Taxation of Social Security is getting a closer look this year, mainly because the Republican presidential nominee has suggested ending the current federal tax paid by some retirees on up to 85 percent of their benefits.
A handful of states also tax the federal retirement benefits that their residents receive. This is the case in Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, and West Virginia.
Those nine Social Security taxing states are this weekend’s By the Numbers figure.
States offer some retiree benefits relief: The good news is that even in the states where the federal retirement payments are taxed, residents generally are afforded some exemption amount or credit.
Here’s an overview of the nine states that tax Social Security and how you might be able to reduce or avoid the tax.
Colorado collects its 4.4 percent flat tax on Social Security benefits, but provides an exemption amount. Taxpayers 65 and older can deduct all their federally taxed Social Security up to $24,000. Younger retirees get a smaller exemption amount.
Connecticut taxes Social Security at rates ranging from 2 percent to 6.99 percent, but only if you make more than an income threshold. The federal benefits are not taxed if you’re a single filer with adjusted gross income (AGI) of less than $75,000. The income level is less than $100,000 for head-of-household taxpayers and married couples who file joint returns. Even if you make more than the limit for your filing status, the state taxes just 25 percent of Social Security benefits.
Minnesota offers Social Security recipients a Social Security Benefit Subtraction that reduces the amount the North Star State collects at four rates ranging from 5.35 percent to 9.85 percent. You can file for the subtraction if your federal AGI is a certain level, adjusted annually for inflation. The simplified method for 2024 tax year can be used by taxpayers who have AGI less than $105,380 if married filing jointly, or less than $82,190 for single taxpayers. The subtraction is phased out for taxpayers who make more than their filing status AGI limits.
Montana’s 5.9 percent flat tax rate is applied to most of its retirees’ Social Security benefits. The Treasure State only allows older taxpayers a $5,500 subtraction from federal taxable income.
New Mexico’s tax, which ranges from 1.7 percent to 5.9 percent, on Social Security benefits is paid by recipients whose earnings exceed thresholds for their filing status. Land of Enchantment single filers can have income up to $100,000 and not pay tax on their federal payments. Married jointly filing taxpayers can earn up to $150,000 and escape the tax on their Social Security amounts.
Rhode Island residents also can exempt Social Security benefits from state taxes, which range from 3.75 percent to 5.99 percent. The Ocean State in 2024 provides an exemption of $119,750 to married filing jointly taxpayers. It is a $95,800 earnings limit for all other filing statuses.
Utah collects its flat 4.55 percent tax on Social Security received by its residents. It does, however, offer a Social Security Credit that can reduce the amount due the Beehive State.
Vermont taxpayers who meet income limits will find their Social Security amount fully exempt from Green Mountain State taxes, which range from 3.35 percent to 8.75 percent. The exemption is $65,000 or less for married filing jointly couples, and $50,000 or less for single, including married filing separately, taxpayers. A partial exemption is available for higher earners.
West Virginia is phasing out its tax, which ranges from 2.36 percent to 5.12 percent, on Social Security. A law enacted earlier this year cuts the tax for all residents receiving benefits by 35 percent in 2024. In 2025, Mountaineer State retirees can subtract 65 percent of their federal benefits from their state taxable income. The tax is eliminated in 2026.
Taxes and retirement: While taxes aren’t the only factor in determining where to retire, they should be considered, especially if Social Security is a major part of your golden years’ income.
Even if you live in a state that doesn’t tax retirement income, it never hurts to check out the all the taxes where you live. Depending on your lifestyle, state and local sales and property taxes also could pose challenges to those on fixed incomes.
And if you’re retired or nearing the end of your working career, live in one of these Social Security-taxing states, and don’t want to move, let your state lawmakers know what you think.
You also might find these items of interest:
- Social Security taxable wage base goes to $168,600 in 2024
- House bill proposes ending federal tax on Social Security benefits
- House bill would increase earnings limit for some working Social Security beneficiaries
Advertisements
🌟 Search Amazon Luggage Deals 🌟
The text link above goes to affiliate ads. If you click through and then buy a product, I receive a commission.
