For many Americans, Social Security benefits are a key part of their retirement plan. Knowing how different states tax these benefits can make a huge difference in how far your money goes.
Luckily, more and more states are choosing to reduce or completely eliminate taxes on Social Security income. Let’s take a look at the latest changes in 2024.
Which States Don’t Tax Social Security?
As of 2024, 41 states, plus Washington D.C., have decided not to tax Social Security benefits. Here’s a quick look at those states:
Alabama, Alaska, Arizona, Arkansas, California, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Maine, Mississippi, Missouri, Nebraska, Nevada, New Hampshire, New York, North Carolina, North Dakota, New Jersey, Ohio, Oklahoma, Oregon, Pennsylvania, South Dakota, South Carolina, Tennessee, Texas, Virginia, Washington, Wyoming, Wisconsin.
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What’s New in 2024?
This year, a few states made some big changes to their Social Security tax policies:
- Missouri and Nebraska: Both states stopped taxing Social Security benefits altogether.
- Kansas: Passed new legislation in mid-2024 to eliminate Social Security taxes moving forward.
- West Virginia: The state is phasing out its Social Security tax, with plans for full elimination by 2026.
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Where Social Security Is Still Taxed
While most states offer some relief, nine states still tax Social Security benefits in 2024:
- Colorado
- Connecticut
- Minnesota
- Montana
- New Mexico
- Rhode Island
- Utah
- Vermont
- West Virginia (until 2026)
However, even in these states, many retirees won’t necessarily owe taxes. There are often exemptions based on income, age, or other factors.
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State-Specific Exemptions You Should Know!
Each state has its own rules for taxing Social Security. Here are some key exemptions and thresholds for states that still tax benefits:
- Colorado: Residents 65+ can fully deduct federally taxed Social Security benefits. Starting in 2025, this will expand to residents ages 55-64 with certain income limits.
- Connecticut: Social Security is not taxed for single filers with an adjusted gross income (AGI) below $75,000, and joint filers below $100,000.
- Rhode Island: Only retirees with federal AGIs over $95,800 (single filers) or $119,750 (joint filers) are subject to Social Security taxes.
- Vermont: Offers a full exemption for single filers with AGI of $50,000 or less, and joint filers with AGI of $65,000 or less.
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Think Beyond Taxes: Other Factors to Consider
While Social Security taxes are important, they aren’t the only thing retirees should consider when deciding where to live. Factors like cost of living, healthcare access, and even the climate play a big role in retirement happiness.
Other things to keep in mind include:
- Cost of living: Make sure you understand the overall affordability of your chosen state, beyond just taxes.
- Healthcare: Good healthcare access is crucial in retirement, so research the quality and availability in the area.
- Proximity to loved ones: Being close to family and friends can greatly improve your quality of life.
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Smart Planning for Your Retirement
Planning for retirement goes beyond choosing the right state. Here are a few strategies to help you manage your Social Security and retirement income:
- Diversify your income sources: This can help spread out your tax liability.
- Consider Roth conversions: Converting traditional IRA funds to Roth IRAs can offer tax-free income in retirement.
- Manage required minimum distributions (RMDs): Proper planning around RMDs can help reduce your Social Security tax burden.
- Get professional advice: Tax laws are always changing. Working with a financial advisor can help you stay ahead.
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Looking Ahead: Retirement Beyond Taxes
The growing trend of states eliminating Social Security taxes is great news for retirees. However, it’s important to consider the full tax picture, along with other factors, when planning your retirement.
Every state has its own rules, so make sure you’re looking at the bigger picture as you plan your golden years.