As you may know, retiree Social Security payments are taxable in at least 10 U.S. states, so higher retirements pay a lot more taxes, but it’s not the entirety of the income that gets punished. That’s because those 10 states understand as “income” those payments, so they put income taxes over that cash.
The federal government employs a metric known as “combined income” to ascertain the taxable portion, if any, of Social Security benefits at the federal level. Combined income is calculated by summing up your adjusted gross income, any non-taxable interest income, and half of your Social Security income. The subsequent taxation of benefits is determined by the following table:
Taxable Portion of Social Security Benefits
The taxable portion of benefits varies based on income levels. Individuals with incomes below $25,000, and those married filing jointly with incomes below $32,000, are not required to pay any taxes on their benefits. For individuals with incomes between $25,000 and $34,000, and married couples filing jointly with incomes between $32,000 and $44,000, up to 50% of the benefits may be taxable.
Those with incomes of $34,001 and above, and married couples filing jointly with incomes of $44,001 and above, may have up to 85% of their benefits subject to taxation. The cited thresholds may strike you as remarkably low. This is because the combined income thresholds were established over 30 years ago and have not undergone adjustments for inflation since. Consequently, evading taxation on Social Security becomes increasingly challenging.
Taxes Over Social Security: The 10-State Black List
In Colorado, individuals under the age of 65 who report over $20,000 in taxable benefits on their federal income tax return are required to pay state income taxes on the portion exceeding this threshold. However, retirees aged 65 or older are exempt from state taxes on their Social Security benefits. The state maintains a flat tax rate of 4.4%.
In the sate of Connecticut, Social Security income that is part of your federal tax return might be subject to state taxes. However, the taxable amount is capped at 50% of your received benefits, irrespective of the percentage included in your federal return. The applicable tax rate in Connecticut varies, ranging from 2% to 4.5%.
Meanwhile, the state of Kansas imposes state income taxes on Social Security benefits that are also taxed at the federal level when the taxpayer’s adjusted gross income surpasses $75,000. The highest income tax rate applicable in Kansas is 5.7%.
In Minnesota, taxpayers have the option to deduct up to $4,560 individually or $5,840 for married couples filing jointly from their taxable income, specifically for Social Security benefits. However, this deduction is gradually reduced for residents with combined incomes exceeding $69,250 for individuals or $88,630 for married couples, phasing out completely at incomes of $78,000 or $100,000, respectively. The state’s tax rate varies, ranging from 6.8% to 9.85%.
Montana imposes state income taxes on Social Security income included in your federal tax return, with the tax rate fluctuating between 4.7% and 5.9%. Furthermore, in New Mexico, taxpayers with adjusted gross incomes surpassing $100,000 for individuals or $150,000 for married couples filing jointly are obligated to pay state taxes on Social Security income that is also subject to federal taxation. The applicable tax rate in New Mexico varies, ranging from 4.9% to 5.9%.
In Rhode Island, individuals below their full retirement age, as defined by Social Security, face state income taxes if their adjusted gross income exceeds $101,000 (for individuals) or $126,250 (for married couples filing jointly). This applies to any portion of Social Security income included on their federal tax return, with the tax rate spanning from 4.75% to 5.99%.
Utah residents with an adjusted gross income surpassing $45,000 (for individuals) or $75,000 (for married couples filing jointly) are subject to state taxes on their Social Security income reported on their federal tax return. However, those falling below these thresholds qualify for a credit to offset the taxes owed. The applicable tax rate in Utah is 4.65%.
In Vermont, taxpayers with an adjusted gross income above $50,000 (for individuals) or $65,000 (for married couples filing jointly) will owe state income tax on at least a portion of their Social Security income included in their federal tax return. Vermont’s tax rate varies, ranging from 3.35% to 8.75%.
West Virginia taxpayers with an adjusted gross income exceeding $50,000 (for individuals) or $100,000 (for married couples filing jointly) owe state income tax on a portion of their Social Security income included in their federal tax return. The tax rate in West Virginia ranges from 5.1% to 5.525%.