Do You Pay State Taxes On Social Security

How To Calculate Your Social Security Income Taxes

If your Social Security income is taxable, the amount you pay will depend on your total combined retirement income. However, you will never pay taxes on more than 85% of your Social Security income.

Again, if you file as an individual with a total income thats less than $25,000, you wont have to pay taxes on your Social Security benefits in 2022. For the 2022 tax year , single filers with a combined income of $25,000 to $34,000 must pay income taxes on up to 50% of their Social Security benefits. If your combined income is more than $34,000, you will pay taxes on up to 85% of your Social Security benefits.

For married couples filing jointly, you will pay taxes on up to 50% of your Social Security income if you have a combined income of $32,000 to $44,000. If you have a combined income of more than $44,000, you can expect to pay taxes on up to 85% of your Social Security benefits.

If 50% of your benefits are subject to tax, the exact amount you include in your taxable income will be the lesser of either:

• half of your annual Social Security benefits OR
• half of the difference between your combined income and the IRS base amount

The example above is for someone whos paying taxes on 50% of their Social Security benefits. Things get more complex if youre paying taxes on 85% of your benefits. However, the IRS helps taxpayers by offering software and a worksheet to calculate Social Security tax liability.

Do Social Security Recipients Need To File Taxes

The IRS typically requires you to file a tax return when your gross income exceeds the standard deduction for your filing status. These filing rules still apply to senior citizens who are living on Social Security benefits. If Social Security is your sole source of income, then you dont need to file a tax return.

Pension And Retirement Income

Income from most private pensions or annuity plans is taxable in Massachusetts but many government pensions are exempt. Withdrawals from a traditional IRA are taxable but the Massachusetts taxable amount may be different from the federal taxable amount.

Learn more about the rules for the types of pension or retirement income plans which you receive:

Read Also: Best Dogs For Veterans With Ptsd

Federal Taxation Of Social Security Benefits And Effect On Vermont

At the federal level, the personal income of a Social Security beneficiary determines how much of the Social Security benefits are taxed. This taxable portion of Social Security benefits may become part of a Vermonters Adjusted Gross Income at the federal level. Federal AGI flows through to Vermont and becomes the starting point for determining Vermont taxable income.

The Vermont exemption allows income-eligible taxpayers to subtract all or part of federally taxable Social Security benefits from their AGI. This means that the federally taxable portion of Social Security benefits is eliminated or reduced for Vermont income-eligible taxpayers receiving Social Security benefits.

For a breakdown of the federal taxation of Social Security benefits, see the table below. For more on federal taxation of Social Security benefits, please read this overview by the Social Security Administration.

Social Security Benefits To Jump 87% In 2023 As Top Tax Hits $19865

As inflation runs the hottest in four decades, 70 million Americans will benefit from the largest Social Security cost of living adjustment since 1981.

getty

The Social Security Administration announced today that benefits will jump 8.7% for 2023, the largest increase since 1981, when double digit inflation pushed payments up more than 11%. The cost-of-living adjustment affects 70 million Americans, including 48 million retired workers and their spouses and dependents those receiving disability and survivors benefits and recipients of Supplemental Security Income. The average retired worker will receive $1,827 a month in 2023, up $146 from $1,681 this year.

The 2023 COLA is based on the increase in the Consumer Price Index for Urban Wage Earners between the third quarter of 2021 and the third quarter of 2022meaning it looks backwards at inflation and was sealed this morning when the Bureau of Labor Statistics reported Septembers inflation rate. The large increase, combined with a 2023 drop in Medicare premiums , means seniors who rely on Social Security will be able to make up most of the ground theyve lost to inflation over the past year. In 2022, benefits went up 5.9%, but retirees lost a chunk of that to a 14.5% increase in Medicare Part B premiums.

Also Check: Where To Go To File For Disability

What Is The Self

For 2021, the self-employment tax rate is normally 15.3%. The rate is made up of both of these:

• 12.4% Social Security tax
• 2.9% Medicare tax

For 2021, the maximum amount subject to Social Security tax is $118,500. However, all self-employment income in excess of $400 is subject to Medicare tax.

To figure net earnings from self-employment, multiply your net business profit by 92.35%. You use this percentage since an employee is only required to pay one of these:

• 1/2 of Social Security and Medicare taxes
• 7.65% of wage income

A self-employed individual must pay both halves, or 15.3%. So, the law equalizes the tax burden by reducing the income subject to tax by 7.65%. Heres the formula:

100% 7.65% = 92.35%

You can deduct the employer portion of your self-employment tax as an adjustment to income on Form 1040. The amount you can deduct is usually 1/2 of the employer portion. This decreases your taxable income and, as a result, your federal income tax.

