critical roles in selecting your ideal retirement haven. As you navigate the complexities of retirement tax planning, balance these considerations with the fiscal realities. By doing so, you’ll ensure that your retirement years are not only financially sound but also rich in the experiences and connections that truly matter.
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John Dealbreuin came from a third world country to the US with only $1,000 not knowing anyone; guided by an immigrant dream. In 12 years, he achieved his retirement number.
He started Financial Freedom Countdown to help everyone think differently about their financial challenges and live their best lives. John resides in the San Francisco Bay Area enjoying nature trails and weight training.
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