We give the government a large portion of our income throughout our working lives. Part of this income is returned to us later in the shape of Social Security payments, and even that may not be entirely ours to keep. Social Security benefits of some senior citizens are taxed in 13 states, forcing them to rely more on personal savings to fund their needs.
Knowing which states tax Social Security benefits and how they do the calculations can allow you to make informed decisions regarding where you want to reside in retirement and the amount of personal savings you’ll need.
The Thirteen States That Tax Social Security Benefits
These states have taxes for Social Security benefits:
1. Colorado
2. Connecticut
3. Kansas
4. Minnesota
5. Missouri
6. Montana
7. Nebraska
8. New Mexico
9. North Dakota
10. Rhode Island
11. Utah
12. Vermont
13. West Virginia
However, just because you live in one of these states doesn’t mean you’ll have to pay taxes on your benefits. Each state has its own methodology for determining how much of a recipient’s benefits are taxable. Kansas citizens, for example, pay Social Security taxes only if their federal adjusted gross income (AGI) is higher than $75,000, regardless of their tax filing status. Other states have varying thresholds for different filing statuses. The only way to know for sure if you’ll owe state taxes on your Social Security income is to contact your state’s Department of Revenue.
You may be able to avoid paying state taxes by restricting your spending in retirement. If it doesn’t matter to you where you live, it might be worth trying to move to a state that doesn’t tax Social Security benefits. Although, you may still not be able to avoid Social Security benefit taxes completely.
Benefits are taxed by the federal government as well. Social Security benefits of some seniors are additionally taxed by the federal government depending on their provisional income. That is their adjusted gross income (AGI) plus any nontaxable interest and half of their yearly Social Security benefits.
If an individual’s provisional income reaches $25,000, or $32,000 in the case of a married couple, the government may tax up to 50% of Social Security benefits. If an individual’s provisional income exceeds $34,000 or $44,000 for a married couple, the government may tax up to 85% of benefits.
However, just because you could potentially owe taxes on that amount doesn’t imply you will. The method that determines how much of your Social Security benefits are actually taxable is outside the scope of this article, but if you want to learn more, here’s a guide to federal Social Security benefit taxes.
How To Keep More Of Your Benefits
Keeping track of your spending in retirement is critical to retaining as much of your Social Security benefits as possible. Withdrawals from Roth accounts do not count against you because they’re usually tax-free. However, withdrawals from tax-deferred retirement funds will increase your AGI.
Keeping your provisional income low enough to avoid benefit taxes may be possible, but this is not always the case. If that doesn’t work for you, the best thing you can do is figure out how much you could owe and make sure you’re saving enough money on your own to meet these taxes.
Social Security benefit taxation regulations may change between now and when you join up. Hence, it’s critical to stay informed of any new state or federal legislation that may influence how much you owe. Adjust your retirement plan if something changes to avoid surprises when the time to claim benefits comes.
Most Retirees Are Entirely Unaware Of The $16,728 Social Security Bonus
If you’re like most Americans, you’re a couple of years (or more) behind on retirement savings. However, a few little-known “Social Security secrets” might help you increase your retirement income. For example, one simple method might earn you up to $16,728 more every year! We believe that if you understand how to optimize your Social Security benefits, you will be able to comfortably retire and with the peace of mind that we all seek.
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