Social Security benefits are vital to seniors nationwide. But not all retirees have the same amount of their benefit checks to spend. Because of tax rules, some states take a cut of retirees’ checks.
The good news is that older Americans in most of the U.S. won’t lose retirement income to local governments. In 38 states, benefits are tax-free. I found them.
These 38 states don’t tax SS benefits.
38 states don’t tax Social Security income at the state level. This is true even with a high income.
This is true for most states in the U.S. In more places, benefits aren’t taxed. In 2021, North Dakota joined.
If you live in one of the other 12 states, these rules may be disappointing. However, not everyone who lives in one of the 12 states that tax benefits will lose some of their Social Security.
In many states, lower and middle-income Americans are exempt from paying taxes on retirement income, so only high earners may owe taxes.
Do you need to pay taxes if you live in one?
Living in one of the 38 states where Social Security benefits are tax-free doesn’t mean you keep all your money. Federal taxes may be a worry.
The IRS taxes provisional income over $25,000 for single filers and $32,000 for married filers. Provisional income includes taxable, non-taxable, and half of Social Security benefits.
These income thresholds are low, even with a narrow definition of taxable income. They’re not inflation-adjusted. Since wages and retirement benefits rise, more retirees must pay Social Security taxes.
State income from Social Security is not taxed in 38 states. Even with a big income, this is true.
This is true in almost every state in the United States. Benefits aren’t taxed in more places. North Dakota will join in 2021.
These rules may be discouraging if you live in one of the other 12 states. However, not everyone who resides in one of the 12 states that receive tax breaks will see their Social Security benefits reduced.
Lower and middle-income Americans are often excused from paying taxes on retirement income in many jurisdictions, leaving only high-income earners to pay taxes.
Since these are federal taxes, moving won’t help. If you’re planning for retirement, a Roth IRA may help you avoid an IRS bill. This method works because distributions aren’t counted as provisional income.
It’s worth considering these options since paying taxes on Social Security benefits isn’t ideal when benefits don’t go far.
The $18,984 Social Security bonus most retirees miss
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If you’re like most Americans, your retirement savings are behind. A few “Social Security secrets” may boost your retirement income.
A simple trick could earn you $18,984 more per year. If you know how to maximise your Social Security benefits, you can retire with confidence and peace of mind. Learn more about these strategies here.
