Social Security plays a critical role in most seniors' retirement plans. For some, it's the only source of income they have, and they need to stretch those dollars as far as possible. How easy this is depends in part on where you live.
Most states don't tax the Social Security checks of any of their residents, but there are 10 that have some tax laws regarding benefits on their books. Here's what you need to know about them.
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The 10 states that tax Social Security benefits
Residents in the following 10 states could face Social Security benefit taxes:
- Colorado
- Connecticut
- Kansas
- Minnesota
- Montana
- New Mexico
- Rhode Island
- Utah
- Vermont
- West Virginia
But living in one of these states isn't a guarantee that you'll lose any of your benefits. Every state sets its own rules about who owes these taxes. Often, there's an income provision that exempts low- to middle-income households from paying them.
For example, Kansas residents with adjusted gross incomes (AGIs) under $75,000 don't owe any state Social Security benefit taxes. To learn about the rules in your particular state, contact its Department of Taxation.
The 40 states that don't tax Social Security benefits
Residents in the following 40 states will never have to pay Social Security benefit taxes to their state governments:
- Alabama
- Alaska
- Arizona
- Arkansas
- California
- Delaware
- Florida
- Georgia
- Hawaii
- Idaho
- Illinois
- Indiana
- Iowa
- Kentucky
- Louisiana
- Maine
- Maryland
- Massachusetts
- Michigan
- Mississippi
- Missouri
- Nebraska
- 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, that doesn't mean they're totally off the hook. Residents of all states can still owe federal Social Security benefit taxes if their provisional income -- AGI, plus any nontaxable interest and half their annual Social Security benefits -- exceeds the following thresholds based on their marital status:
|
Marital Status |
0% of Benefits Taxable If Provisional Income Is Under: |
Up to 50% of Benefits Taxable If Provisional Income Is Between: |
Up to 85% of Benefits Taxable If Provisional Income Exceeds: |
|---|---|---|---|
|
Single |
$25,000 |
$25,000 to $34,000 |
$34,000 |
|
Married |
$32,000 |
$32,000 to $44,000 |
$44,000 |
Source: Social Security Administration.
This isn't as scary as it sounds, though. You don't actually lose up to 50% or 85% of your benefits. Instead, that percentage of your checks is subject to ordinary income taxes. This can range from 10% to 37%, with most people falling toward the lower end.
Sometimes, it's possible to avoid Social Security taxes by reducing your spending or relying more upon Roth income sources that don't raise your AGI. But when that's not possible, the next best thing is to plan for your benefit taxes ahead of time.
One of the easiest ways to do this is to contact the Social Security Administration and request that it withhold some of your checks for taxes upfront. This way, you can avoid a shock when you go to file your tax return.
