If you are unaware of state laws, you can maintain Social Security benefits.
Social Security uncertainty and policy changes are driving more people to submit
With the significant increase in social security applications, retirees are facing financial decisions affected by law and economic concerns in today’s climate.
Scripps News
American seniors rely heavily on social security and are achieving their goals. Six in 10 retirees said they were the major sources of income in a recent iteration of the annual Gallup poll. This is one of the best responses since the 2002 poll.
Given the immense importance of social security for retirees, it is essential that they maintain as many benefits as possible. Unfortunately for some seniors living in nine states, they were able to see taxes chewing in large quantities from their monthly checks. Some retirees may lose up to 10% of their state tax benefits, depending on their income and where they live.
How the federal government taxes social security
Although each state has its own social security rules and tax rates, all Americans may be subject to taxes on social security income from the federal government.
The IRS determines how much Social Security benefits are subject to income tax based on an indicator called “income in combination.” To determine the combined income, take half of your Social Security income and add adjustable gross income and tax non-tax income. If that number exceeds the following threshold, up to 85% of Social Security benefits could be counted as taxable income.
Data Source: Internal Revenue Agency.
You may notice that the combined income threshold is relatively low. Given that the average retiree collects around $2,000 a month on Social Security, it doesn’t take long to push married couples into taxable areas. Congress has not updated these thresholds since enacting laws that set them more than 30 years ago, and no inflation adjustments have been incorporated. As a result, more and more retirees are facing social security taxes at the federal level.
However, for retirees living in the next nine states, the challenges become even worse. They could be subject to state taxes as well.
9 states where you can take part in your Social Security benefits
In recent years, such as Kansas, Missouri and Nebraska, taxes on social security benefits have been abolished. There are nine states that still tax some of their residents’ social security benefits, depending on their income. If you live in one of them, you can maintain more money for your retirement budget, as it may be worth exploring your options to avoid taxation on your benefits.
This is the basics.
Colorado
Taxpayers age 65 or older or adjusted gross income of less than $75,000 for individuals and $95,000 for joint applicants will be exempt from Social Security taxes. Those with high AGIs under the age of 65 can deduct up to $20,000 in the amount of Social Security income contained in federal tax returns. The above amounts incurred tax of 4.4%.
Connecticut
$100,000 for taxpayers or joint filers whose adjusted gross income is less than $75,000 for individuals, is exempt from social security taxes. Taxable benefits are limited to 25% of the total amount received for people with high AGIs. Applicable tax rates range from 4.5% to 6.99%, depending on income.
Minnesota
Taxpayers with adjusted gross income of less than $84,490 will be exempt from Social Security Tax for individuals of $84,490 and joint applicants of $108,320. For every $4,000 AGI above these thresholds, the amount of 10% tax on total benefits included in federal income increases. Applicable tax rates range from 6.8% to 9.85%.
Montana
The amount of profits contained in federal income is also taxed at the state level. Taxpayers age 65 and older will add a $5,660 deduction of state tax. The tax rate ranges from 4.7% to 5.9%.
New Mexico
Taxpayers with adjusted gross income of less than $100,000 will be exempt from Social Security taxes of $100,000 for individuals and $150,000 for joint filers. All other taxpayers are required to pay income tax on the amounts included in federal income. Applicable tax rates range from 4.9% to 5.9%.
Rhode Island
Taxpayers with adjusted gross income of less than $104,200 for individuals and less than $130,250 for joint filers will be exempt from Social Security taxes. All other taxpayers are taxed on benefits included in federal income. Applicable tax rates range from 4.75% to 5.99%.
Yuta
Social security income included in federal taxes is subject to state taxes. Taxpayers with adjusted gross income of less than $45,000 for individuals and less than $75,000 for joint applicants are eligible for a tax credit that offsets taxes on Social Security included in federal income. Anything above the threshold may qualify for partial credit. The applicable tax rate is 4.55%.
Vermont
Taxpayers with adjusted gross income of less than $50,000 for individuals and less than $65,000 for joint filers will be exempt from taxes on Social Security income. Those within $10,000 of each threshold will be subject to a partial deduction. Those with an AGI of more than $60,000 for individuals and a joint filer of more than $75,000 are owed taxes on any benefits contained in federal income. Applicable tax rates range from 3.35% to 8.75%.
West Virginia
Taxpayers with adjusted gross income will be exempt from Social Security taxes by less than $50,000 for individuals and $100,000 for joint filers. People with high AGIs are taxed on 35% of their Social Security income, which is included as part of their federal income. Applicable tax rates range from 4.44% to 4.82%. However, West Virginia will no longer be taxed on Social Security income for those starting in 2026.
Planning a retirement doesn’t just mean avoiding taxes
Taxes can be a big resistance to your retirement budget, but they should not direct you where you will retire. If you want to retire to the mountain community in Colorado or Utah, potential taxes on Social Security should not hinder you. The cost of traveling to the mountains multiple times a year can exceed the increased tax on living there.
In addition, when deciding on retirement, you should consider the cost of living, community, proximity to family and friends. If you’re optimizing these factors, it’s probably worth paying a little more in taxes.
Importantly, there are ways to avoid taxes on Social Security benefits by planning ahead. By obtaining capital gains and converting your pre-tax retirement account to a Roth account before you begin Social Security, you can place your retirement and brokerage accounts to minimize your adjusted gross income. These strategies usually require weighing the long-term benefits of these strategies. These moves usually pay higher tax bills upfront. A tax expert or financial planner can help.
Plus, you may notice that your retirement will change your Social Security Tax Policy in the near future. West Virginia will eliminate taxes next year, and several other state legislatures have also proposed legislation to eliminate taxes. Therefore, you may be based on a decision about your policy that you are supposed to live longer.
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