Missouri and Nebraska residents got some good news on Jan. 1, 2024, when their states officially ended their Social Security benefit taxes. Now there are only 10 states left that still take a cut of their seniors' Social Security checks.
If you live in one of them, it's important to understand how your state government handles these taxes and what you could owe. Below, we'll take a closer look at what you need to know.
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The 10 states that still tax Social Security benefits
The following 10 states still tax the Social Security benefits of some retirees:
- Colorado
- Connecticut
- Kansas
- Minnesota
- Montana
- New Mexico
- Rhode Island
- Utah
- Vermont
- West Virginia
It's worth noting that Missouri and Nebraska residents could still owe Social Security benefit taxes when they file their 2023 returns this year. However, they won't have to worry about this in future years.
It's possible you may not owe these benefit taxes even if you live in one of the states above. Each state has its own formula to determine who pays them. For example, New Mexico only taxes the benefits of single adults who earn $100,000 or more per year; married couples filing jointly, heads of household, and qualifying widow(er)s with incomes of $150,000 or more; and married couples filing separately with incomes of $75,000 or more.
Check with your state's department of taxation or a tax professional in your area to learn more about how your state handles benefit taxation. If you think you could owe them, you may want to set aside some cash for your tax bill.
The federal government taxes benefits too
You could owe the federal government a cut of your Social Security benefits, even if you avoid state benefit taxes. The IRS taxes seniors in all states if their provisional incomes -- adjusted gross income (AGI), plus any nontaxable interest, and half your annual Social Security benefit -- exceed a certain threshold for your marital status. The following table outlines how much of your benefits could be taxable.
|
Marital Status |
0% of Benefits Taxed |
Up to 50% of Benefits Taxable |
Up to 85% of Benefits Taxable |
|---|---|---|---|
|
Single |
Provisional incomes under $25,000 |
Provisional incomes between $25,000 and $34,000 |
Provisional incomes greater than $34,000 |
|
Married |
Provisional incomes under $32,000 |
Provisional incomes between $32,000 and $44,000 |
Provisional incomes greater than $44,000 |
Source: Social Security Administration.
To be clear, if 50% of your benefits are taxable, that doesn't mean you'll give half of what you received during the year to the IRS. It means that 50% of your benefits are subject to ordinary income tax. This is anywhere from 10% to 37%, depending on your income. For most people, it's on the lower end of this range.
Should you move to a state that doesn't tax Social Security?
You might consider moving to a state that doesn't tax Social Security in retirement to save money, but remember that benefit taxes are only one piece of the puzzle. There are many other taxes you'll have to worry about in retirement, including state income tax, sales tax, and property taxes.
These things could have a bigger effect on your retirement finances than Social Security benefit taxes. Be sure to weigh all the pros and cons, both personal and financial, when deciding whether to move to a different state in retirement.
