Benefits of Social Security, or at least a portion of them, are taxed by the federal government for many seniors
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You might have to pay federal income tax on as much as 85% of your benefits of Social Security, depending on your income after retirement.
What about state taxes, though? Are you going to submit a state tax return and then pay additional taxes on top of the tax you already paid on your benefits of Social Security to the IRS?
It depends on where you reside, is the succinct response. Benefits of Social Security are taxable in some states but not in others.
The states that don’t tax your benefits Social Security, the ones that do, and some considerations for your future tax status after retirement are listed below.
Alabama , Alaska (no income tax at all) , Arizona , Arkansas , California , Colorado (as of 2023) , Delaware, Florida (no income tax at all), Georgia, Hawaii, Idaho, Illinois, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Nevada (no income tax at all), New Hampshire (no income tax at all), New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota (no income tax at all), Tennessee (no income tax at all), Texas (no income tax at all), Virginia, West Virginia, Wisconsin, Washington (no income tax at all), Washington, D.C., and Wyoming (no income tax at all) are the states were your benefits of Social Security have less to no tax at all.
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The list leaves 11 states that tax your benefits of Social Security.
However, it’s crucial to note that while a few states utilize the same fundamental tax principles as the IRS with regard to taxable benefits of Social Security, the majority of states that tax Social Security payments employ alternative procedures, most of which are advantageous to seniors.
For instance, Kansas does not exempt Social Security benefits until your AGI is greater than $75,000 (adjusted gross income). The income limits in New Mexico are $100,000 for individuals filing solo returns and $150,000 for married couples filing joint returns.
Additionally, by 2025, Nebraska will gradually stop taxing the benefits of Social Security.
As we’ve shown, the majority of states don’t even tax the benefits of Social Security. However, as citizens of numerous of these states can attest, this is only one factor in determining how tax-friendly a state is to live in.
The list includes some states where retirees can reside with lesser taxes, like Florida and Texas. States like New Jersey and New York, on the other hand, do not tax the benefits of Social Security but have high taxes on other types of income, which might be quite expensive for seniors.
The bottom line is that in order to get the full picture when evaluating the tax friendliness of the state you currently reside in and/or states you may consider moving to after retirement, it’s critical to consider property taxes, sales taxes, and all other potential tax types.
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