JEFFERSON CITY, Missouri – Missouri and Nebraska residents had reason to celebrate on January 1, 2024, as both states officially put an end to taxing Social Security benefits. This move leaves only 10 states in the US that still impose taxes on the Social Security income of their senior citizens.
If you happen to reside in one of these 10 states, it’s crucial to understand the implications of state taxes on your Social Security benefits and the potential financial burden it may pose on you. Here’s what you need to know about the situation.
The states still taxing Social Security benefits are Colorado, Connecticut, Kansas, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, and West Virginia. Although Missouri and Nebraska residents could still owe taxes on their 2023 returns, they can now look forward to being exempt from this in future tax years.
Each of the 10 remaining states has its own criteria for determining who is liable for these benefit taxes. For instance, New Mexico only taxes the benefits of single adults earning $100,000 or more annually, married couples filing jointly and heads of household with incomes of $150,000 or more, and married couples filing separately with incomes of $75,000 or more.
It’s advisable to consult your state’s department of taxation or a tax professional to gain a better understanding of how your state handles the taxation of Social Security benefits. Setting aside some funds to cover potential tax liabilities is recommended if you believe you may owe taxes.
Moreover, even if you manage to avoid state benefit taxes, the federal government may still impose taxes on your Social Security benefits depending on your provisional income. This means that understanding your potential tax liabilities at the federal level is just as important as understanding those at the state level.
Should you consider relocating to a state that doesn’t tax Social Security benefits in order to maximize your retirement income? While this may appear to be an appealing option, it’s important to consider all other aspects such as state income tax, sales tax, and property taxes, which may have a significant impact on your overall retirement finances. Therefore, it’s crucial to carefully evaluate all factors before making such a decision.
It’s vital for seniors and retirees to stay informed about the state of taxes on their Social Security benefits to make well-informed decisions and adequately plan for their retirement.