Up to 85% of your Social Security is taxable at the federal level, depending on your income. But many retirees discover the unpleasant surprise that some states also tax part of their Social Security benefits.
In 2024, retirees in Missouri and Nebraska will get some relief. These two states will no longer tax Social Security -- though the reprieve will apply to tax returns due in 2025, rather than those that are due in April. That leaves 10 states that still tax Social Security checks. Read on to find out if your state is among them.
Image source: Getty Images.
1. Colorado
Social Security benefits are fully deductible on state tax returns for beneficiaries ages 65 and older. But Colorado only allows residents ages 55 to 64 to deduct $20,000 of retirement income, so Social Security benefits above this amount may be taxable at the state level.
2. Connecticut
Connecticut doesn't tax Social Security benefits for single filers with an adjusted gross income (AGI) of less than $75,000 or married couples filing jointly with an AGI below $100,000. Only 25% of Social Security benefits are taxable for residents with incomes above these thresholds.
3. Kansas
Regardless of filing status, taxpayers in Kansas are subject to taxes on their Social Security if their AGI exceeds $75,000.
4. Minnesota
In Minnesota, Social Security benefits are subject to state taxes for residents with incomes above $82,190 for single filers and heads of household, $105,380 for married couples filing jointly, and $52,690 for those who are married filing separately.
5. Montana
Montana follows the federal government's lead on taxes for Social Security: If you're a single taxpayer with an AGI above $25,000 or married filing jointly with an AGI over $32,000, your checks are taxable. If you're married filing separately, though, you won't qualify for a tax break from the state on your Social Security.
6. New Mexico
New Mexico only taxes Social Security checks for beneficiaries with AGIs above $100,000 for single filers, $150,000 for married couples filing jointly, and $75,000 for married couples filing separately.
7. Rhode Island
Rhode Island residents who have reached full retirement age and have an AGI of less than $101,000 (single filers and heads of household), $126,250 (married couples), or $101,025 (married couples filing separately) aren't taxed on their Social Security benefits. But residents who are taking early benefits or have incomes above these limits are subject to state Social Security taxes.
8. Utah
Utah fully offsets state Social Security taxes through tax credits for single filers and heads of household with AGIs up to $45,000, married couples with AGIs up to $75,000, and married couples filing separately with AGIs up to $37,500. Those with incomes above these limits may qualify for a partial tax credit.
9. Vermont
Vermont doesn't tax Social Security benefits for residents with AGIs of less than $50,000 (singles) and $65,000 (married couples). A phased-out exemption applies to singles with incomes between $50,001 and $60,000, and married couples with incomes between $65,000 and $75,000. Benefits are fully taxable for residents with AGIs above these limits.
10. West Virginia
West Virginia currently taxes Social Security for single taxpayers with AGIs above $50,000 and married couples filing jointly with AGIs above $100,000. However, state lawmakers recently passed a bill that would phase out taxes on Social Security over three years.
If Gov. Jim Justice approves the law, the bill would retroactively reduce taxation of Social Security by 35% in 2024, then reduce taxation by 65% in 2025 before eliminating the tax altogether in 2026.
If you're worried about taxes in retirement, it's worth considering whether the state you plan to retire to taxes Social Security benefits. But keep in mind that state laws can change, and state Social Security taxes are just one component of the overall tax picture.
To minimize your tax bill, consider saving in a Roth IRA. If you follow the rules, your withdrawals will be tax-free in retirement because a Roth IRA is funded with money you've already paid taxes on.
