Which States Don’t Tax Social Security Benefits?

Supply: Social Safety Administration

Earnings from different retirement packages additionally could also be topic to federal revenue taxes. Pension funds, for instance, are both absolutely taxable or partially taxable, relying on how a lot in after-tax {dollars} the person (or their employer) invested into the contract.

Spousal Social Safety advantages and Social Safety incapacity advantages observe the identical fundamental guidelines as the first Social Safety program in that the quantity topic to federal revenue taxes (as much as 85%) depends on the retiree’s complete revenue. Supplemental safety revenue, nevertheless, will not be taxed.

For these questioning if there’s wherever within the U.S. the place Social Safety advantages gained’t be taxed in any respect, the reply is technically no. The one solution to keep away from paying any taxes on Social Safety revenue is by remaining beneath the minimal revenue threshold—for instance, utilizing tax-free Roth account withdrawals, certified longevity annuity contracts (QLACs), and many others.—or spending retirement on a shoestring finances. As such, most individuals probably must pay taxes on their Social Safety advantages, and retirees in a dozen states additionally must pay a further state tax on these advantages.

Social Safety Profit Taxation by State

Out of all 50 states within the U.S., 39 states and the District of Columbia don’t levy a tax on Social Safety advantages. Of this quantity, 9 states—Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming—don’t accumulate state revenue tax, together with on Social Safety revenue.

Beneath is an inventory of the 11 states that do levy a tax on Social Safety advantages on high of the federal tax, with particulars on every state’s tax coverage.

• Connecticut: Connecticut’s Social Safety revenue tax fee ranges from 3% to six.99%. Relying on their AGI and submitting standing, retirees are capable of deduct most or all of their profit revenue. Particularly, beneficiaries pays no state taxes on their advantages if their AGI is lower than $75,000 (single filer) or $100,000 (married submitting collectively). Above these thresholds, 75% of Social Safety profit funds are nonetheless tax-exempt.
• Kansas: In Kansas, Social Safety advantages are taxed on the identical fee as all different types of revenue, with the tax fee starting from 3.1% to five.7%. Nevertheless, retirees with an AGI of as much as $75,000 are exempt from paying state taxes on their Social Safety revenue, no matter their submitting standing.
• Minnesota: Minnesota makes use of the identical thresholds because the federal authorities for figuring out how a lot of a retiree’s Social Safety advantages ought to be taxed. Moreover, those that do owe taxes on their advantages can benefit from Minnesota’s Social Safety Subtraction to safe a partial deduction. In 2022, single filers and {couples} submitting collectively can exempt as much as $4,260 and $5,450, respectively, of their federally taxable advantages from their Minnesota revenue. That is unavailable for residents in the next revenue bracket. Single filers and {couples} submitting collectively with AGIs of a minimum of $64,670 and $85,970, respectively, solely qualify for partial exemption, whereas these with incomes above $85,9700 and $110,020, respectively, should not eligible. Minnesota’s Social Safety revenue tax ranges from 5.35% to 9.85%.
• Missouri: Though Missouri’s Social Safety revenue tax fee could be as excessive as 5.4%, the vary additionally goes as little as 0%. Single filers and {couples} submitting collectively who’re age 62 and older with AGIs of lower than $85,000 and $100,000, respectively, will have the ability to absolutely deduct their Social Safety advantages. These in increased revenue brackets should still qualify for a partial deduction.
• Montana: In Montana, the Social Safety revenue tax fee ranges from 1% to six.9% for the 2021 tax yr, with the highest marginal tax fee being lowered to six.75% beginning in 2022. Simply as with the federal tax, retirees with an AGI of lower than $25,000 (single filer) or $32,000 (married submitting collectively) is not going to be topic to a tax on their Social Safety advantages. This isn’t the case for residents in increased revenue brackets. Montana makes use of a unique methodology than the federal authorities to calculate the quantity that somebody owes (the state tax type supplies a worksheet).
• Nebraska: Nebraska’s Social Safety revenue tax fee ranges from 2.46% to six.84%. Single filers and {couples} submitting collectively are exempt from having their Social Safety advantages taxed if their AGIs are lower than $44,460 and $59,960, respectively. Moreover, Nebraska is phasing out taxation of advantages beneath a brand new state legislation, which started within the 2021 tax yr, with beneficiaries getting a 5% lower in taxes on their Social Safety. The discount will develop in steps to 50% by 2025, at which level state lawmakers will vote on whether or not to eradicate the tax on advantages altogether by 2030. 
• New Mexico: New Mexico taxes Social Safety revenue at a fee of 1.7% to five.9%. Like Montana, New Mexico makes use of the identical thresholds because the federal authorities for exempting lower-income residents. For increased revenue brackets, Social Safety advantages are thought of the identical as different types of revenue for tax functions. Nevertheless, single filers and {couples} submitting collectively age 65 and older with AGIs of as much as $28,500 and $51,000, respectively, could deduct as much as $8,000 in revenue, which incorporates Social Safety funds.
• Rhode Island: Rhode Island taxes Social Safety revenue at a fee of three.75% to five.99%. Nevertheless, the state gained’t tax advantages of retirees who’re of full retirement age (i.e., 66–67 years previous, relying on the yr born) and earn an AGI of lower than $86,350 (single filer) or $107,950 (married submitting collectively).
• Utah: With a tax fee of 4.65%, Utah follows Minnesota as the one different state to make the most of the identical system because the federal authorities for figuring out how a lot of a retiree’s Social Safety advantages should be taxed. Nevertheless, as of 2021, Utah gives a partial or full credit score on taxable advantages. Single filers and {couples} submitting collectively with AGIs of lower than $45,500 and $75,000, respectively, are eligible for a full tax credit score on their profit revenue. These in the next revenue bracket can nonetheless get a partial tax break, with the credit score reducing by 2.5 cents for every greenback above the aforementioned revenue limits.
• Vermont: In Vermont, single filers with an AGI of as much as $45,000 are eligible for a full exemption from state taxation of their Social Safety advantages, whereas those that make $45,001 to $54,999 nonetheless qualify for a partial exemption. For {couples} submitting collectively, the total exemption applies for these with an AGI of as much as $60,000 and is phased out for these with incomes starting from $60,001 to $69,999. For single filers and {couples} submitting collectively incomes a minimum of $55,000 and $70,000, respectively, advantages are absolutely taxed on the state fee of three.35% to eight.75%.
• West Virginia: West Virginia’s tax charges on Social Safety revenue vary from 3% to six.5%. Nevertheless, West Virginia is slowly phasing out state revenue taxes on Social Safety advantages for lower-income residents. For the 2021 tax yr, single filers and {couples} submitting collectively and incomes as much as $50,000 and $100,000, respectively, could deduct 65% of their Social Safety advantages from their state revenue. This rose to 100% in 2022. Retirees with AGIs above these thresholds will nonetheless have their advantages taxed primarily based on the federal mannequin.