You May Like: What Is The Tax Percentage In New York

For Years New Mexico Was One Of Just A Few States That Still Taxed Social Security Benefits New Mexico Seniors Deserve To Hold Onto Their Hard

Beginning with tax year 2022, most seniors will be exempt from paying taxes on their Social Security benefits when they file their New Mexico Personal Income Tax returns. Tax relief from the new Social Security exemption is expected to total $84.1 million in the first year. The exemption is available to single taxpayers with less than $100,000 in income, to married couples filing jointly, surviving spouses and heads of household with under $150,000 in income, and to married couples filing separately with under $75,000 in income.

Instructions on how to claim the exemption will be available beginning with the 2022 Tax Year Personal Income Tax instructions.

Do you know someone who could benefit? Please share this page. Are you considering retiring in New Mexico? Retire New Mexico can help. Learn more here:

Latest News

Don’t Miss: Can Child Support Be Taken Out Of Social Security Disability

States That Tax Social Security 2022

Any adult living in the United States knows about paying taxes. We pay taxes to the federal government on our income, and we also pay income taxes in our state too, depending on where we live. We pay taxes on our homes, and we may also have to pay taxes on our vehicles. We pay taxes on the items we purchase, and in some states, a gas tax is also applied.

Social Security benefits are also taxable. Across the nation, up to 85% of your benefits can be taxed by the federal government. In some states, a state tax is also applied. Of the 50 states, 13 states tax Social Security benefits. Those states are: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia.

If you live in one of these states or planned to move to one of these states for retirement, this extra tax on Social Security benefits may throw up a red flag. However, many of the states on this list have been ranked as some of the most tax-friendly states for retirees when considering other types of state taxes, including sales tax, property tax, estate tax, and inheritance tax.

States That Do Tax Social Security Benefits Or Partially

Some states reduce the level of taxation applied to Social Security benefits depending on things like age or income level:

• Colorado less than $75,000 or $100,000 )
• Minnesota or $103,930 )
• Missouri or $100,000 in annual income)
• Montana Once income exceeds $36,420, 85 percent of Social Security benefits will be taxed)
• New Mexico or $51,000
• North Dakota or $100,000 )
• Rhode Island or $102,400 )
• Vermont or $44,000 )
• West Virginia or $100,000 the tax will be eliminated by 65 percent effective 2021 there will be no social security tax for those that meet the minimum income levels)

Note: These lists are not an indicator of being the most tax-friendly states as there are other factors to consider such as property taxes and how pension withdrawals are taxed.

You May Like: Can You Collect Social Security Disability And Private Disability Insurance

Take Advantage Of Breaks Where You Can Get Them

In 37 states, you don’t have to worry about state income tax on Social Security. Yet even in some of the others, there are often things you can do. For instance, New Mexico has an exemption for some retirement income that lets you shelter Social Security if you choose to use it in that way. However, many residents use the exemption to protect IRA distributions or pension income instead.

Also, just because your benefits are taxable for federal purposes doesn’t mean that they will be even in states that tax Social Security. Many states have much higher thresholds for taxation than the IRS.

Retirees like to hold onto as much of their Social Security as they can, and dealing with taxes is never ideal. Knowing which states tax Social Security at the local level means you can take that into consideration in planning where you want to spend your retirement.

This article was written by Dan Caplinger from The Motley Fool and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

Change The Formula For Cost

Social Security checks receive an annual cost-of-living adjustment to ensure benefits keep up with inflation. Under the current law, inflation is measured using the Consumer Price Index for Urban Wage Earners and Clerical Workers . But many policy experts and politicians see a problem with using the CPI-W to calculate COLAs.

The CPI-W is based on buying patterns of individuals in the workforce, but retired workers often spend their money very differently. For instance, working-age individuals tend to spend less on housing and medical care, but those are two of the biggest expenses for retired workers. That means the CPI-W underemphasizes the impact of price increases in the spending categories most relevant to retired workers. To that end, The Senior Citizens League estimates that Social Security benefits have lost 40% of their buying power since January 2000.

To solve that problem, President Biden would change the formula used to calculate Social Security COLAs by replacing the CPI-W with the CPI-E . That metric tracks the buying patterns of individuals age 62 and older, making it much more relevant to retired workers than the CPI-W.

How big is the impact? The CPI-E tends to put inflation two-tenths of a percentage point higher each year than the CPI-W, according to the Office of the Chief Actuary. That may not sound like much, but two-tenths of percentage point compounded annually over two decades is four full percentage points.

Also Check: Can You Get Disability For Lupus

Other Things To Watch Out For

While everyone likes to minimize their taxes, especially ones that you can avoid without too much legwork, its important that you keep things in perspective.

Tax strategy should be part of your overall financial planning, says Crane. Dont let tax strategy be the tail that wags the dog.

In other words, make the financial moves that maximize your after-tax income, but dont make minimizing taxes your only goal. After all, those who earn no income also pay no taxes but earning no income is not a sensible financial path. For example, it can be better to find ways to maximize your Social Security benefits rather than minimizing your taxes.

And it could be financially smart to first avoid some of the biggest Social Security blunders.

