Retirees are always looking for ways to maximize their retirement income, and avoiding income tax is an excellent strategy for doing so. Depending on your total taxable income, your Social Security benefits might be taxed at the Federal level no matter which state you live in. However, choosing to live in a state that does not tax Social Security benefits could allow you to avoid state taxes on these benefits. So, which states tax these benefits, and which ones don’t? Keep reading as we tell you everything you need to know about state taxation of Social Security benefits.
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38 States That Don’t Tax Social Security Benefits
Avoiding state income taxes on your Social Security benefits could save you a lot of money during your retirement years. Some of the states on the list below do not have an income tax at all. Others have a state income tax, but they provide an exemption for Social Security payments. Here are the 38 states that will not tax your Social Security benefits.
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- Alabama
- Alaska
- Arizona
- Arkansas
- California
- Delaware
- Florida
- Georgia
- Hawaii
- Idaho
- Illinois
- Indiana
- Iowa
- Kentucky
- Louisiana
- Maine
- Maryland
- Massachusetts
- Michigan
- Mississippi
- 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
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In addition to the 38 states listed above, Washington, D.C. also exempts Social Security benefits from taxation. Remember that even though the states on this list do not tax your Social Security income, the Federal government still might tax at least a portion of your benefits. Whether or not your Social Security payments are taxable depends on your total adjusted gross income for the tax year.
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12 States That Do Tax Social Security Benefits
On the other side of the coin, there are 12 states that do tax Social Security benefits as income. Most of these states have fairly low tax rates when it comes to state income tax, but the tax can still take a toll on your finances. Here are the 12 states that tax Social Security, along with the details of each.
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- Colorado: Colorado taxes Social Security benefits at their flat state rate of 4.55%. However, they allow deductions for retirees on some retirement income. Those age 55 to 64 can deduct up to $20,000 in retirement income, and those age 65 and older can deduct $24,000. Beginning in the 2022 tax year, all Social Security payments will be exempt from state taxes in Colorado.
- Connecticut: Social Security payments in Connecticut are exempt from state taxes as long as your adjusted gross income is less than $75,000. If your income is higher than this, only 25% of your Social Security will be taxed.
- Kansas: Kansas allows retirees with less than $75,000 in AGI to deduct all Social Security income from their state taxes. For those with income higher than this, their benefits are taxed at the same rate as all other income.
- Minnesota: Minnesota is nearly identical to the Federal government when it comes to taxing Social Security payments. They use the IRS Social Security rules to determine how much of your Social Security income will be taxable. They also allow those with low to moderate incomes to deduct some of their Social Security income from taxation.
- Missouri: For individuals with an AGI of less than $85,000, all Social Security benefits will be exempt from state taxation. You might still qualify for a partial deduction even if your income is higher.
- Montana: Those with AGI of less than $25,000 will not owe taxes on their Social Security benefits. However, individuals in a higher tax bracket will have their Social Security benefits subject to state income tax. The rate could be anywhere from 1% to 6.75%.
- Nebraska: Individuals with an AGI less than $44,460 will not have to pay taxes on their Social Security benefits. In addition, new legislation is slowly lowering the amount of state taxes that will be due. The state might decide to completely eliminate state taxation of Social Security by 2030.
- New Mexico: New Mexico also uses the same thresholds and brackets as the Federal government to determine whether benefits are taxable. They also allow individuals in lower tax brackets to deduct some portion of their benefits from taxation.
- Rhode Island: For people who are at least full retirement age and have an AGI of less than $86,350, Rhode Island will not levy a state income tax on Social Security benefits. For others, the normal income tax rates will apply.
- Utah: For those with an AGI of less than $30,000 or married couples with an AGI of less than $50,000, a full tax credit can be received for Social Security benefits. If you exceed these limits, then Utah follows the same formula as the Federal government in calculating taxation of benefits.
- Vermont: Vermont allows full exemption of Social Security benefits for those with an AGI of less than $45,000. If you make more than this but up to $55,000, you might still qualify for a partial exemption. For earners over $55,000, benefits are taxed at the normal state rates.
- West Virginia: Currently, West Virginia residents earning less than $50,000 may deduct 65% of their benefits. For the 2022 tax year and beyond, these residents may deduct 100% of their benefits. For earners above the threshold, their benefits will be taxed based on the Federal model.
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As you can see, nearly every state on this list has its own way of calculating how much tax will be levied on your Social Security benefits. The tax rates range from 0% to nearly 10%. Many of the states listed here allow single filers and joint filers to deduct a portion of their Social Security benefits based on their overall income. Others allow a deduction of up to $20,000 of retirement income, including pension income and Social Security payments. Even though these states might tax your Social Security payments, some offer lower property taxes and sales tax which can help offset the total cost of living.
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Understanding Taxes On Your Social Security Benefits
You should already know that your income can be subject to both Federal income tax and state income tax. At the Federal level, single filers will owe no taxes on their Social Security benefits if their AGI is less than $25,000. If you earn between $25,000 and $34,000, then 50% of your Social Security benefits will be taxable. For those who earn more than $34,000, 85% of Social Security benefits will be taxable. Regardless of your income, 15% of your Social Security benefits are never taxable at the Federal level.
In addition to Federal taxes, you might owe state income taxes on your benefits if you reside in one of the 12 states listed in the previous section. Each state has its own tax rates and methods for calculating how much of your benefit will be taxed. These taxes can reduce your overall disposable income.
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The Bottom Line
There are 38 states in which Americans will not owe any state taxes on their Social Security benefits. The remaining 12 states do tax your benefits, although many of them allow full or partial deductions based on your total adjusted gross income. Even in those states, many Social Security recipients will not owe taxes on their benefits.
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Frequently Asked Questions
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At what age is Social Security no longer taxed?
There is no age limit to the taxation of Social Security benefits. The Federal government looks at your total income, not your age, to determine whether your benefits are taxable. The states that do levy taxes on Social Security benefits follow a similar formula. There are a couple of states that allow older individuals to claim a larger exemption.
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What is the most tax-friendly state to retire in?
There are many factors that go into the calculation of what makes a state tax-friendly. You might immediately think that one of the states that do not tax Social Security benefits would be the best, but some of those states have higher sales tax or property taxes that might eliminate the income tax savings you would realize. Delaware is often considered one of the best states in which to retire. It does not have state or local sales tax, and it also has no estate or inheritance tax.
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What states do not tax your pension or Social Security?
There are 38 states in America that do not tax Social Security benefits. Some of these states also allow an exemption of a portion of retirement income, like pensions. However, your pension might be subject to state income tax in most states. The states that do not tax Social Security are Alabama, Alaska, Arizona, Arkansas, California, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, Nevada, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Virginia, Washington, Wisconsin, and Wyoming.
