Tax season can be stressful for anyone, but for retirees, it brings an extra layer of concern, especially when it comes to Social Security benefits. Many seniors rely on their retirement savings and Social Security to make ends meet, but what happens if these benefits are taxed? In some states, you may have to pay taxes on your Social Security benefits depending on your total income. This article will break down the rules in 9 states where retirees might lose part of their Social Security benefits due to state taxes. Read on to learn about these states, the income limits, and how they could affect you.
Colorado: Social Security Benefit Subtraction
In Colorado, retirees who are 65 years or older can subtract the amount of their Social Security benefits that are included in their federal taxable income from their state taxable income. This means if you owe federal taxes on, for example, $5,000 of your Social Security benefits, you could subtract that $5,000 from the Social Security benefits you report on your state taxes.
However, this benefit is only available if your adjusted gross income (AGI) is below a certain limit. For single filers, the limit is $75,000, and for married couples, it’s $95,000. Starting in 2025, the rule will apply to all residents aged 55 and above, but the AGI limits will remain the same.
Connecticut: Social Security Exemptions Based on Income
Connecticut does not tax Social Security benefits for its residents with AGIs under $100,000 for married couples filing jointly or $75,000 for individuals. If your AGI exceeds these limits, you may still qualify for a partial exemption. This means that even if your income is higher than the thresholds, you might not have to pay taxes on all your Social Security benefits.
Minnesota: How Minnesota Taxes Social Security Benefits
Minnesota has specific rules for taxing Social Security benefits. The state follows a tiered approach based on your AGI. If your income is below certain thresholds, you won’t owe any state taxes on your Social Security benefits. However, if your income exceeds these limits, a portion of your benefits may be taxable.
Here are the AGI limits for the 2024 tax year:
- For married couples filing jointly, Social Security benefits are fully exempt if their AGI is $105,380 or less.
- For single filers, the exemption applies if the AGI is $82,190 or less.
- If your AGI is higher than these amounts, some or all of your benefits may be taxable.
Montana: Provisional Income Determines Taxability
Montana taxes Social Security benefits based on your “provisional income,” which includes your AGI, non-taxable interest from municipal bonds, and half of your annual Social Security benefit. Based on this provisional income, you could pay taxes on up to 85% of your Social Security benefits, depending on your income level.
Here are the key income thresholds:
- For single filers: If your provisional income is under $25,000, you won’t pay taxes. If it’s between $25,000 and $34,000, up to 50% of your benefits may be taxable, and over $34,000, up to 85% could be taxed.
- For married couples: If your provisional income is under $32,000, no taxes. Between $32,000 and $44,000, up to 50% may be taxable, and over $44,000, up to 85% of benefits could be taxed.
New Mexico: Income Limits for Social Security Tax Exemption
In New Mexico, retirees with an income below $100,000 for single filers and $150,000 for married couples filing jointly are not subject to state taxes on their Social Security benefits. However, for married couples filing separately, the income must be under $75,000 for the exemption to apply.
Rhode Island: Exemption Limits for Social Security Benefits
Rhode Island offers a significant exemption on Social Security benefits for residents who are at or older than their full retirement age (FRA), which is typically 66 or 67, depending on your birth year. Residents who meet this age requirement and have a federal AGI under certain limits can exempt up to $20,000 of their benefits from state taxes. For married couples, this exemption is up to $40,000.
Income limits are as follows:
- Single filers and heads of household: up to $101,000 AGI.
- Married couples filing jointly: up to $126,150 AGI.
- Married couples filing separately: up to $101,025 AGI.
Utah: Social Security Tax Credit
Utah taxes Social Security benefits for all residents, but it offers a tax credit to help reduce your liability. The credit depends on your filing status and modified adjusted gross income (MAGI). The state is also working on eliminating the tax on Social Security benefits, but it’s uncertain when this change will take place.
Vermont: Tax Exemptions Based on Income
Vermont offers a Social Security tax exemption for residents with lower AGIs. If your AGI is below $65,000 for married couples filing jointly or $50,000 for other filers, you will not have to pay state taxes on your Social Security benefits. However, if your income is higher, you may still qualify for a partial exemption.
West Virginia: Phased Elimination of Social Security Taxes
West Virginia doesn’t tax Social Security benefits for individuals with an AGI of $50,000 or less or $100,000 or less for joint filers. The state will also exempt 35% of Social Security benefits for those with higher AGIs starting in 2024, with this percentage increasing to 65% by 2025. The state plans to eliminate taxes on Social Security benefits entirely by 2026.
As a retiree, understanding the rules around Social Security benefit taxes in your state can help you plan for tax season and avoid surprises. Some states provide exemptions based on your income, while others may tax your Social Security benefits if your income exceeds certain limits. It’s important to stay informed about the specific rules in your state and take advantage of any exemptions or credits available to you. Always consult a tax professional if you’re unsure about how these rules apply to your situation. Taking the time to understand these details can make tax season less stressful and help ensure you keep more of your Social Security benefits.
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