Almost all retirees look forward to their Social Security benefits as it is the principal sustenance for many seniors in their golden age. Also, since many people pay into Social Security all their lives, it is customary to want access to everything possible from this fund.
While this is a good thing for many retirees, there will be taxes on your benefits, and your states will collect some of it as taxes. The silver lining is that 37 states will not tax your benefits provided you are resident in any one of them.
With this, you can breathe a sigh of relief if you live in states where the local government does not set its eye on your Social Security benefits from Uncle Sam.
37 States will not tax your social security benefits
The following states will not tax your Social Security benefits:
Alabama, Louisiana, Washington, Massachusetts, Delaware, Hawaii, New Jersey, Nevada, New York, California, Indiana, Arkansas, Florida, Ohio, Wisconsin, Pennsylvania, Maine, Maryland, Illinois, Georgia, North Carolina, Tennessee, Iowa, Kentucky, Mississippi, New Hampshire, South Carolina, Virginia, Michigan, Washington D.C., Wyoming, Alaska, Idaho, South Dakota, Oklahoma, Arizona, Oregon, and Texas.
In the same manner, here are 13 states that do not tax your social security benefits
Vermont, Connecticut, Montana, West Virginia, North Dakota, Missouri, New Mexico, Utah, Colorado, Kansas, Minnesota, Nebraska, and Rhode Island.
Four of these 13 states use similar rules with Uncle Sam to deduce paying social security taxes – North Dakota, Vermont, Minnesota and West Virginia. All other states have individual policies that guide them.
Reasons Uncle Sam Might Tax Your Social Security Benefits
Living in any of the 37 states that do not tax social security benefits does not mean you are off the hook. When your income reaches a particular threshold, you might eventually have to pay part of your benefits as tax.
The silver lining here is that not all your social security benefits will be used to determine if you should be taxed. It estimates your taxable income by summing up 50% of your Social Security benefits, your entire taxable income from other sources and other tax-free income like whatever interest you get from municipal bonds. It, however, doesn't include tax-free distributions from Roth IRA.
For people in the married filing jointly tax bracket with income above $32,000 ($25,000 for other filing statuses), you might be looking at taxes on half of your social security benefits. For income more than $44,000 for married joint filers (or $34,000 for other filing statuses), there is a possibility of being taxed up to 85% of the Social Security income.
As long as your income is below this level, you need not pay taxes on your social security benefits. However, make sure to know about the rules that bind your state.
Possibility of Better Financial Freedom with Low taxes on Your Social Security benefits
People who live in any state that does not tax their social security benefits are pretty lucky. They get to keep their full retirement benefits without worrying about leaving any cut to the government. With this, they can enjoy whatever they desire; however, for people who find themselves in states that tax social security, it is an excellent option to consider relocating to more friendly conditions for retirees.
The less tax you have to pay, the more financial freedom you will enjoy during your golden years. However, be confident that making a move to any tax-friendly state will benefit you.
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Tiffany Gaskin