Many individuals rely on Social Security benefits to support their post-retirement lifestyle. To achieve this, they consistently contribute while they are actively employed, with the expectation or hope that they will receive payments capable of covering their monthly retirement expenses.
Nonetheless, the funds disbursed by the Social Security Administration (SSA) may undergo deductions following the Internal Revenue Service’s taxation process, as Social Security benefits are subject to taxation. Typically, only individuals with very low incomes are entirely exempt from Social Security taxes. For others, taxes are levied on a portion of their Social Security payments—up to 50% for most individuals or, for those with higher incomes, up to 85%.
States Exempting Social Security Benefits from Taxes
Per the Social Security Administration, if certain conditions are met, 50% of a taxpayer’s benefits could be subject to taxation. These conditions include:
- If you file as a single taxpayer, head of household, or qualified widow/widower, and your income falls within the range of $25,000 to $34,000.
- If you are separated from your spouse for the entire tax year and your income falls within the range of $25,000 to $34,000.
- If you are married and file jointly with a combined income ranging from $32,000 to $44,000.
Meanwhile, a taxpayer could potentially face taxation on up to 85% of their profits under the following circumstances:
- If you file as a single taxpayer, head of household, or qualified widow/widower with income exceeding $34,000.
- If you are married and filing jointly with income surpassing $44,000.
- If you live apart from your spouse for the entire tax year and your income exceeds $34,000.
- If you choose to file separately while having cohabited with your spouse at any point during the tax year.
Besides federal taxes, individuals receiving Social Security benefits are also required to pay state taxes if they reside in a state that taxes these benefits, or in the District of Columbia. However, some states do not impose taxes on Social Security benefits.
The following states exempt Social Security benefits from taxation:
- Alabama
- Alaska (no income tax)
- Arizona
- Arkansas
- California
- North Carolina
- South Carolina
- Colorado (starting in 2023)
- North Dakota
- South Dakota (no income tax)
- Delaware
- Florida (no income tax)
- Georgia
- Hawaii
- Idaho
- Illinois
- Iowa
- Kentucky
- Louisiana
- Maine
- Maryland
- Massachusetts
- Michigan
- Mississippi
- Nevada (no income tax)
- New Hampshire (no income tax)
- New Jersey
- New York
- Ohio
- Oklahoma
- Oregon
- Pennsylvania
- Tennessee (no income tax)
- Texas (no income tax)
- Virginia
- West Virginia
- Washington (no income tax)
- Washington, D.C.
- Wisconsin
- Wyoming (no income tax)
For states that levy taxes on Social Security benefits, the applicable rates differ from one state to another, along with specific exemptions and income thresholds. Below are the Social Security income tax rates in states that impose taxes on these benefits:
- Connecticut: Tax rates range from 3% to 6.99%.
- Kansas: Tax rates vary between 3.1% and 5.7%.
- Minnesota: Tax rates span from 5.35% to 9.85%.
- Missouri: Tax rates fall within the 0% to 5.4% range.
- Montana: A flat tax rate of 6.75% applies.
- Nebraska: Tax rates range from 2.46% to 6.84%.
- New Mexico: Tax rates range from 1.7% to 5.9%.
- Rhode Island: Tax rates fluctuate between 3.75% and 5.99%.
- Utah: A fixed tax rate of 4.95% is applicable.
- Vermont: Tax rates range from 3.35% to 8.75%.
- West Virginia: Tax rates vary between 3% and 6.5%.
Social Security benefits are not subject to taxation in the District of Columbia and 39 U.S. states. Conversely, eleven states used to tax these benefits. However, as of 2023, Colorado no longer imposes taxes on Social Security benefits for its residents under the age of 65.
