When you're living off a fixed income, every dollar matters. You worked hard for decades, and you paid the government every step of the way. You don't want to pay it any more than you have to once you're retired.
Fortunately, if you live in one of the 38 states listed below, you can rest assured that your state won't try to take a slice of your Social Security benefits. And if you live in one of the 12 that still taxes benefits, don't worry. Below, we'll look at what you can do to hold onto as much of your checks as possible.
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These 38 states won't touch a penny of your Social Security benefits
Residents of the following 38 states don't tax the Social Security benefits of any of their recipients:
- Alabama
- Alaska
- Arizona
- Arkansas
- California
- Delaware
- Florida
- Georgia
- Hawaii
- Idaho
- Illinois
- Indiana
- Iowa
- Kentucky
- Louisiana
- Maine
- Maryland
- Massachusetts
- Michigan
- Mississippi
- Nevada
- New Hampshire
- New Jersey
- New York
- North Carolina
- North Dakota
- Ohio
- Oklahoma
- Oregon
- Pennsylvania
- South Carolina
- South Dakota
- Tennessee
- Texas
- Virginia
- Washington
- Wisconsin
- Wyoming
Residents of the District of Columbia won't owe any state Social Security taxes either. But it's possible that seniors in the above states could still owe federal taxes. More on those below.
Don't panic if you live in one of the other 12 states
The following 12 states have laws on the books that enable them to tax the Social Security benefits of some of their seniors:
- Colorado
- Connecticut
- Kansas
- Minnesota
- Missouri
- Montana
- Nebraska
- New Mexico
- Rhode Island
- Utah
- Vermont
- West Virginia
But there's good news for residents of Missouri and Nebraska. Both of these states will eliminate their benefit taxes on Jan. 1, 2024. As for the other states, some residents will likely continue to pay Social Security benefit taxes for the foreseeable future, but that doesn't necessarily mean you will.
Each state sets its own rules that determine which seniors owe benefit taxes, and they generally focus on high earners. For example, Connecticut residents don't have to worry about Social Security benefit taxes unless their adjusted gross income (AGI) exceeds $100,000 for married couples filing jointly or $75,000 for all other tax-filing statuses. To learn more about the rules in your state, contact your state department of taxation.
The federal government taxes Social Security too
The federal government taxes Social Security benefits of seniors in all states, and these are much tougher to avoid. The following table shows how much of your Social Security benefit could be taxable, depending on your marital status and provisional income -- your AGI, plus any non-taxable interest and half your annual Social Security benefit.
|
Marital Status |
No Benefits Taxable |
Up to 50% of Benefits Taxable |
Up to 85% of Benefits Taxable |
|---|---|---|---|
|
Single |
Provisional incomes under $25,000 |
Provisional incomes between $25,000 and $34,000 |
Provisional incomes over $34,000 |
|
Married |
Provisional incomes under $32,000 |
Provisional incomes between $32,000 and $44,000 |
Provisional incomes over $44,000 |
Source: Social Security Administration.
These taxation thresholds haven't changed in 30 years, and more seniors are encountering them as average benefit checks rise. You may be able to avoid them by reducing your annual expenses or relying more upon Roth savings since this doesn't factor into your AGI. But that might not work for everyone.
In that case, the next best thing to do is prepare for Social Security benefits. Try to estimate what you'll owe in benefit taxes and set this money aside. Or you can ask the Social Security Administration to withhold some money from your checks for taxes so you don't face any issues at tax time. If you have any questions, contact a tax professional for personalized advice.
