Social Security Benefits: On January 1, 2024, Missouri and Nebraska residents received good news when their governments formally ceased to impose Social Security benefit taxes. Currently, just ten states retain the ability to deduct money from older citizens’ Social Security benefits.
If you reside in one of these states, it’s critical to comprehend how these taxes are handled by your state government and what you can be responsible for. We’ll look more closely at what you need to know below.
Ten states continue to impose taxes on Social Security Benefits
Some seniors’ Social Security benefits are still subject to taxes in the ten states listed below:
- Colorado
- Connecticut
- Kansas
- Minnesota
- Montana
- New Mexico
- Rhode Island
- Utah
- Vermont
- West Virginia
It is noteworthy that upon filing their 2023 returns this year, individuals of Nebraska and Missouri may still be required to pay Social Security benefit taxes. They won’t have to worry about this in the upcoming years, though.
Even if you reside in one of the aforementioned states, it’s conceivable that you won’t owe these benefit taxes. Each state determines who pays them using a different formula. For instance, only single people making $100,000 or more annually, heads of household, married couples filing jointly, and eligible widows or widowers with incomes of $150,000 or more, as well as married couples filing separately with incomes of $75,000 or more, are subject to taxes on their benefits in New Mexico.
To find out more about how benefit taxation is handled in your state, contact the department of taxes there or a local tax expert. You might wish to put some money away for your tax payment if you believe you could owe them.
Maximum Social Security Benefit 2024: What You Need to Know?
Benefits from federal taxes
Even if you are exempt from state benefit taxes, you may still owe the federal government a portion of your Social Security income. Seniors in all states who have provisional incomes over a specific level for their marital status—that is, adjusted gross income (AGI) plus any nontaxable interest plus half of their yearly Social Security benefit—are subject to federal taxes. The amount of your benefits that may be taxed is shown in the following table.
To be clear, this does not imply that you will pay the IRS half of what you got throughout the year if 50% of your benefits are taxable. This implies that regular income tax will be applied to fifty percent of your benefits. Depending on your salary, this might be anything between 10% and 37%. It’s on the lower end of this spectrum for most folks.
Should you move to a state that doesn’t tax Social Security?
To save money in retirement, you may think of relocating to a state where Social Security is not taxed, but keep in mind that benefit taxes are just one aspect of the whole picture. Retirement will bring with it a plethora of additional taxes, such as property taxes, sales taxes, and state income taxes.
Social Security benefit taxes may not have as much of an impact on your retirement savings as these factors may. When considering whether to relocate in retirement to a new state, be sure to consider all the advantages and disadvantages, both financial and personal.
