Social Security: States With The Highest Taxes On Social Security Benefits

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Social Security recipients must pay federal income taxes on their benefits if they fall within a certain income threshold. There is about 40% of beneficiaries who pay Federal income taxes. The majority of recipients don’t have to pay state taxes on benefits. There are 10 states that tax Social Security benefits, which is a decrease from 12 states just a year ago.

According to GOBankingRates, “Missouri and Nebraska both ended state income taxes on Social Security benefits effective Jan. 1. The new policies are expected to save beneficiaries up to $309 million a year in Missouri and $17 million a year in Nebraska. “

Here are 10 states that still tax Social Security benefits at the state level Colorado, Connecticut, Kansas, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, and West Virginia. Some states are considering legislation that would significantly expand exemptions and deductions for Social Security recipients, according to GOMoneyRates.

There are so many different deductions, exemptions, and other loopholes that influence Social Security income taxes at the state level, that it’s not easy to determine which states have the highest taxes on Social Security. However, based on Money’s recent analysis, five states with the highest rates of Social Security benefits and retirement income at the upper ranges:

• Minnesota: 5.35% to 9.85%
• Vermont: 3.35% to 8.75%
• Connecticut: 3% to almost 7%
• West Virginia: 3% to 6.5%
• Montana: 1% to 6%

At the federal level, Social Security recipients must pay taxes on benefits if they have “substantial” outside income from sources such as wages, self-employment, interest, dividends, and other taxable income, “ according to the Social Security Administration.

Social Security Administration also said, “Individuals with provisionary income above $25,000 and joint filers above $32,000 must pay taxes on up to 50% of their Social Security benefits. For individuals with provisionary income above $34,000 and joint filers above $44,000, up to 85% of Social Security is taxed.”

If you can recall reported by GOBankingRates, U.S. Sen. Pete Ricketts (R-Neb.) wants to eliminate federal income taxes on all Social Security benefits. In September, Ricketts introduced the Social Security Check Tax Cut Act. This bill aims to begin a total phaseout of federal taxes on benefits. The bill was modeled after the successful earlier effort to eliminate state taxes on Social Security benefits initiated when Ricketts was Nebraska’s governor.

Recently, U.S. Rep. Angie Craig (D-Minn.) announced similar legislation, called the “You Earned It, You Keep It Act,” per Congress.gov. Her bill would eliminate all federal taxes on Social Security benefits beginning in 2025. It would be paid for by raising the cap on the Social Security payroll tax, which means higher-earning Americans would continue paying into Social Security beyond the current yearly threshold of $168,600.