Social Security is going to get a pretty big boost in 2023, thanks to a large cost-of-living adjustment (COLA) designed to help the program keep up with inflation. But just because your checks will get bigger doesn't mean you'll get to keep all the extra cash.
If you live in one of the 12 states that tax Social Security benefits, you may have to share some of your checks with the government. But residents in the following 38 states won't have to worry about this when filing their state tax returns.
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These states don't tax Social Security benefits
The following states don't tax the Social Security benefits of any of their seniors:
- 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
But living in one of these places doesn't mean you're completely off the hook for benefit taxes. The federal government also taxes the Social Security benefits of seniors with high enough provisional incomes. Your provisional income is your adjusted gross income (AGI) plus any nontaxable interest and half your annual Social Security benefit.
Individual filers with provisional incomes exceeding $25,000 and married filers with provisional incomes exceeding $32,000 could owe taxes on up to 50% of their benefits. Individuals with provisional incomes greater than $34,000 and married couples with provisional incomes greater than $44,000 could owe taxes on up to 85% of their benefits.
But this doesn't mean you'll lose 50% or 85% of your benefits to the government. It just means the government would tax that much of your benefits at your ordinary income tax level. So if you fell in the 12% tax bracket, for example, you could pay 12% in taxes on up to 50% or 85% of your Social Security benefit.
These 12 states do tax Social Security benefits in at least some cases
If you live in one of these 12 states, you could owe benefit taxes to your state government as well:
- Colorado
- Connecticut
- Kansas
- Minnesota
- Missouri
- Montana
- Nebraska
- New Mexico
- Rhode Island
- Utah
- Vermont
- West Virginia
Each state has its own rules that determine who owes Social Security benefit taxes and how much they'll pay. You may not owe anything. Many states exempt those with annual incomes or Social Security benefits below certain thresholds.
If you're concerned about whether you could owe state taxes on your Social Security benefits, reach out to your state Department of Taxation to learn how it handles this.
What can you do about Social Security benefit taxes?
It's not always possible to avoid Social Security benefit taxes. But some people might be able to pull it off by keeping costs down. If you're able to reduce your annual income so it's below the thresholds listed above or the threshold for taxation in your state, the government may let you hang on to all of your benefit.
If you have Roth retirement savings, you can use them to help keep your income low. Money you withdraw from Roth accounts doesn't count toward your taxable income because you already paid taxes on your contributions the year you made them. So if you're nearing the threshold for benefit taxation, you could draw upon Roth savings for the rest of the year.
But if this isn't feasible for you, you may just have to accept that you'll owe taxes on your Social Security benefits. This might not result in a tax bill, though. If you have a refund coming, it could just be a bit smaller. Either way, it's good to anticipate how these taxes could affect your tax liability so you aren't surprised.
