Planning for retirement involves many decisions, and understanding taxes on Social Security benefits is an important one. While most states in the U.S. don’t tax Social Security, nine states still do. If you live in or plan to move to one of these states, it’s essential to know how it could impact your income.
Let’s explore these states, their policies, and how you can better manage your retirement finances.
The 9 States That Tax Social Security Benefits
The following nine states tax Social Security benefits:
- Colorado
- Connecticut
- Minnesota
- Montana
- New Mexico
- Rhode Island
- Utah
- Vermont
- West Virginia
Each state approaches this taxation differently, often with exemptions based on income, age, or other factors. For example:
- Colorado: Residents aged 65 and older are exempt from taxes on their Social Security benefits. Starting in 2025, this exemption will extend to those aged 55-64 if their incomes fall below a certain threshold.
- West Virginia: This state is gradually phasing out its Social Security tax and plans to eliminate it by 2026.
If you’re worried about losing part of your benefits, it’s worth researching your state’s specific rules.
Federal Taxes on Social Security
Even if you don’t live in a state that taxes Social Security, you may still owe federal taxes on your benefits. The federal government taxes a portion of Social Security benefits based on your income level:
| Filing Status | Combined Income | Percentage of Benefits Taxable |
|---|---|---|
| Single individual | $25,000 to $34,000 | Up to 50% |
| Married, filing jointly | $32,000 to $44,000 | Up to 50% |
| Single individual | More than $34,000 | Up to 85% |
| Married, filing jointly | More than $44,000 | Up to 85% |
What is Combined Income?
Your combined income includes your adjusted gross income (AGI), nontaxable interest, and half of your Social Security benefits.
It’s important to note that this doesn’t mean 50% or 85% of your benefits will be taken as taxes. Instead, these are the portions of your benefits subject to taxation based on your income bracket.
Efforts to End Federal Taxation
There have been ongoing discussions about eliminating federal taxes on Social Security. However, changes like this depend on Congress, and it’s uncertain if or when such a measure might pass. If you support this idea, you can reach out to your representatives to express your views.
What You Can Do to Minimize Taxes?
Managing your retirement income wisely can reduce the taxes you owe. Here are some steps to consider:
- Plan Early: Start researching Social Security rules and tax implications before you retire.
- Diversify Income Sources: Having multiple income streams, such as a pension, investment returns, or part-time work, can help balance your finances.
- Monitor Withdrawals: Pay attention to how much you withdraw from retirement accounts like IRAs and 401(k)s, as this can affect your combined income.
- Seek Professional Advice: Consult a financial planner or tax advisor to develop strategies for minimizing taxes on your retirement income.
Good News for Retirees
The number of states taxing Social Security benefits has been shrinking over the years. For example, Nebraska recently eliminated its Social Security tax, and West Virginia is on track to do the same by 2026. Other states could follow suit, reflecting a growing recognition of retirees’ financial challenges.
If you live in one of the nine states still taxing Social Security, don’t feel pressured to move. Many of these states offer exemptions or reduced taxes based on specific criteria. Explore your state’s policies and consider how they fit into your overall retirement plan.
Prepare for a Comfortable Retirement
Understanding Social Security taxation is a critical part of preparing for retirement. While Social Security provides a foundation for retirement income, it’s rarely enough to cover all expenses. Developing a comprehensive plan, including savings and investments, can help ensure a secure and comfortable future.
By staying informed and taking proactive steps, you can maximize your retirement income and navigate the complexities of Social Security taxes, no matter where you live.
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Archer Bannister is a journalist with 4 years of experience covering hard-hitting stories. Currently working with Mikeandjonpodcast, Archer specializes in delivering timely and in-depth updates on a variety of topics, including crime news, politics, and national issues affecting the USA. His expertise and dedication to delivering accurate, impactful news make him a trusted voice for audiences seeking to stay informed on critical topics.
