Which States Don’t Tax Social Security Benefits?

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Which States Don’t Tax Social Security Benefits?
Combined Income (Single Filer)Combined Income (Married Filing Jointly)
50%$25,000–$34,000$32,000–$44,000
85%$34,000+$44,000+

Source: Social Security Administration

Income from other retirement schemes may also be taxed by the federal government. Pension payments, for example, are either totally or partly taxable, depending on how much the person (or their employer) put in the contract after-tax.

Spousal Social Security payments and Social Security disability benefits are subject to federal income taxes (up to 85%) and are calculated based on the retiree’s total income. Supplemental security income, on the other hand, is not taxed.

Whether you’re asking if Social Security payouts are taxed at all in the United States, the answer is legally no. The only option to avoid paying taxes on Social Security income is to stay below the minimum income threshold—for example, by utilizing tax-free Roth account withdrawals, qualifying longevity annuity contracts (QLACs), and so on—or to live on a shoestring budget throughout retirement. As a result, most individuals would almost certainly have to pay taxes on their Social Security payments, and pensioners in a dozen states will also have to pay a state tax on these benefits.

Social Security Benefit Taxation by State

In the United States, 38 states and the District of Columbia do not charge a tax on Social Security payments. Nine states do not collect state income tax, even on Social Security income: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.

New Hampshire is one of nine states that do not have an income tax, although it does tax dividend and interest income.

The following is a list of the 12 states that charge a tax on Social Security payments in addition to the federal tax, along with information on each state’s tax policy.

  • Colorado: In Colorado, Social Security income is taxed at the state’s flat rate of 4.55%. Retirees between the ages of 55 and 64 may deduct up to $20,000 in retirement income, including Social Security benefits, while those 65 and beyond can deduct up to $24,000. This deduction is available to both spouses in married couples. Residents will be allowed to deduct all federally taxable Social Security payments beginning in the 2022 tax year, as part of a tax code rewrite adopted by Colorado legislators in June 2021.
  • Connecticut: The Social Security income tax rate in Connecticut varies from 3% to 6.99%. Retirees may deduct a portion or all of their benefit income depending on their AGI and filing status. Beneficiaries will pay no state taxes on their benefits if their AGI is less than $75,000 (single filer) or $100,000 (married filing jointly) (married filing jointly).Above these criteria, 75% of Social Security benefits remain tax-free.
  • Kansas: Social Security payments are taxed at the same rate as other kinds of income in Kansas, with rates ranging from 3.1% to 5.7%. Retirees with an AGI of up to $75,000, regardless of filing status, are free from paying state taxes on their Social Security income.
  • Minnesota: For deciding how much of a retiree’s Social Security payments should be taxed, Minnesota utilizes the same standards as the federal government. Those who do owe taxes on their benefits may also use Minnesota’s Social Security Subtraction to get a partial deduction. In 2021, single filers and couples filing jointly may deduct up to $4,130 and $5,290 in federally taxable benefits from Minnesota income, respectively. This is not accessible to residents with a higher income. Single filers and married couples filing jointly with AGIs of at least $62,710 and $80,270, respectively, are only eligible for a partial exemption, while those with incomes above $83,360 and $106,720, respectively, are not. The Social Security income tax in Minnesota varies from 5.35% to 9.85%.
  • Missouri: Although the Social Security income tax rate in Missouri may be as high as 5.4%, it can also be as low as 0%. Single filers and married couples filing jointly age 62 and older with AGIs less than $85,000 and $100,000, respectively, will be eligible to deduct their Social Security payments in full. Those with greater incomes may still be eligible for a partial deduction.
  • Montana: For the 2021 tax year, the Social Security income tax rate ranges from 1% to 6.9%, with the highest marginal tax rate dropping to 6.75% beginning in 2022. Retirees with an AGI of less than $25,000 (single filer) or $32,000 (married filing jointly), as with the federal tax, will not be taxed on their Social Security income. This is not true for people with greater incomes. Montana calculates the amount that someone owes differently than the federal government (the state tax form provides a worksheet).
  • Nebraska: The Social Security income tax rate in Nebraska varies from 2.46% to 6.84%. Single filers and married couples filing jointly are excused from paying Social Security taxes if their AGI is less than $44,460 or $59,960, respectively. Furthermore, under a new state legislation that went into effect in the 2021 tax year, Nebraska is phasing away benefit taxation, with recipients receiving a 5% tax savings on their Social Security. The decrease will be phased in until it reaches 50% by 2025, at which time state legislators will vote on whether to repeal the benefit tax entirely by 2030.
  • New Mexico taxes Social Security income at a rate ranging from 1.7% to 5.9%. New Mexico, like Montana, employs the same income levels as the federal government to exclude lower-income citizens. For higher income levels, Social Security payments are taxed in the same way as other sources of income. Single filers and married couples filing jointly age 65 and older with AGIs of up to $28,500 and $51,000, respectively, may deduct up to $8,000 in income, including Social Security payments.
  • Rhode Island taxes Social Security income at a rate ranging from 3.75% to 5.99%. However, the state will not tax the benefits of retirees who are of full retirement age (66-67 years old, depending on birth year) and have an AGI of less than $86,350 (single filer) or $107,950 (married filing jointly) (married filing jointly).
  • Utah: With a tax rate of 4.95%, Utah is the only state that uses the same method as the federal government to determine how much of a retiree’s Social Security income should be taxed. However, beginning in 2021, Utah will provide a partial or full credit for taxable benefits. Single filers and married couples filing jointly with AGIs under $30,000 and $50,000, respectively, are entitled for a full tax credit on their benefit income. Those with a greater income may still get a partial tax relief, with the credit dropping by 2.5 cents for every dollar earned beyond the aforementioned income thresholds.
  • Vermont: Single filers with an AGI of up to $45,000 are eligible for a complete exemption from state taxes of their Social Security payments in Vermont, while those with an AGI of $45,001 to $54,999 are still eligible for a partial exemption. For married couples filing jointly, the full exemption extends up to $60,000 in AGI and is phased out for individuals with earnings ranging from $60,001 to $69,999. Benefits are completely taxed at the state rate of 3.35% to 8.75% for single filers and couples filing jointly earning at least $55,000 and $70,000, respectively.
  • West Virginia has tax rates ranging from 3% to 6.5% on Social Security income. West Virginia, on the other hand, is gradually eliminating state income taxes on Social Security payments for low-income citizens. Single filers and couples filing jointly earning up to $50,000 and $100,000, respectively, may deduct 65% of their Social Security payments from their state income for the 2021 tax year. This will increase to 100% by 2022. Retirees with AGIs over those criteria will continue to have their benefits taxed according to the federal model.
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North Dakota

