10 States That Tax Social Security Benefits
According to The Motley Fool, Social Security is really important for retirees with about half depending on it for most of their money. But people in 10 states might get less because those states tax Social Security. The government taxes Social Security based on how much money you make from other sources. If you make too much, you might have to pay taxes on some of your Social Security. Retirees in these states need to think about both federal and state taxes.
10 States That Tax Social Security Benefits. (photo: vibes.okdiario.com)
10 States with Special Rules
1. Colorado
Taxpayers under 65 with over $20,000 in taxable benefits owe state taxes on the excess at a 4.4% rate. Retirees 65 or older are exempt.
2. Connecticut
Taxes may apply to Social Security income included on federal returns limited to 50% of benefits received. Tax rates range from 2% to 4.5%.
3. Kansas
State taxes apply to Social Security benefits also taxed federally if adjusted gross income exceeds $75,000, with a 5.7% rate.
4. Minnesota
Residents can deduct up to certain limits from taxable income with rates ranging from 6.8% to 9.85%.
5. Montana
Social Security income on federal returns is subject to state tax ranging from 4.7% to 5.9%.
6. New Mexico
Taxes apply if adjusted gross income exceeds certain thresholds with rates from 4.9% to 5.9%.
7. Rhode Island
Taxpayers below full retirement age with AGI above certain limits owe taxes with rates from 4.75% to 5.99%.
8. Utah
Taxes apply if AGI exceeds certain thresholds with a 4.65% rate and credits for those below the threshold.
9. Vermont
Tax applies if AGI exceeds certain limits with rates from 3.35% to 8.75%.
10. West Virginia
Taxes apply if AGI exceeds certain limits with rates from 5.1% to 5.525%.
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Considerations for Retirement
Choosing where to retire shouldn’t solely depend on state tax policies. Many of these states offer low costs of living and senior-friendly communities. Being close to family and friends can be invaluable. Moreover, there are strategies to minimize taxes in retirement such as utilizing Roth accounts and planning capital gains. So, while taxes are a factor they shouldn’t be the sole determinant in your retirement decisions.
