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Social Security: 27 States That Won’t Tax Your Benefits

One of the biggest complaints about Social Security is that a portion of one's benefits must be given back to the government by way of income taxes. But while the federal government provides few safe harbors from this circular process, more than two dozen states have decided to exempt Social Security benefits from state income taxation altogether.

Social Security and federal taxes
To be fair, the taxation of Social Security at the federal level gets somewhat of a bad rap. This is because the potential tax liability is limited in both size and scope.

In the first case, you don't pay taxes on your benefits if they're your only source of income. Taxes only kick in if your "combined income" -- which equals your adjusted gross income plus your nontaxable interest plus half of your Social Security benefits -- exceeds certain thresholds.

Additionally, even if your combined income falls within the taxable range, no more than 85% of your benefits will be used to calculate your tax liability. I know this is little consolation, but it nevertheless leaves the remaining 15% of your benefits free and clear.

The net result is that, assuming an individual's combined income exceeds $34,000 ($44,000 for married couples), as much as 85% of it will be taxed as ordinary income.

Social Security and state taxes
The situation on the state level isn't quite as clear-cut. This is because various states treat Social Security benefits differently for the purposes of income taxes.

You can see this in the chart below, which breaks down the number of states that tax Social Security in one of four ways.

As you can see, 27 states have elected to completely exempt Social Security payments, according to data from the Tax Foundation. This includes Oregon, California, Idaho, Arizona, Oklahoma, Arkansas, and Louisiana, among others.

Meanwhile, eight states exempt Social Security from income taxes subject to specific factors. For instance, Missouri allows married taxpayers with adjusted gross income of less than $100,000 to deduct all taxable Social Security benefits from income. And nine states have no state income tax altogether.

The remaining six states tax benefits to the same extent they're taxed at the federal level.

Like I intimated above, this is no consolation to someone who relies on Social Security for retirement, but must still remit a portion of it to the government. But it's nevertheless better to know the law than to face an audit from the IRS.

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Read/Post Comments (23) | Recommend This Article (271)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 04, 2014, at 7:50 AM, Genebob wrote:

    Worthless article without a list of the states.

  • Report this Comment On July 04, 2014, at 7:52 AM, Kits wrote:

    This article got the number of states with no income tax correct (9) but Florida and Alaska are shown as taxing states on the map incorrectly.

  • Report this Comment On July 04, 2014, at 8:43 AM, rickshelton53 wrote:

    When i were a young kid in the 60's i work and made 5,500 a year I was taxed then and have been paying taxes ever sense, And paying into the SS system as well ,,Now tax's taken from my payroll is year wasn't taxed just a deduction from my payroll but the Government made interest on my deductions over the past 50 some odd years i don't mind paying tax's in SS if they give me the interest i made on the money ..

  • Report this Comment On July 04, 2014, at 9:51 AM, rattler15 wrote:

    Whoopi Doo,

    Unfortunately, the author of this article fails to understand that the benefits have already been taxed and that the taxpayers were forced to pay against their wills, forgoing any investment appreciation.

    Hooray for the states that have no income tax.

  • Report this Comment On July 04, 2014, at 10:06 AM, KenLake wrote:

    While I am certainly no fan of taxes, it is a fallacy to say your SS has already been taxed. While the amount you paid in was taxed, you are likely to collect far more than what you put in. That "extra" money, or the growth in value, has never been taxed. Most people collect 100% of what they had contributed within the first 4-5 years of receiving benefits so the rest has never been taxed. In addition, your employers half of what was contributed was never taxed since the employer is able to tax a deduction for the amount it pays in on FICA.. So setting aside our dislike of taxes, it doesn't seem unreasonable for up to 85% to be taxable.

  • Report this Comment On July 04, 2014, at 10:09 AM, sjeffes wrote:

    Screwed Up Article: No list of states; Florida information is wrong - they do not tax; the map above shows light blue as no tax states (27), but the pie chart below is mismatched and show the 27 in dark blue. Really?! Non quality if I ever saw it.

  • Report this Comment On July 04, 2014, at 10:30 AM, JohnMaxfield wrote:

    Kits & sjeffes,

    I apologize for the confusion.

    The map at top denotes states that specifically exclude Social Security benefits from state income taxes. Also, other than using blue, the pie chart in the middle of the article wasn't meant to perfectly match the colors of the map. Thus the chart's legend.

    But either way, I apologize again for any confusion this caused.

    Thanks for reading!

    Happy 4th of July!

    John

  • Report this Comment On July 04, 2014, at 10:39 AM, glosnik wrote:

    This is a really poor article and full of errors at that. I live in Texas and know for a fact we don't have a state income tax so how can I be taxed on my SS benefits? I don't believe Florida has a state tax either. It would nice to see a retraction on this.

  • Report this Comment On July 04, 2014, at 11:09 AM, cool6dad wrote:

    There appears to be mistakes in the article. New Hampshire and Tennessee are dark blue on the map but they only tax interest and dividend income so while they don't exempt Social Security they don't tax it either. Florida is dark blue but unless there been a recent change they do not have an income tax.