North Dakota traditionally taxed Social Security income; however, on November 12, 2021, the Roughrider State altered its tax law such that Social Security payments are no longer a source of taxable income.

Are States That Tax Social Security Benefits Worse for Retirees?

Incorporating Social Security payments into taxable income does not make a state more costly to retire in. According to the Missouri Economic Research and Information Center, although four of the states that tax Social Security payments had particularly high cost-of-living index ratings as of the third quarter (Q3) of 2021, the other eight fell into the two lowest-scoring categories. Kansas, in instance, received the second-lowest score in the United States, after only Mississippi.

The contrary is also true, as states that do not charge a Social Security tax are not intrinsically more tax-friendly. When a state government does not get revenue from a single potentially taxable source, it often compensates via other kinds of taxes.

Texas, for example, has no state income tax (thus precluding a Social Security income tax), but it depends largely on taxes from other sources, such as insurance taxes, sin taxes on mixed drinks, tobacco goods, and coin-operated devices (i.e., slot machines), and motor fuel taxes.

Other states that do not rely on Social Security payments to generate revenue, such as Arkansas, California, Louisiana, and New York, have some of the highest income or sales tax rates in the country.

Living in a state with lower taxes may be beneficial to your budget, but it may restrict the capacity of the local government to invest in social services on which you or your loved ones depend, such as healthcare, infrastructure, and public transit.

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Other variables to consider while deciding on a retirement state include: The cost of living is an essential factor, but the aggregate score does not provide a clear picture of which states are the most inexpensive. For example, although Connecticut is the most costly state with a Social Security tax to live in and has the 43rd highest cost-of-living score in the US, housing is much more expensive in New Jersey, the 40th most expensive state overall.

What is affordable for one individual may not be for another with different financial circumstances. Other essential considerations are crime rates, climate, and closeness to friends and family.

Which states don’t tax Social Security benefits?

Only 12 states, including the District of Columbia, collect Social Security income taxes: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, and West Virginia.

Which state is the most tax-friendly for retirees?

Although there is no official measure of tax friendliness, Delaware is a strong candidate for the greatest tax-friendly state for retirees. There is no state or municipal sales tax in the First State, nor is there an estate or inheritance tax. Delaware has one of the lowest median property tax rates in the country. Its income tax rate of 6.6% is somewhat higher than the rates imposed by 16 other states and the District of Columbia.

At what age is Social Security no longer taxable?

The Social Security Administration refers to the amount that is subject to taxes as “combined income” when determining whether or not a person’s Social Security payments are taxable.

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The Bottom Line

Although cheap taxes should not be the only motivator when choosing a long-term home, you should be informed of the taxes the local government collects so that you are not caught off guard when your next tax bill arrives. State taxes on Social Security benefits might significantly reduce your retirement income. If you want to retire in one of the 12 states that impose them, plan your budget appropriately.

That being said, be sure to examine what extra prices and taxes you’ll be paying in each location you’re considering to ensure you’re getting the greatest match for your financial situation.

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