Dont forget that these rules apply to minimizing your tax at the federal level, but your state may tax your Social Security benefit. The laws differ by state, so its important to investigate how your state treats Social Security.

There really arent any tricks, you just have to be careful with your interest and dividends, says Paul Miller, CPA, of Miller & Company in the New York City area.

Dont Miss: Are Funeral Expenses Tax Deductable

Social Security In The Midwest

Out in the Midwest, only seven of 12 states are free of Social Security taxes. South Dakota doesn’t have an income tax. Meanwhile, Illinois, Indiana, Iowa, Michigan, Ohio, and Wisconsin have full state income tax protection for those receiving Social Security benefits.

On the other hand, Kansas, Minnesota, Missouri, Nebraska, and North Dakota tax Social Security in varying degrees. Minnesota and North Dakota are notable for following the federal rules on taxation.

Don’t Miss: How To Apply For Disability In Tn

Which States Do Not Tax Social Security Benefits

Only eleven states Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, and Vermont impose some form of income taxes on social security benefits. The remaining states and District of Columbia do not levy taxes on social security benefits. Even among those states that collect such a tax, many offer exemptions for tax filers based on age or income considerations.

Estate And Inheritance Taxes

Another type of tax that is of particular importance to retirees is the estate tax. In recent years, legislatures across the U.S. have either repealed their state estate taxes or have increased the local estate tax exemption. For reference, the estate tax exemption is the limit below which estates do not owe taxes.

The federal estate tax exemption has increased over the years to $11.7 million in 2021 and $12.06 million in 2022. Of the 12 states and Washington, D.C. that have their own estate tax, seven have an exemption of $4 million or less. Massachusetts and Oregon have the lowest exemption at $1 million.

Similar to the estate tax, an inheritance tax affects property that’s passed on to loved ones. The tax applies not to the estate itself, but to the recipients of the property from that estate. For example, if you receive $1,000 as an inheritance and are subject to a 10% inheritance tax, you would pay $100 back in taxes.

Six states have an inheritance tax. Of these, one state also has an estate tax. Inheritance taxes typically provide exemptions or lower rates for direct family members, while fully taxing non-relatives.

Read Also: What Can You Own On Social Security Disability

Which States May Tax Student Loan Forgiveness

The following states could tax debt forgiveness under current laws, according to the nonprofit Tax Foundation.

Arkansas: The state tax code is silent on the treatment of student loan debt forgiveness, so the ordinary rule that a discharge of indebtedness constitutes taxable income should prevail absent state action, according to the Tax Foundation.

California: The Tax Foundation said California has confirmed that it will tax student loan debt discharge under current law. An existing law exempting student loans canceled pursuant to income-based repayment programs will not apply.

Indiana: The Indiana Department of Revenue confirmed in an email to the Associated Press this week that residents are required to list their forgiven loans as taxable income per Indiana law.

Minnesota: State law currently lacks any provision to exclude student loan debt cancellation from income, per the Tax Foundation.

Mississippi: State law considered discharged debt taxable income and is in line to tax student loan debt forgiveness, according to the Tax Foundation.

North Carolina: A state statute taxes student loan debt forgiveness, according to the Tax Foundation.

Wisconsin: State tax law would include debt forgiveness as taxable income. Wisconsinites who have their student loans forgiven by the federal government shouldnt be penalized by having to pay more income taxes, a spokesperson for Democratic Gov. Tony Evers said in an emailed response to USA TODAY.

Paying Taxes On Social Security

You should get a Social Security Benefit Statement each January detailing your benefits during the previous tax year. You can use it to determine whether you owe federal income tax on your benefits. The information is available online if you enroll on the Social Security website.

If you owe taxes on your Social Security benefits, you can make quarterly estimated tax payments to the IRS or have federal taxes withheld from your payouts before you receive them.

Dont Miss: Penalty For Missing Tax Deadline

Recommended Reading: Can A Doctor Put You On Disability

How Can I Avoid Paying Taxes On Social Security

Here’s how to reduce or avoid taxes on your Social Security benefit:

Do You Pay Federal And State Taxes On Social Security

On the other hand, Kansas, Minnesota, Missouri, Nebraska, and North Dakota tax Social Security to varying degrees. Minnesota and North Dakota are characterized by compliance with federal tax regulations. The simplest answer is yes: Social Security income is usually taxable at the federal level, although whether or not you have to pay taxes on your Social Security benefits depends on your income level. If you have other sources of retirement income, such as . B a 401 or part-time job, you should expect to pay income taxes on your Social Security benefits. However, if you rely solely on your Social Security checks, you probably won`t pay taxes on your benefits. State laws vary when it comes to social security taxation. Either way, it`s a good idea to work with a financial advisor to help you understand how different sources of retirement income are taxed. If you plan to owe taxes on your Social Security benefits, there are a few things you can do to potentially minimize them.

Recommended Reading: How To Apply For Disability In Florida