Social Security has been steadily losing buying power for over 20 years, something that many seniors are undoubtedly aware of after battling this latest round of inflation. This is disheartening for the millions of Americans who depend on these benefits, but for some, inflation isn't the only obstacle they face.
There are currently 12 states that tax the Social Security benefits of some of their seniors, and if you live in one of them, you could lose even more of your checks each year. Here's what you need to know.
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The 12 states that tax Social Security benefits
These 12 states tax the Social Security benefits of some of their residents:
- Colorado
- Connecticut
- Kansas
- Minnesota
- Missouri
- Montana
- Nebraska
- New Mexico
- Rhode Island
- Utah
- Vermont
- West Virginia
But living in one of these places isn't a guarantee that you'll lose any of your benefits. Each state sets its own rules that determine when a senior must pay taxes on their Social Security checks.
If you call one of these 12 states home, reach out to your state Department of Taxation to learn how it handles Social Security benefit taxes.
The 38 states that don't tax Social Security benefits
If you live in one of these 38 states, you won't lose any of your benefits to your state government:
- 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
However, residents of these states could still owe some federal taxes on their benefits. The U.S. government takes a cut of seniors' checks if their provisional incomes are high enough. Provisional income is defined as your adjusted gross income (AGI), plus any nontaxable interest you earn, and half your annual Social Security benefit.
Single adults with provisional incomes exceeding $25,000 and married couples with provisional incomes exceeding $32,000 can owe taxes up to 50% of your Social Security benefit. And the government can tax up to 85% of your benefit if your provisional income exceeds $34,000 for a single adult or $44,000 for a married couple.
Do you need to worry about Social Security benefit taxes?
With Social Security checks getting an 8.7% boost in 2023, it's likely many seniors will run into Social Security benefit taxes for the first time. It's important to be aware of the possibility and budget appropriately if you think you're going to owe taxes on some of your Social Security benefits.
You might be able to mitigate this risk somewhat by limiting your withdrawals from your retirement accounts or relying upon Roth savings when you near the taxation thresholds mentioned. But this won't work for everyone.
If you owe benefit taxes, you may either pay them when you file your tax return or request that the Social Security Administration withhold money from each check. If you choose the latter, each check you receive will be smaller, but you won't have to worry about a surprise bill.
Those worried about owing state taxes should see if their state offers a similar option so they know when they'll be expected to pay. Taking these steps now is crucial to avoiding costly surprises at tax time.
