Did you know the state where you live can actually affect how much of your Social Security benefits you get to keep? Specifically, if you live in one of these 38 states, you may get to bring home more of your retirement money.
Here's why some seniors get this windfall, while others risk losing some of their retirement income to their local governments.
Image source: Getty Images.
If you live in these 38 states, you may bring home more Social Security benefits
Retirees who live in the following states have a big advantage compared to their counterparts who live elsewhere in the U.S. No matter how much money they earn as seniors, they do not have to worry about losing any of their Social Security to their state governments. That's because their states do not impose taxes on Social Security benefits. The states where taxes on Social Security are not an issue include:
- 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 these locales, you may still owe federal taxes on part of your Social Security benefits if your countable income is above $25,000 as a single filer or $32,000 as a married joint filer. Countable income is half your Social Security benefits, all of your taxable income, and some non-taxable income. But there will be no state tax bill to worry about -- and since you don't have to give a cut to your local government, more of your retirement income gets to stay in your bank account and be used to cover life's necessities.
What if you live elsewhere?
If you live in one of the other 12 states -- which include the following list of places -- then there's a chance you will end up facing taxes on your income at the state level. States where this could be an issue include:
- Colorado
- Connecticut
- Kansas
- Minnesota
- Missouri
- Montana
- Nebraska
- New Mexico
- Rhode Island
- Utah
- Vermont
- West Virginia
Now, if you live here, that doesn't mean there's a 100% guarantee you'll be taxed on retirement benefits. It depends on your state's specific rules, as well as how much income you have, as many of these states only tax higher earners. Since you could find yourself facing state taxes, though, you will need to know the rules where you live and plan for that in your budget if you're affected, since your tax bill could leave you with less to spend on other things.
If you're considering where to live as a retiree, it's also worth considering these state tax rules for benefits -- among other factors, including local cost of living and taxes on other income. Keeping all these factors in mind can help you to decide where the best place is to set down roots.
If you're a higher earner and are likely to be hit with Social Security taxes, then it's especially important to take this issue into account. Since you may not be able to escape IRS taxes on your retirement income, choosing the right place to live could at least help save you from the double whammy of having your benefits taxed on both the federal and state level.
