Social Security has been one of America's most important social programs, and hopefully that will continue for decades to come. It provides millions of Americans with a financial safety net, but like other forms of income, its benefits have tax implications.
The good news is that most states don't have any Social Security tax rules. The could-be-better news is that there are still 10 states that do. If you're a retiree in one of those states, here's what you should know.
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States that might tax your Social Security benefits
As of the start of 2024, Social Security recipients in the following states risk losing some of their monthly Social Security checks to state taxes:
- Colorado
- Connecticut
- Kansas
- Minnesota
- Montana
- New Mexico
- Rhode Island
- Utah
- Vermont
- West Virginia
If you reside in one of these states, it's important that you check its specific tax rules. Although they vary by state, most depend on your adjusted gross income (AGI). As an example, here are three states and how their Social Security tax rules differ:
- Colorado: Retirees 65 and older can deduct all of their Social Security benefits from their state income tax. Retirees 55 to 64 can deduct up to $20,000 in retirement income.
- Connecticut: You can deduct 100% of your federally taxable Social Security income if your AGI is below $75,000 for single filers and $100,000 for married couples filing jointly.
- Kansas: You're potentially subject to taxes regardless of your filing status if your AGI is above $75,000.
These rules can (and often do) change annually, so be sure to stay current to avoid being caught off guard. For example, Missouri and Nebraska used to tax Social Security benefits until the start of this year, and West Virginia plans to eliminate their Social Security taxes altogether by 2026.
Don't forget about Uncle Sam and the federal government
Unfortunately, federal tax rules apply to everyone regardless of a state's tax rules. A big difference, however, is that the IRS uses your "combined income" to determine your tax liability. Your combined income includes your AGI, any nontaxable interest (like Treasury bonds), and half of your yearly Social Security benefits.
For instance, if your AGI is $50,000, you receive $20,000 in yearly Social Security benefits, and have $500 in tax-exempt interest, your combined income would be $60,500.
Here's how your benefits could be taxed on the federal level based on your combined income and filing status:
| Percentage of Benefits Added to Taxable Income | Filing Single | Married, Filing Jointly |
|---|---|---|
| 0% | Less than $25,000 | Less than $32,000 |
| Up to 50% | $25,000 to $34,000 | $32,000 to $44,000 |
| Up to 85% | More than $34,000 | More than $44,000 |
Source: Social Security Administration.
The two words to pay attention to in the chart are "up to" because the actual percentage of your Social Security benefits that will be taxed will vary based on your income and filing status. It doesn't mean those are the percentages that your benefits will be taxed.
For example, if you're married, filing jointly, and have a combined income of $60,500, Social Security won't tax 85% of your benefits. Instead, up to 85% ($51,425) can be added to your taxable income for the year, and from there, the IRS will tax it at your normal income tax rate.
Even if you're fortunate enough to live in a state without Social Security tax implications, keeping up with annual changes within your state and the federal level is just as important. Anything can change in a given year, and being informed is key to proper financial planning.
