Retirees across the U.S. are not treated equally when it comes to their Social Security checks. There's a simple reason why that is the case. Some states tax these benefits and others don't.
Specifically, there are 38 states where you won't have to worry about giving some of your retirement money to the state -- and 12 places where part of your benefits could disappear.
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If you live in these 38 states, you don't have to worry about Social Security benefits being taxed
If you live in any one of these 38 states, Social Security taxes don't have to be on your radar unless you owe federal taxes. These are the 38 states:
- 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
You also aren't going to need to worry about Social Security taxes on the state level if you live in Washington, D.C.
This means if you don't have income above the threshold at which the federal government begins assessing taxes, you aren't going to have to pay any portion of your benefits to the government. This threshold is $25,000 for single tax filers and $32,000 for married joint filers but there's a catch. Only provisional income counts. For these purposes, your "income" equals all taxable income, half of Social Security benefits, and some non-taxable money such as MUNI bond interest. If your income under this definition isn't above the $25,000 or $32,000 limits, your Social Security benefits are yours to keep tax-free.
If you live in these 12 states, you need to learn the rules
Now, that still means millions of people get stuck paying Social Security taxes on the state level. This could be an issue if you live in one of these 12 states:
- Colorado
- Connecticut
- Kansas
- Minnesota
- Missouri
- Montana
- Nebraska
- New Mexico
- Rhode Island
- Utah
- Vermont
- West Virginia
The good news is, not everyone who lives here will be taxed. States typically exempt lower earners from having to pay a portion of their benefits to the government. But you do need to look into the rules in the place where you live. Your state's Department of Revenue is a good source for information on whether your benefits will be taxed or not. You can also ask a financial professional. There are volunteer services that do taxes for free for the elderly so if you don't want to pay an accountant, you can use the IRS resources to find help.
If you discover that you will be taxed on your benefits, you may want to think about whether losing part of your income to your local government is something you are OK with or whether it's worth looking into relocating. Of course there are many factors that go into deciding where to spend your retirement, including proximity to family and activities. But since you can choose to live in most parts of the country and get to keep all of your hard-earned retirement benefits, it could be worth considering whether a new retirement home could be a good option.
