It might surprise some people to find out that Social Security benefits are not exempt from being taxed, taking a bite out of their potential retirement income.
Are you currently living in one? Check the list at the bottom of this article to find out which states will tax Social Security.
While those 13 states will take a bite from your Social Security benefits, some of the other 37 states don’t have any state income tax at all, including Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming, so if you live in one of those states, this may be no big news to you.
But a heads-up: Just because your state doesn’t tax your Social Security doesn’t mean those benefits can’t be taxed on the federal level.
Provisional income is a measure used by the IRS to determine if recipients of Social Security are required to pay taxes on their benefits. Calculating your provisional income is important because it will give you an idea of whether you can expect to pay federal taxes on your Social Security benefits, regardless of which state you live in.
The tax rates for provisional income work like this: A single filer whose total is between $25,000 and $34,000, or a joint filer with a total is between $32,000 and $44,000, can pay federal taxes on up to 50% of their Social Security income.
If your provisional income exceeds $34,000 as a single tax filer, or exceeds $44,000 as a joint filer then you could pay federal taxes on up to 85% of your benefits.
Choosing a state to live and retire in shouldn’t be reduced to a tax equation, and numerous other factors play into people’s decisions. But gathering as much information, including a state’s tax laws, is helpful when faced with a decision.
And if you already don’t live in one of the 13 states below, that decision may be just a little bit easier.
States that tax Social Security benefits
- New Mexico
- North Dakota
- Rhode Island
- West Virginia