Nicole Spector
Roughly one in seven retirees in the U.S. rely on Social Security for nearly all their income, according to an AARP analysis. But these benefits don’t always come without Uncle Sam’s strings attached.
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The taxation of Social Security began in 1984, following the enactment of Amendments in 1983, which President Reagan signed into law. Under that law, up to 50% of Social Security benefits could be added to taxable income, provided the taxpayer’s total income exceeded certain thresholds.
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Some States Tax Social Security for Retirees
To worsen financial matters for retirees depending on Social Security to make ends meet, some states impose their own state income taxes on benefits. Fortunately, there aren’t nearly as many states that impose their own tax on Social Security as those that don’t.
“The list of states that do not tax Social Security is much longer than those that do,” said Brian Kuhn CFP, CLU, SVP and financial advisor at Wealth Enhancement Group. “And each state makes its own rules, which sometimes change, including, recently, in Missouri and Nebraska.”
Both Missouri and Nebraska have decided to stop taxing Social Security benefits in 2024.
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Only 10 States Will Tax Social Security in 2024
Only 10 states do or will continue to tax Social Security benefits in 2024.
“They are Colorado, Connecticut, Kansas, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont and West Virginia,” Kuhn said. “Each state has tax provisions that could provide deductions for individuals below certain thresholds or ages, making each state unique.”
Most States Will Not Tax Social Security in 2024
The vast majority of states — plus Washington, D.C. — will not tax Social Security benefits in 2024. These states are:
- Alabama
- Alaska
- Arizona
- Arkansas
- California
- Delaware
- Florida
- Georgia
- Hawaii
- Idaho
- Illinois
- Indiana
- Iowa
- Kentucky
- Louisiana
- Maine
- Maryland
- Massachusetts
- Michigan
- Mississippi
- Missouri
- Nebraska
- Nevada
- New Hampshire
- New Jersey
- New York
- North Carolina
- North Dakota
- Ohio
- Oklahoma
- Oregon
- Pennsylvania
- South Carolina
- South Dakota
- Tennessee
- Texas
- Virginia
- Washington
- Wisconsin
- Washington, D.C.
- Wyoming
How Much Do Retirees Save on Social Security Taxes in These States?
Kuhn pointed out that you can calculate how much you’re saving on taxes — assuming you live in a state that does not tax Social Security benefits — by looking up the effective rate of tax you paid to your state for all taxed income sources and applying that to your total Social Security benefits.
“So, for example, if your effective rate in your state was 5%, and you received $30,000 in Social Security benefits, that would be a savings of $1,500,” Kuhn said.
From a big picture perspective, the amount saved among retirees who are not taxed on Social Security benefits by their state of residence is quite impressive.
“In Missouri, for instance, retirees are looking at a collective annual saving of around $309 million,” said Jeff Rose, CFP, founder of Good Financial Cents. “Over in Nebraska, it’s about $17 million. That’s a lot of money that retirees get to keep in their pockets instead of it being drained away by state taxes.”
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