38 States That Do Not Tax Social Security Benefits | Smart Change: Personal Finances

(Kailey Hagen)

With retirement becoming more expensive, people want to know how to stretch their Social Security dollars as much as possible. You probably know what you can do to increase your benefits, like increasing your income today. But most people don’t think enough about avoiding taxes on Social Security benefits.

Not every state has one, but if yours does, you could lose some of your checks to the government every year. Here’s what you need to know.

Image source: Getty Images.

These 38 States Have No Taxes on Social Security Benefits

The following 38 states do not tax the Social Security benefits of any of their residents:

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  1. Alabama
  2. Alaska
  3. Arizona
  4. Arkansas
  5. California
  6. Delaware
  7. Florida
  8. Georgia
  9. Hawaii
  10. Idaho
  11. Illinois
  12. Indiana
  13. Iowa
  14. Kentucky
  15. Louisiana
  16. Maine
  17. Maryland
  18. Massachusetts
  19. Michigan
  20. Mississippi
  21. Nevada
  22. New Hampshire
  23. New Jersey
  24. New York
  25. North Carolina
  26. North Dakota
  27. Ohio
  28. Oklahoma
  29. Oregon
  30. Pennsylvania
  31. Caroline from the south
  32. South Dakota
  33. Tennessee
  34. Texas
  35. Virginia
  36. Washington
  37. Wisconsin
  38. Wyoming

If you live in Washington DC, you also won’t have to worry about district taxes on your Social Security benefits. But that’s a different story for residents of these 12 states:

  1. Colorado
  2. Connecticut
  3. Kansas
  4. Minnesota
  5. Missouri
  6. Montana
  7. Nebraska
  8. New Mexico
  9. Rhode Island
  10. Utah
  11. Vermont
  12. West Virginia

But don’t panic if you live in one of these places because not all Social Security recipients in these states owe taxes. Each state government sets its own rules that determine who owes, but it’s usually those with high incomes or high annual Social Security benefits. If you’re concerned, check with your state’s tax department to find out how it determines who pays taxes on Social Security benefits.

The federal government also taxes benefits

Even if your state government doesn’t take any of your benefits, the federal government might. It determines how much you owe by looking at your combined or provisional income. This is your adjusted gross income (AGI), plus non-taxable interest and half of your annual Social Security benefit.

Here’s how much you could owe based on your combined income and marital status:

Marital status

Up to 50% of taxable benefits

Up to 85% of taxable benefits

Only

Provisional income between $25,000 and $34,000

Provisional income over $34,000

Married, filing jointly

Provisional income between $32,000 and $44,000

Provisional income over $44,000

Data source: Social Security Administration.

This does not mean that you will lose up to 85% of your benefits. It just means that you may owe taxes on that amount, but the amount you owe will depend on your tax bracket for the year. If you fall into the 12% tax bracket, for example, you may only owe 12% tax on up to 85% of your benefits.

Sometimes federal and state benefit taxes can be avoided by adjusting your spending or relying more on your Roth Savings Account for withdrawals when you approach the benefit tax threshold. But if you don’t have Roth savings or need to spend more to cover essential expenses, this may not be an option.

If you know you will have to pay taxes, the best thing to do is accept it and set aside the necessary funds to cover the bill. Or if you’re in for a surprise at tax time, talk to the IRS and see if you can set up a payment plan.

Being proactive is often the best approach. If you end up with a tax debt that you are unable to pay, the federal government could start garnishing your Social Security checks before they even reach you. Nobody wants that, so do your best to get all your taxes under control.

The $18,984 Social Security premium that most retirees completely overlook

If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help boost your retirement income. For example: an easy trick could earn you up to $18,984 more…every year! Once you learn how to maximize your Social Security benefits, we believe you can retire confidently with the peace of mind we all seek. Just click here to find out how to learn more about these strategies.

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