In 2023, Social Security recipients experienced the most substantial cost-of-living adjustment in four decades. Despite this financial boost, the higher incomes resulting from these adjustments may lead to potential financial setbacks for many beneficiaries during tax season.
While retirees are aware that the federal government taxes their Social Security, encompassing monthly retirement, survivor, and disability benefits if their overall income surpasses specific thresholds, fewer might realize that certain states also impose a tax. Presently, only around a dozen states tax Social Security benefits, and this number is anticipated to decrease further next year. The taxation criteria vary among states, typically dependent on factors such as age and income.
Which States Put Taxes on Your Retirement Savings?
As of today, there are twelve US states that put taxes on your Social Security retirement savings, and here they are, with the explanation of every single tax.
For Colorado residents aged 65 or older, if the total of your Social Security benefits included in your federal taxable income exceeds $24,000, you have the option to deduct the entire amount of those benefits from your Colorado tax returns. However, if you are under 65 years old, only the initial $20,000 is exempt from taxation.
In Connecticut, individuals receiving Social Security benefits are not taxed on their benefits if they are single and their adjusted gross income (AGI) is below $75,000, or $100,000 for married joint filers. However, exceeding these income thresholds may result in 25% of your benefits being subject to taxation. Meanwhile, in Kansas, if your AGI surpasses $75,000, your Social Security benefits become subject to taxation.
In the state of Minnesota, Social Security benefits are either fully or partially exempt from the state’s income tax. The exemptions gradually phase out at $105,380 for married couples filing jointly and $82,190 for singles.
In Missouri, for one additional year, if your Adjusted Gross Income (AGI) – excluding Social Security benefits – surpasses $100,000 for married couples filing jointly or $85,000 for single filers, you may be subject to some tax on your benefits. However, starting in the 2024 tax year, no one will be required to pay tax on their Social Security benefits in Missouri.
Moving forward in the list, there’s Montana, the amount of tax you owe on your Social Security benefits is determined by your Adjusted Gross Income (AGI). Furthermore, in Nebraska, for the tax year 2023, 60% of your Social Security benefits are exempt from taxation. However, starting in 2024, you will not be required to pay any tax on your Social Security checks.
In New Mexico, only high-income earners are subject to tax on their Social Security benefits, while the majority of recipients are exempt. Single taxpayers with incomes below $100,000, married couples filing jointly earning less than $150,000, and married couples filing separately with incomes below $75,000 are all exempt from Social Security tax.
More States that Tax Your Social Security Savings
The list arrives to the state of Rhode Island, if your income exceeds $101,000 for single filers or $126,250 for those filing jointly, or if you are below Social Security’s full retirement age, no tax break is provided. However, if you fall below these thresholds, you may qualify for an exemption on up to $20,000 of your retirement income.
In Utah, your Social Security benefits become taxable if your income reaches $45,000 or more, $75,000 or more for those filing as head of household or married jointly, or $37,500 if married and filing separately. Below these thresholds, you might be eligible to claim a nonrefundable credit for your benefits.
Let’s go to Vermont, where individuals with an Adjusted Gross Income (AGI) below $50,000 and joint filers with AGI below $65,000 are not required to pay tax on their benefits. For other filers, the income threshold for full exemption is $50,000, with the exemption phasing out beyond those levels.
The list ends with West Virginia, although often excluded from typical lists, if your income exceeds $100,000 for couples filing jointly or $50,000 for single filers, your Social Security benefits may be subject to taxation.