  • Report this Comment On July 04, 2014, at 11:27 AM, ttom wrote:

    I think the point has been missed in stating that you will get more money than you put in. Actually, this is not close to being the situation. You will not collect more than you put in plus reasonable interest. It would take a very long life to break even, when interest is included. This is why I have a real problem with people calling SS an entitlement.

  • Report this Comment On July 04, 2014, at 11:36 AM, hector121 wrote:

    The article is full of inaccuracies. Florida, Tennessee and Texas are at least 3 States that have no income tax. What else in the article is incorrect?

  • Report this Comment On July 04, 2014, at 11:48 AM, JohnMaxfield wrote:

    Readers:

    The map at the top is intended to denote the states that specifically exclude Social Security benefits from state income taxes.

    Therefore, to some of your points, there are some states (like Texas and Wyoming, etc.) that don't have state income taxes altogether but aren't highlighted in light blue. This was intentional, but I now see that it leads to confusion.

    I have edited the title of the map in light of this and the updated version should be swapped out by our editors shortly.

    Thanks again for reading!

    John (the author)

  • Report this Comment On July 04, 2014, at 12:51 PM, mermaid1966 wrote:

    NEVADA has no state income tax at all, so not only will they not tax your SOCIAL SECURITY, they will not tax your wages or capital gains either.

    WHY IS NEVADA DARK BLUE ON THIS MAP???

    You should have made the states with no state income taxes at all GREEN.

  • Report this Comment On July 04, 2014, at 12:57 PM, harrd53551 wrote:

    When did Nevada start collecting income taxes? I lived there for almost thirty years and never paid state income taxes. Now the map shows it as dark blue but the map's legend says light blue denotes states without taxes. I guess I moved to Wisconsin just in time. Looks like Bass ackwards disinformation to me. Where did you find this 'author'?

  • Report this Comment On July 04, 2014, at 1:27 PM, jingledi wrote:

    Taxes paid to state governments are usually much lower than Federal taxes. Therefore, I would have hoped an article from the Fool's might focus on reducing or eliminating THOSE taxes, as most retirees already have moved to where they will probably stay and understand their states tax liabilities (if applicable).

  • Report this Comment On July 04, 2014, at 2:11 PM, rickles07 wrote:

    This article has very little credibility with me, since Pennsylvania specifically does not tax social security benefits and is not listed as such, and there are also many other inaccuracies as noted by other readers. Get rid of this author.

  • Report this Comment On July 04, 2014, at 2:21 PM, burttoast wrote:

    BLUE on blue does not a good chart make

    Hard to decipher

    Not sure if Mich taxes or not because I do not make enough in SS but under the current Republican administration I would be shocked if Mich does not ever charge a tax on SS

  • Report this Comment On July 04, 2014, at 2:46 PM, shibadude wrote:

    Nevada is dark blue but has no state income tax. The pie chart has 4 different colors and the map only 2 colors. The pie chart states that light blue denotes states with no state income tax so why is Nevada dark blue. I'm not sure of California but I would think them being tax hell if would be dark blue for sure.

    What a screwed up article. My feeling on social security is that it is taxed monies. Since it's not a voluntary withholding from your pay then it is another tax on your paycheck. Just like the BS medicare deduction.

    We all know that the pathetic government is using those monies for other things as well.

  • Report this Comment On July 04, 2014, at 4:14 PM, HP54 wrote:

    In my opinion the following needs to be added to this article.

    7 states, Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming do not levy any type of a personal income tax.

    2 states, Tennessee and New Hampshire, levy an income tax only on interest and dividends:

    Although Oregon and California completely exempt Social Security payments, the two states have the highest personal income tax rates in the country.

  • Report this Comment On July 04, 2014, at 11:19 PM, Jakefarsh wrote:

    I am always confused by those who say that most people take more out of Soc.Sec. than they put in.

    Are they also include the employer's contribution which combined with individual contributions doubles the amount the government collect? If you are self employed then you pay both portion. Otherwise their statement is a half truth which is worse than a lie. In addition there are many who believe if that money was invested in the market the returns would be much larger than what the government pays by "borrowing" from the fund.

  • Report this Comment On July 05, 2014, at 8:31 AM, greyhound44 wrote:

    After having paid maximum SS portion of FICA for 35 + years, I retired 31 Aug 2003 at age 58 3/4 and took maximum SS retirement benefits (reduced for age) at 62. Total to date as of 10 June - $146,537.40

    I have not yet paid a dime in federal income tax on same and Texas has no state income tax.

    Allowed me to leave my IRA/R/O IRAs (over $2MM) untouched.

    retired expatriate (11 years in Conde Nast's 2013 "World's Best City") MD

  • Report this Comment On July 05, 2014, at 8:55 PM, Auburn11 wrote:

    Of course Illinois taxes everything. I'm surprised they don't tax us for breathing.

  • Report this Comment On July 13, 2014, at 6:04 AM, Quanloi70 wrote:

    Why is West Virginia on both charts (taxed at Fed level, and not taxed)?

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John Maxfield
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John has been writing for The Motley Fool since 2011. As a senior banking analyst, he covers the financial industry and the nation's largest banks in particular. He has a bachelor's degree in economics from Lewis and Clark College and a juris doctorate from Southern Methodist University. He's a licensed attorney in the state of Oregon, and resides in Portland with his wife and twin sons. View John Maxfield's profile on LinkedIn

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