Are States That Tax Social Safety Advantages Worse for Retirees?

Together with Social Safety advantages in taxable revenue doesn’t make a state a costlier place to retire. In line with the Missouri Financial Analysis and Data Middle, as of the primary quarter (Q1) of 2023, whereas 4 of the states that tax Social Safety advantages have notably excessive cost-of-living index scores, the remaining eight fell throughout the two lowest-scoring teams. Kansas, specifically, had the third-lowest rating within the U.S., after Oklahoma and Mississippi.

The inverse can be true, as states that don’t levy a Social Safety tax aren’t inherently tax-friendlier locations to dwell. When a state authorities doesn’t garner revenue from one doubtlessly taxable supply, it sometimes makes up for it with different types of taxation.

For example, whereas Texas doesn’t levy a state revenue tax in any respect (thereby precluding a Social Safety revenue tax), it depends closely on taxes from quite a lot of different sources, together with insurance coverage taxes; sin taxes on combined drinks, tobacco merchandise, and coin-operated machines (i.e., slot machines); and motor gas taxes.

Different states that don’t earn income from Social Safety revenue—equivalent to Arkansas, California, Louisiana, and New York—have a few of the highest revenue or gross sales tax charges within the U.S.

Further components to contemplate when deciding on a state for retirement: Price of residing is a crucial one, however the total rating doesn’t paint the clearest image of which states are literally probably the most reasonably priced. For instance, whereas Connecticut is the costliest state with a Social Safety tax to dwell in and has the fortieth highest cost-of-living rating within the U.S., the price of housing is notably pricier within the forty first total costliest state, New Jersey.

What may be an reasonably priced place to dwell for one individual will not be for somebody with completely different monetary circumstances. Different necessary components to remember embody crime charges, local weather, and proximity to family and friends members.

The Backside Line

Though low taxes shouldn’t be the only real motivating issue when deciding on a long-term residence, you continue to ought to pay attention to which taxes the native authorities levies in order to not be caught unprepared when your subsequent tax invoice rolls in. State taxes on Social Safety revenue can take a major chew out of your retirement revenue. Plan your finances accordingly in the event you intend to retire in one of many 11 states that impose them.

That mentioned, make sure you additionally analysis what different prices and taxes you’ll be paying in every place that you just’re contemplating, to make sure that you’re getting the very best match to your monetary circumstances.