Social Security tax benefits are a crucial income source for millions of retirees across the United States. However, not all states treat this income the same way. While some states have decided to stop taxing Social Security benefits, others continue to levy taxes on them.
This article will explore why 9 states will continue taxing Social Security in 2024, while 3 states have decided to stop.
Why Some States’ Social Security Tax
Also Read, Social Security Taxes Affect Your Future: Key Facts, Risks, and Legal Consequences of Non-Payment
Social Security tax benefits are federally taxed. But each state has the authority to decide whether or not to tax these benefits in addition to the federal taxes. States that continue to tax Social Security do so for various reasons, mostly related to budget needs, tax policies, and fiscal priorities.
Budget Needs and Revenue Generation
One essential reason a few states pursue Social Security tax benefits is to generate extra income. States require reserves for education, healthcare, infrastructure, and public security. Taxing Social Security is an effective way for many states to fill the budget gap.
These Social Security taxes help support state programs that benefit residents, including seniors who receive Social Security payments. Resources like the National Conference of State Legislatures (NCSL) can help you learn more about how states manage tax revenue and budgeting.
Tax Structure and Fairness
Another reason a few states pursue the Social Security Tax is that they maintain a broad assessment structure to guarantee fairness among all sorts of income. States that charge enormous taxes, including Social Security, point to making an adjusted and impartial tax framework.
By taxing Social Security, they ensure that all forms of income, whether earned or unearned, are treated equally under the law. The Tax Foundation provides more information about state tax structures.
Know more about Fair Taxation System – Fair Taxes, Fair Society: A Simple Breakdown of the Progressive Tax System
Why Some States Don’t Have Social Security Tax
On the other hand, a few states have chosen not to impose Social Security tax benefits, recognizing the importance of these installments for retirees and low-income seniors. These states have diverse money-related needs and arrangements that benefit their inhabitants in other ways.
Focus on Supporting Retirees
States that don’t have Social Security taxes focus on supporting seniors. Social Security provides a vital source of income for retirees, many of whom are living on fixed incomes.
By exempting Social Security tax benefits from taxation, these states help retirees keep more of their money, which can be especially helpful in times of rising living costs or healthcare expenses. For many retirees, this policy provides an extra layer of financial security in their later years. The AARP Tax Guide provides more information on tax benefits for retirees.
State-Specific Economic Considerations
The financial conditions of a state play a key part in whether or not Social Security benefits are funded. States with more grounded economies and higher general assessed incomes may offer exclusions from saddling Social Security.
These states may not need the extra revenue from taxing Social Security, as they have sufficient funds from other taxes.
In contrast, states with struggling economies or large budget deficits may continue to tax Social Security to support their financial needs.
Know More About The Benefits of Social Security Tax: Can the IRS Take Your Social Security Payments?
The 9 States That Have Social Security Taxes in 2024
As of 2024, 9 states still tax Social Security benefits. These states are:
- Connecticut
- Kansas
- Minnesota
- Missouri
- Montana
- Nebraska
- New Mexico
- North Dakota
- Utah
Each state has its own claim rules for burdening Social Security benefits, which frequently depend on the taxpayer’s pay level.
For example, some states offer exemptions or reduced tax rates for low-income Social Security recipients, while others apply standard income tax rates to all beneficiaries. More about tax exemptions and rates in each state can be accessed via your state’s Department of Revenue website.
The 3 States That Don’t Have Social Security Tax
As of 2024, three states have decided not to tax Social Security benefits. These states are:
- Alaska
- Florida
- Nevada
These states have recognized the importance of Social Security to retirees and have chosen to exempt it from state taxes. Their decision is also influenced by the fact that they have alternative state revenue sources, such as oil revenues in Alaska or a large tourism industry in Florida and Nevada.
By not taxing Social Security, these states make themselves more attractive to retirees looking to maximize their income during retirement. Guides like Best States to Retire explain the benefits of retiring in these states. Best States to Retire
Social Security Tax Brackets and Impact on Retirees
The taxation of Social Security benefits depends on your combined income. The total of your adjusted gross income, nontaxable interest, and half of your Social Security benefits. Here’s a breakdown of how it works at the federal level, along with the impact it has on Social Security recipients:
Federal Taxation of Social Security Benefits
The amount of Social Security benefits subject to federal tax is based on your income. Here’s how the IRS determines it:
- Up to 50% of your Social Security benefits may be taxable if your income exceeds $25,000 for an individual or $32,000 for a couple.
- Up to 85% of your Social Security benefits may be taxable if your income exceeds $34,000 for an individual or $44,000 for a couple.
For example, if you have a combined income of $30,000, up to 50% of your Social Security benefits will be taxable. If your income exceeds $34,000, up to 85% of your benefits could be taxable.
State-Level Tax Brackets
Each state that benefits from the Social Security tax has its own tax structure. Some states, like Minnesota and Missouri, have income brackets determining how much your Social Security benefits will be taxed. Other states, like Connecticut, tax only the portion of your Social Security benefits that exceeds a certain income threshold.
For example, Social Security benefits in Minnesota are assessable if your wage surpasses $69,710 for a single filer or $94,210 for a married couple filing together. The charge rates on Social Security benefits in these states can shift based on your add-up to pay.
Key Takeaway: Social Security Taxation Varies by State
The taxation of Social Security benefits varies significantly across the United States. While some states tax Social Security benefits to support public services and maintain fiscal stability, others have exempted them to help retirees keep more of their income.
Understanding the rules in your state can assist in beneficiary retirement and arranging the burden of taxation on Social Security wages. It’s essential to stay informed about changes in state tax laws, as states may reexamine their tax laws in the future.
For more in-depth insights into how states tax Social Security, visit the Social Security Administration or check with the National Academy of Social Insurance.
Bottom Line: Understanding the Tax Differences
In the conclusion, nine states still pay Social Security, though three do not. This is driven by each state’s financial and budgetary needs and tax courses of action.
While states that continue to tax Social Security see this as an essential revenue source, those that don’t tend to focus on helping retirees and ensuring their financial security. States continue to evaluate their tax policies, and we may see changes to how Social Security benefits are treated in the future.
Regardless of the approach, understanding the tax rules in your state can help you plan better for retirement and maximize your Social Security benefits.
