Before Senate Bill 448 became law in July, retired Missouri residents age 62 and older with a gross income of $85,000 or more (and married couples with a gross income of $100,000 or more) paid state income taxes up to 4.95%. As retirees everywhere struggle to keep up with the rising cost of living, the bipartisan tax exemption is intended in part to help older residents stay afloat financially.
It's a hot topic outside of Missouri, as well. Nationally, the average monthly Social Security payment is $1,699, or about $20,388 per year, according to the Social Security Administration. Still, many retirees owe taxes on their retirement income, which includes Social Security benefits.
Federal Social Security tax is based on provisional (aka combined) income, which is calculated as gross income plus half of a recipient’s benefit payments. Social Security recipients may owe federal income tax on up to 85% of their benefits. But they aren’t subject to federal tax if a recipient’s provisional income is less than $25,000 (or $32,000 for married couples).
The majority of U.S. states don’t tax Social Security benefits, but nearly a dozen do impose an income tax on some or all of residents’ benefits. (Keep in mind that this doesn't apply to Supplemental Security Income, which is for people 65 and older and adults and children who have disabilities or vision loss.)
Which states tax Social Security income?
Once Social Security becomes tax-exempt in Missouri in 2024, only 11 states will still tax benefits: Colorado, Connecticut, Kansas, Minnesota, Montana, Nebraska, New Mexico, Rhode Island, Vermont and West Virginia.
Policies in states that impose tax on Social Security income vary, but all offer some kind of break or exemptions based on income and/or age. A few states are currently considering legislation that would significantly expand exemptions and deductions for Social Security recipients. Deductions are subtracted from a person's taxable income, lowering the amount of tax owed.
Prior to 2022, retirees in Colorado aged 65 and older could only deduct up to $24,000 in retirement income (which includes their Social Security payments). A 2021 repeal of that limit allows these retirees to fully deduct Social Security benefits from their state income.
Retirees between 55 and 64 can only deduct up to $20,000 in retirement income. Any retirement income greater than that is taxed at 4.4%.
The amount of Social Security income retirees in Connecticut can deduct depends on their adjusted gross income (AGI). Single Social Security recipients with an AGI of less than $75,000 and married couples with an AGI under $100,000 are exempt from paying state taxes on their benefits.
For retirees whose income exceeds the limits, 75% of their benefits are tax-exempt. Otherwise, retirement income is subject to tax rates ranging from 3% to almost 7%.
In Kansas, retirees with an AGI of $75,000 or less are exempt from paying state taxes on their Social Security benefits, regardless of filing status. Those with an AGI above this threshold are taxed at the same rate as other income, which ranges from 3.1% to 5.7% in Kansas.
Minnesota was considering legislation this year to fully repeal state taxes on Social Security income but ultimately just expanded exemptions. Social Security benefits are now completely deductible for single retirees with incomes up to $78,000 and married couples with incomes up to $100,000.
However, there are some exemptions for retirees with incomes above the threshold under the state’s Social Security Subtraction rule. For 2023, the maximum subtraction is $5,840 for married joint filers, $2,920 for married separate filers and $4,560 for single and head-of-household filers.
The deduction decreases as income increases, which means Social Security benefits are fully taxable for retirees with incomes above the top thresholds. Minnesota imposes a 5.35% to 9.85% income tax.
Similar to federal Social Security income tax rules, single retirees in Montana with incomes under $25,000 and married couples with incomes under $32,000 do not have to pay taxes on their Social Security benefits. The state is considering a bill that would totally repeal the state’s tax on Social Security income (it passed a preliminary vote in March, but its future is uncertain).
For retirees with incomes above the thresholds, the amount they’re taxed ranges from 1% to 6% (though the maximum tax rate will reduce to 5.9% next tax year). The state uses its own calculations to determine the rate — according to the fiscal note attached to House Bill 526, if a taxpayer’s total income comes from Social Security payments, up to $50,000 could be exempt.
Retirees in Nebraska who are married with an AGI under $61,760 or single with an AGI under $45,790 don’t have to pay state taxes on Social Security benefits.
A portion of Social Security income is taxable above those limits — Nebraskans pay income tax rates ranging from 2.46% to 6.64% — but the state voted in 2022 to eliminate taxes on Social Security income over the next few years. Under the new law, the maximum rate will drop, and the taxable portion of Social Security payments will decline from 40% in 2023 to 0% in 2025.
Social Security benefits may be fully exempt by next year for more than 75% of recipients in Nebraska if the state passes Legislative Bill 754. The tax cut included in the bill would mean that joint filers making up to $100,000 and single filers with incomes up to $78,000 don’t owe taxes on their benefits.
New Mexico passed legislation in early 2022 allowing single residents with AGIs under $100,000 and married couples earning under $150,000 to fully deduct Social Security income. Retirees with incomes above the thresholds are subject to income tax ranging from 1.7% to 5.9%, including on Social Security benefits.
To be exempted from taxes on Social Security income, Rhode Island residents must be the SSA’s full retirement age of 67 (depending on birth year) and have an AGI under $95,800 for individuals and under $119,750 for couples. Otherwise, residents pay between 3.75% and 5.9% in income taxes, including Social Security benefits.
Utah uses the same calculations as the federal government to determine how much of residents’ Social Security income is taxable at the state’s 4.65% rate. However, Utah does offer a full or partial credit on taxable benefits that was expanded this year with the passage of a tax-cut package.
In 2023, single filers with incomes of $45,000 or less are eligible for a full tax credit for Social Security income. Married couples filing jointly and heads of households that report income of $75,000 or less also qualify for the credit.
Retirees who earn more can also get a little bit of relief with this credit, which declines by 25 cents for every dollar above the income thresholds.
Lawmakers in Vermont expanded tax exemptions for Social Security benefits in 2022. Single filers with an AGI of $50,000 or less are fully exempt from paying taxes on their benefits, while those who make between $50,000 to $60,000 are partially exempt. Married couples filing jointly are fully exempt if they have an AGI of $65,000, and those with an AGI of $65,000 to $75,000 are partially exempt.
Social Security benefits are fully taxed at the state rate of 3.35% to 8.75% for residents with AGIs above the threshold.
West Virginia started phasing out Social Security taxes for married couples making $100,000 or less and singles making $50,000 or less in 2020. As of last year, Social Security benefits are free of state tax for eligible retirees, while those with AGIs above the thresholds face income taxes ranging from 3% to 6.5%.
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Rates are subject to change. All information provided here is accurate as of the publish date.