What states tax social security?
Depending on your income you may have to pay taxes on Social Security benefits to the IRS and twelve states charge taxes on some of that income as well.
Depending on their income, beneficiaries have to pay federal taxes on a portion of income from Social Security. There are twelve states in 2021 that also tax Social Security benefits.
The states are Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont and West Virginia. The formula for how Social Security benefits are taxed vary from state to state.
Federal income tax on Social Security benefits
Under current tax law, those with a adjusted gross income (AGI) over $34,000 for individual filers and $44,000 for joint filers will pay tax on up to 85 percent of their benefits. Those with a combined income of less than $25,000 for single filers and $34,000 joint filers will not have a tax liability on their benefits. For those in between the two thresholds they must pay tax on 50 percent of their benefits.
Social Security beneficiaries cross the income thresholds usually when they have other substantial income, be that from work, interest, dividends on investments or other taxable income.
Some states are beginning to phase out income taxes on Social Security benefits. Here’s a look at the twelve states where Social Security beneficiaries may have to pay income tax on their benefits.
The 2021 fiscal year is the last year Coloradans will have to pay state income tax on their federal Social Security benefits. When they file in 2022 state tax returns next year, they will be able to deduct all federally taxable Social Security benefits from their state income.
This year however, those between the ages of 55 and 64 can deduct up to $20,000 in retirement income, including Social Security payments on their 2021 state tax returns. Likewise, those 65 and older can deduct up to $24,000. In both cases the deduction can be claimed by both spouses. Due to the TABOR limit, Coloradans’ benefit income will be taxed at 4.5 percent in 2021.
Connecticut residents who have a declared AGI above a certain limit will have to pay the corresponding state income tax. Residents are exempt from state taxes on their benefits if their income, including Social Security benefits, is below $75,000 for single filers and less than $100,000 for married couples filing jointly. Above those thresholds 75 percent of Social Security benefits are tax-exempt.
Regardless of filing status, Social Security beneficiaries in Kansas do not pay taxes on benefits if their AGI is less than $75,000. Kansans’ benefits are taxed like other income at the same corresponding rate above that threshold.
Minnesota taxes Social Security benefits the same as the federal government but with a partial deduction for incomes below a certain limit. Known as the Social Security Benefit Subtraction, the subtraction amount depends on your filing status and provisional income, which is a taxpayer's Minnesota adjusted gross income plus any tax-exempt interest and half of your Social Security and Tier 1 Railroad Retirement benefits.
Missouri residents 62 and older are exempt from state income tax on Social Security benefits if their reported income is less than $85,000 for single filers and below $100,000 for married couples filing jointly. The state gives a partial deduction on benefits for incomes above those thresholds, but it gradually phases out.
Montana follows the federal tax exemption on Social Security benefits for the lowest tier. The state uses a different calculation to determine the taxable amount for residents who have incomes at or above $25,000 for a single filer and $32,000 for a couple filing jointly.
Social Security benefits are not taxed in Nebraska for single filers with an AGI below $44,460 and less than $59,100 for married couples filing jointly. Above those levels Nebraskans will be taxed on a portion of their benefits. The state is phasing in a reduction, 5 percent in 2021, that will gradually rise to 50 percent of benefits by 2025. Lawmakers will then decide whether or not to get rid of all tax on benefits by 2030.
New Mexico follows the federal tax exemption on Social Security benefits for incomes in Tier 1. Residents under age 65 who have incomes at or above $25,000 for a single filer and $32,000 for a couple filing jointly will have their benefits taxed the same as other income. For those age 65 and older, the state allows a deduction of $8,000 on all income, including Social Security benefits if their AGI is less than $28,500 for single filers and below $51,000 for married couples filing jointly.
Those who have reached full retirement age and meet the income limits do not pay taxes on Social Security benefits in Rhode Island. The state taxes benefits at the same rate as other income for married couples filing jointly with an AGI of $107,950 or more and those filing single or head of household with incomes of $86,350 or more.
Residents of Utah are exempt from state tax on Social Security income who have an AGI of less than $30,000 if filing single or $50,000 for joint filers. The state applies a credit to eliminate residents tax liability for incomes in excess of those limits. That credit gradually phases out at 2.5 cents for each dollar above those thresholds.
Vermont exempts income from Social Security benefits for residents with an AIG below certain limits, above which a partial exemption gradually phases out. The exemption ends for single filers with income over $45,000 and $60,000 married filing jointly. Benefits are fully taxed at the corresponding state rate for those with incomes at or above $55,000 filing single and $70,000 if married filing jointly.
Low- and middle-income West Virginians filing 2021 tax returns will be able to exclude 65 percent of their Social Security benefits from their taxable state income. Next year all of their income from Social Security will be exempt.
The exclusion threshold is for AGIs of $50,000 or less if filing single and $100,000 or less if married and filing jointly. Above those thresholds, residents will pay the corresponding state tax rate on up to 85 percent of their benefits.