Merely paying a payroll tax to finance SSI during your employment years does not imply that your responsibility ends upon retirement. While retirees might be aware that they would be liable to pay federal taxes on their Social Security benefits if their total earnings surpass certain thresholds, many of them may not realize that some states may also attempt to claim a portion.
SSI benefits comprise of monthly retirement, survivor, and disability benefits. The positive aspect is that less than twelve states impose taxes on Social Security (SSI) benefits, which implies that the likelihood of being affected is low. Though every state has its own regulations on how and what part of your Social Security funds may be taxed, age and income are the usual factors that determine the taxability.
What are the states that impose taxes on SSI benefits?
There are a few ambiguous factors that could cause this list to become slightly longer or shorter. Although states such as New Mexico technically impose taxes on Social Security benefits, the majority of the residents may not be required to pay the tax. In the year 2022, Social Security income is entirely deductible for inhabitants of that state with an adjusted gross income below $100,000 for an individual and $150,000 for a couple filing jointly.
West Virginia, which we did not mention in the list but could technically have been included, has eliminated the tax by gradually phasing it out. For single taxpayers with an adjusted gross income below $50,000 and couples filing jointly with an adjusted gross income below $100,000, last year was the first year without the tax.
The states that levy taxes on Social Security benefits are as follows:
- New Mexico
- Rhode Island
Is it possible to evade taxes on Social Security?
The optimal approach to evade taxes on Social Security benefits is to curtail your income by investing in a Roth IRA while saving. Roth IRA withdrawals are not considered as taxable income and are completely tax-free.
Additionally, you can also anticipate your state to abolish its tax on Social Security benefits, as it has been observed. West Virginia has phased out its tax, with the previous year being the first year without it for individuals with an adjusted gross income below $50,000 and couples filing jointly with an adjusted gross income below $100,000. Similarly, Missouri has proposed a bill to eliminate the tax, which may come into effect next year if passed.