38 Countries That Don’t Tax Social Security Benefits | Smart Change: Personal Finance

(Kylie Hagen)

With the cost of retirement rising all the time, people want to know how to maximize their Social Security dollars. You probably know things you can do to increase your benefits, such as increasing your income today. But most people don’t think enough to avoid Social Security benefits taxes.

Not all states have them, but if you do, you could lose a significant portion of your paychecks to the government each year. Here’s what you need to know.

Image source: Getty Images.

These 38 states don’t have Social Security benefits taxes

The following 38 states do not tax Social Security benefits for any of their residents:

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  1. Alabama
  2. Alaska
  3. Arizona
  4. Arkansas
  5. California
  6. Delaware
  7. Florida
  8. Georgia
  9. Hawaii
  10. Idaho
  11. Illinois
  12. Indiana
  13. Yes
  14. Kentucky
  15. Louisiana
  16. who
  17. Maryland
  18. Massachusetts
  19. Michigan
  20. Mississippi
  21. Nevada
  22. New Hampshire
  23. New Jersey
  24. New York
  25. North Carolina
  26. North Dakota
  27. Ohio
  28. Oklahoma
  29. Oregon
  30. Pennsylvania
  31. South Carolina
  32. South Dakota
  33. Tennessee
  34. Texas
  35. Virginia
  36. Washington
  37. Wisconsin
  38. Wyoming

If you live in Washington, DC, you also won’t have to worry about any local taxes on your Social Security benefits. But it’s a different story for the residents of these 12 states:

  1. Colorado
  2. Connecticut
  3. kansas
  4. Minnesota
  5. Missouri
  6. Montana
  7. Nebraska
  8. New Mexico
  9. Rhode Island
  10. Utah
  11. Vermont
  12. West Virginia

But don’t panic if you live in one of these places because not all Social Security recipients in these states owe taxes. Each state government makes its own rules that determine who owes them, but generally these are the ones with high income or high annual Social Security benefits. If you’re concerned, check with your state’s tax department to find out how to determine who pays Social Security benefits taxes.

Federal government tax benefits too

Even if your state government does not take any of your benefits, the federal government may. It decides how much you owe by looking at your combined or temporary income. This is your adjusted gross income (AGI), plus non-taxable interest, and half of your annual Social Security benefit.

Here’s how much you can owe based on your combined income and marital status:

marital status

Up to 50% of benefits are taxable

Up to 85% of benefits are taxable

Not connected

Temporary income between $25,000 and $34,000

Temporary income over $34,000

Introducing married couples together

Temporary income between $32,000 and $44,000

Temporary Income Over $44,000

Data source: Social Security Administration.

This does not mean that you will lose up to 85% of the benefits you get. It just means that you can owe taxes on this amount, but the amount you will owe depends on your tax bracket for the year. If you fall into the 12% tax bracket, for example, you may only owe 12% in taxes on up to 85% of your benefits.

Sometimes it’s possible to avoid state and federal benefit taxes by adjusting your spending or relying more on your Roth savings account for withdrawals when you approach the benefit tax threshold. But if you don’t have a Roth savings or need to spend more to make ends meet, this may not be an option.

If you know you owe taxes, the best thing you can do is accept it and set aside the money to cover the bill. Or if you get a surprise at tax time, talk to the IRS and see if you can set up a payment plan.

Being proactive is often the best approach. If you end up with a tax debt that you can’t pay, the federal government can start getting your Social Security checks before they reach you. Nobody wants that, so do your best to stay on top of all your taxes.

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