Social Security is a lifeline for millions of retirees, making it immensely important to maintain their standard of living in their non-working years. Still, some recipients have to pay taxes on those benefits at the federal level and the state level as well. Although most states don’t tax Social Security, some still tax benefits, although modestly. So, you might owe state taxes on Social Security depending on where you live. This article will discuss the states expected to tax Social Security in 2024.
There were 12 states that taxed Social Security benefits in 2023, but 10 states are expected to tax benefits in 2024. The states expected to tax Social Security in 2024 are Colorado, Connecticut, Kansas, Minnesota, Montana, Nebraska, New Mexico, Rhode Island, Utah and Vermont. Missouri taxed Social Security income in 2023 but will no longer tax Social Security benefits starting in 2024.
If you live in these 10 states, you might have to pay taxes on Social Security. States that tax Social Security often have tax-friendly rules to reduce (if not eliminate) the tax on Social Security income.
Regarding how much tax you will have to pay, it differs from one state to another. Moreover, your tax amount also depends on your AGI (adjusted gross income), age, and tax filing status. Now let’s discuss the states expected to tax Social Security in 2024:
Colorado taxes Social Security benefits only for retirees who are below 65 years. Taxpayers who are 65 and older are allowed to deduct all their federally taxed Social Security. Even those who are below 65 years enjoy some exemption from the state. Retirees aged 55 to 64 can deduct up to $20,000 of their Social Security benefits from their taxable income.
Connecticut follows a similar approach to taxing Social Security as at the federal level. Single filers and married filing separately don’t have to have any tax on Social Security income if their AGI is less than $75,000 (below $100,000 for married filing jointly). Those with AGI above the threshold pay tax on only 25% of their Social Security income.
If you live in Kansas, you won’t have to pay any taxes on Social Security income if your AGI is $75,000 or less, irrespective of your filing status.
Minnesota allows retirees to deduct some of their Social Security benefits from the adjusted income if they meet the set income thresholds. Under the current law for the tax year 2023 and later, the state uses the higher of the set limit or the amount calculated using the “subtraction method” to determine the household’s Social Security benefits subject to the state’s tax.
For singles or heads of households, the set exemption limit is $78,000, while for joint filers it is $100,000 ($50,000 for separate filers). The exemption phases out by 10% for each $4,000 above the threshold (10% for each $2,000 above the threshold for separate filers).
Montana’s tax on Social Security depends on the taxpayer’s federal AGI. The Social Security income is taxable in the state unless your AGI is less than $25,000 (less than $32,000 for joint filers).
Single filers with AGI between $25,000 and $34,000 (between $32,000 and $44,000 for joint filers) will have to pay tax on 50% of their Social Security income. Those earning above the threshold can deduct just 15% of their Social Security.
Nebraska is in the process of phasing out state income tax on benefits by 2025. In 2023, 60% of recipients’ Social Security income was exempt from taxes; in 2024, the exemption will rise to 80%. Additionally, those with Social Security income less than $45,790 (below $61,760 for married taxpayers filing joint returns) don’t need to pay any state income tax on their Social Security income.
New Mexico completely exempts residents with low enough incomes from the state income taxes. Those with an income of $100,000 or below don’t have to pay any tax on their Social Security income. The threshold income is $150,000 for married couples filing jointly and $75,000 for those married but filing separately.
If you live in Rhode Island, your Social Security benefits won’t be taxed if your income is low enough and you have reached full retirement age. Presently, the state only taxes Social Security income for retirees with AGIs above a certain threshold.
Utah, until 2021, used the same method to tax Social Security as the federal government. Now, the state uses its own income-based tax credit system to tax Social Security benefits. Single filers with income less than $30,000 (joint filers with income less than $50,000) pay no tax on Social Security benefits. Those with income above the threshold qualify for a partial exemption.
Single filers with an AGI of $50,000 or less don’t have to pay any state taxes on Social Security benefits, while those with an AGI between $50,000 and $60,000 qualify for a partial exemption. For joint filers, the threshold income for full exemption is $65,000 or less, while for partial exemption, it is between $65,000 and $75,000.
So, only 10 states are expected to tax Social Security in 2024. Even these 10 states offer exemptions to retirees to reduce their tax burden. Apart from these exemptions, retirees can use a few tips that can help them to further reduce (or completely eliminate) the taxes they pay on Social Security benefits, such as waiting until age 70 to claim Social Security, moving to another state, using Roth IRA income (it doesn’t count toward retirement income) and donating IRA income to charity.