In most of the United States, you won't be taxed on your Social Security benefits on the state level. You may owe federal taxes, depending on income. But at least your local government won't get a cut of your retirement checks.
Most isn't all, though. In some areas, taxes are assessed on benefits. So, do you live in one of the 38 states where this is a non-issue?
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Here are the 38 states that don't tax Social Security benefits
The 38 states that do not tax Social Security benefits are listed below:
- 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
If you live in one of them, state taxes on your Social Security checks won't be a concern. Remember, federal taxes still could be, though. The IRS taxes Social Security benefits once countable income is $25,000 for single tax filers or $32,000 for married joint filers. Depending just how high your income is, up to 85% of benefits could potentially be subject to federal tax.
You can calculate countable income by adding up half your Social Security benefit, all your taxable income, and some limited nontaxable income such as MUNI bond interest. If your income is below those thresholds mentioned above and you live in one of the 38 states on this list, you can enjoy spending your Social Security check without having to worry about paying taxes on the money. If it's above it, you should make certain you are paying in enough to the IRS throughout the year to avoid penalties for paying late.
How worried should you be if you don't live in one of these states?
So, what happens if you live in one of the other 12 states? You could end up double taxed on benefits, paying both federal and state taxes. And that could take a big bite out of your retirement budget.
The good news, though, is this isn't a huge concern for many people. That's because in the states where benefits are taxed, it's usually only higher earners who have to pay. People with more modest wages are generally exempt.
Since the rules differ by state, the best thing to do is to check what your local Department of Revenue says about taxation of Social Security benefits. Chances are good you will find out that you don't owe, even if your state isn't on the list of 38 places where the government leaves everyone's benefits alone.
If you find that you're in the income bracket that will prompt taxes on Social Security, you are going to have to work state and, likely, federal taxes on Social Security into your budget. Either that or you'll have to move -- which may or may not be worth the effort, depending on your retirement goals and the amenities available in your current location.
