Retirees in These 9 States Could Lose Part of Their Social Security Benefits – Are You Affected?

Tax season is never fun, but for retirees, it can be even more stressful. Living on a fixed income makes budgeting difficult, and taxes on Social Security benefits can be an unexpected burden.

While the federal government taxes Social Security benefits based on income, some states also impose their taxes. If you live in one of the nine states listed below, you might have to pay state taxes on your benefits.

However, the rules vary, and you may qualify for exemptions. Here’s a breakdown of how each state handles Social Security taxation in 2024.

1. Colorado

In 2024, Colorado allows residents aged 65 and older to deduct the full amount of their taxable Social Security benefits from their state income tax.

For example, if you were taxed on $5,000 of Social Security at the federal level, you could subtract that same $5,000 from your state return.

This benefit is only available to those with an adjusted gross income (AGI) of $75,000 or less for single filers and $95,000 or less for married couples.

In 2025, Colorado will extend this rule to residents aged 55 and older, but the AGI limits will still apply.

2. Connecticut

Connecticut exempts Social Security benefits from state taxes for retirees with an AGI under $100,000 for joint filers or $75,000 for single filers. Those with higher AGIs may qualify for partial exemptions.

3. Minnesota

Minnesota follows federal taxation rules but offers some exemptions. Certain income thresholds determine if Social Security benefits are taxable at the state level.

If you live in Minnesota, checking the latest income limits can help you determine if you owe taxes.

4. Montana

Montana taxes Social Security benefits using federal rules. It considers your provisional income, which includes AGI, half of your Social Security benefits, and tax-exempt interest.

The tax rate depends on income:

• Single filers: No tax if income is below $25,000; up to 85% of benefits taxed if income exceeds $34,000.
• Married filers: No tax if income is under $32,000; up to 85% of benefits taxed if income exceeds $44,000.

5. New Mexico

New Mexico residents with an income below $100,000 (single filers) or $150,000 (joint filers) do not pay state Social Security taxes.

For married couples filing separately, the income limit is $75,000. Those earning above these limits may still owe state taxes on their benefits.

6. Rhode Island

Rhode Island allows retirees to exclude up to $20,000 of Social Security benefits per person ($40,000 for married couples) from state taxes if they meet two conditions:

1. They have reached full retirement age (FRA), which is between 66 and 67 for most people.
2. Their federal AGI is below the set limits: $101,000 for single filers and $126,150 for joint filers.

7. Utah

Utah taxes all Social Security benefits but provides a tax credit to offset the cost. The amount of the credit depends on your modified adjusted gross income (MAGI).

The state has debated eliminating the tax, but no official change has been made yet.

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8. Vermont

Vermont does not tax Social Security benefits for retirees with an AGI below $65,000 for joint filers or $50,000 for single filers.

A partial exemption applies for joint filers earning between $65,001 and $74,999 and single filers earning between $50,001 and $59,999.

9. West Virginia

West Virginia does not tax Social Security benefits for retirees with an AGI under $50,000 (single filers) or $100,000 (joint filers).

For the 2024 tax year, retirees earning above these amounts will see 35% of their benefits exempt from taxation. In 2025, this increases to 65%, and by 2026, the state will eliminate its Social Security tax.

What Can You Do?

If you live in one of these states, it’s important to plan ahead. Here are some tips:

• Check your state’s tax laws: Rules can change, so stay updated on tax policies.
• Work with a tax professional: They can help you understand deductions and exemptions.
• Consider relocating: If state taxes are too high, moving to a tax-friendly state might help you save money in retirement.

Understanding Social Security taxation is crucial for financial planning. If you’re unsure about your tax situation, consulting an expert can help you make informed decisions and avoid unexpected tax bills.

Reference

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