Social Security: 6 States That Heavily Tax Benefits

Source: The Tax Foundation

As a retiree, there are few things as frustrating as the fact that your Social Security benefits are potentially subject to federal income taxes. Weren't previously paid taxes what financed them in the first place?

To make matters worse, a handful of states also require retirees to remit a portion of their monthly benefits to the public coffers. But while some states are more lenient in this regard than others, there are six that stand out from the pack on the opposite end of the spectrum.

These states -- Minnesota, Nebraska, North Dakota, Rhode Island, Vermont, and West Virginia  -- apply the same standard for taxation as that used at the federal level. As a result, many retirees in these states face the dismal prospect of having at least some of their benefits reabsorbed into the system.

Expanding on this in the following video, Motley Fool contributor John Maxfield breaks down the 50 states according to how they treat Social Security payments for purposes of income taxes.

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  • Report this Comment On July 12, 2014, at 8:12 PM, 4pepper wrote:

    To hell with those states!

  • Report this Comment On July 12, 2014, at 8:39 PM, rav55 wrote:

    "Weren't previously paid taxes what financed them in the first place?"

    FICA is not TAX. It is more like an Insurance Premium. Furthermore FICA is deducted "pre-tax" as well. FICA is what Funds Social Security. Premiums from FICA deductions fund Social Securty. Social Security is NOT an entitlement but an insurance benefit bought and paid for.

    Stop trying to create an issue where none exists.

    Yes it's deplorable that Social Security is taxed by States. Stick with that storey.

  • Report this Comment On July 13, 2014, at 10:05 AM, jimatmad wrote:

    Good for them. Retirees are Mitt Romney's famous 47%ers, who rely on the government.

    BTW, I expect to be a retiree in a few years. If I make enough off of my retirement income to owe taxes, I will gladly pay those taxes.

    As for the argument that you already paid taxes on that money, every dollar in your wallet was taxed a hundred times a dozen different ways before it got there.

    And besides, that money was tax-exempt when it went into the federal coffers in the first place.

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John Maxfield

John is The Motley Fool's senior banking specialist. If you're interested in banking and/or finance, you should follow him on Twitter.

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