Finance
Neither California nor New York, these are the states where you will not pay taxes on your Social Security benefits
Most states do not tax Social Security benefits. In those that do, there are typically rules to protect low-income seniors.
President-elect Donald Trump campaigned on eliminating federal income tax on Social Security benefits. For millions of beneficiaries, including those in California and New York, this would mean their benefits would no longer be subject to taxation, as their state does not levy taxes on them. However, in nine states, Social Security beneficiaries with incomes over a certain level are taxed on their benefits, and the list might surprise many. This list will continue to shrink in the coming years as states pass laws that remove these levies to increase the incomes of retirees and others who depend on Social Security benefits.
These states do not tax Social Security benefits
- Alabama
- Alaska (no income tax)
- Arizona
- Arkansas
- California
- Colorado
- Delaware
- Florida (no income tax)
- Georgia
- Hawaii
- Idaho
- Illinois
- Indiana
- Iowa
- Kentucky
- Louisiana
- Maine
- Maryland
- Massachusetts
- Michigan
- Mississippi
- Missouri
- Nebraska
- Nevada (no income tax)
- New Hampshire (no income tax)
- New Jersey
- New York
- North Carolina
- North Dakota
- Ohio
- Oklahoma
- Oregon
- Pennsylvania
- South Carolina
- South Dakota (no income tax)
- Tennessee (no income tax)
- Texas (no income tax)
- Virginia
- West Virginia
- Washington (no income tax)
- Washington DC.
- Wisconsin
- Wyoming (no income tax)
How are benefits taxed at the federal level?
Before diving into the different systems states use to tax Social Security, it is critical to understand how these benefits are taxed at the federal level, as state systems often integrate those calculations into their system. One’s federal taxable income refers to the benefits the federal government will tax based on a beneficiary’s combined annual income. To calculate one’s combined annual income, you take your adjusted gross income, plus any income from interest, and half of the value of your Social Security benefits for the entire tax year. If this number is above these thresholds, which are differentiated by filing status, your benefits will be taxed by the federal government.
Tax Filing Status: Single
- Combined income between $25,000 and $34,000: Up to 50 percent of your benefits
- Combined income greater than $34,000: Up to 85% of your benefits.
Tax Filing Status: Married filing jointly
- Combined income between $32,000 and $44,000: Up to 50% of your benefits
- Income greater than $44,000: Up to 85% of your benefits.
How some state tax Social Security?
Many states, including Connecticut, Minnesota and New Mexico only tax Social Security benefits if a retirees income surpasses a certain threshold, typically around $75,000 for single filers and $100,000 for married couples filing jointly.
In Colorado, Social Security taxes depend on the age of the beneficiary when one is filing.
Taxpayers under 65 on the last day of the tax year (December 31)
- This group can subtract $20,000 or the taxable pension/annuity income included in federal taxable income
Taxpayers under 65 and older on the last day of the tax year (December 31)
- Can subtract either $24,000 or the taxable pension/annuity income included in federal taxable income.
The state has provided a helpful worksheet to help taxpayers determine the amount of their Social Security benefits they are able to subtract.
Use this worksheet to calculate joint social security benefits that are eligible for subtraction.
1) Spouse A’s total Social Security benefits for the year $___________
2) Spouse B’s total Social Security benefits for the year $___________
3) Total of lines 1 and 2 $___________
4) Spouse A’s percentage (line 1 divided by line 3) $___________
5) Spouse B’s percentage (line 2 divided by line 3) $___________
6) Taxable Social Security benefits included on line 6b of federal Form 1040 or 1040-SR $___________
7) Spouse A’s share of taxable Social Security benefits (amount on line 6 multiplied by percentage on line 4) $___________
8) Spouse B’s share of taxable Social Security benefits (amount on line 6 multiplied by percentage on line 5) $___________
The next state is Connecticut, state law caps the amount of benefits that can be taxed at 50 percent. Additionally, if a single filer makes under $75,000 or $100,000 for those that file jointly, the state will not levy any taxes on their pension or social security benefits.
In Minnesota, the state uses the same formulas as the federal governmnet but in 2023, allowed beneficiares with adjusted gross incomes under $78,000 (single) or $100,000 (married) to subtract their benefits from their taxable income. This means that while some of the state’s residents are required to pay federal taxes on their benefits, they are not required to at the state level, though similar criteria is used.
Starting for the 2024 tax season, which will begin early next year, Montana will allow taxpayers over 65 to subtract $5,500 from their federal taxable income when determining how much of their income will be taxed by the state. By making the amount smaller at the state level, the governmnet ensures seniors hold on to more of their income, since the tax rates are lower than those applied at the federal level.
In West Virginia, benefits will be taxed for the 2024 and 2025 tax years, but starting in 2026, income limits will be imposed, lowering the number of taxpayers whose benefits are subject to tax by the state.