Some retirees are surprised to learn that the federal government, in certain circumstances, taxes Social Security benefits. Even more surprising to some is that certain individual states also apply their own income tax to Social Security payouts. Fortunately, not many states fall into this category. Even those that do tax Social Security often provide certain exemptions or ways to reduce or eliminate the tax, typically based on age or income. Here’s a list of the states that don’t tax Social Security, along with some details about those that do.
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States That Don’t Tax Social Security
Thirty-seven states plus the District of Columbia do not tax Social Security benefits. These states include the nine that don’t have any income tax at all, which are:
- New Hampshire
- South Dakota
Note that while New Hampshire does tax investment income, it does not tax wages or Social Security payouts.
The remaining 28 states plus the District of Columbia implement various credits or exemptions to help taxpayers avoid state-level Social Security taxes. These states are:
- New Jersey
- New York
- North Carolina
- South Carolina
- Washington, D.C.
If you live in any of these states — or the District of Columbia — you won’t have to worry about paying state taxes on your Social Security income.
States That Reduce Social Security Taxation Based on Age or Income
- North Dakota
- Rhode Island
Specifics vary, but all the states in this category have some type of Social Security offset based on how old you are or how much you make. Colorado, for example, allows taxpayers 55 and older to subtract some of their Social Security income, while Kansas provides a total exemption for taxpayers earning less than $75,000, regardless of filing status. In Montana, some Social Security benefits may be taxable so it advises its taxpayers to complete a worksheet to determine the taxation of their Social Security benefits.
West Virginia: On Its Way
West Virginia has been gradually phasing out its tax on Social Security benefits, and by 2022, those taxes will be history. For 2021, however, taxpayers will still have to pay state income tax on 35% of Social Security benefits. That’s still an improvement over the 2020 tax year when residents had to pay state income tax on 65% of their Social Security benefits.
Utah: Recent Changes
Until 2021, Utah was the only state that taxed Social Security benefits the same way that the federal government does. Under the federal government’s system, Social Security was taxed based on a formula involving a taxpayer’s filing status and the size of their “combined income,” which was a combination of adjusted gross income, nontaxable interest and half of Social Security benefits. However, the state recently capitulated and now uses its own income-based tax credit system to offset Social Security income for single filers earning less than $30,000 and joint filers drawing less than $50,000.
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