41 States That Won’t Tax Social Security Benefits in 2024
According to an AARP analysis, one in seven U.S. retirees rely on Social Security for nearly all their income. But these benefits don’t always come without Uncle Sam’s strings attached.
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The taxation of Social Security began in 1984, following the enactment of Amendments in 1983, which President Reagan signed into law. Under that law, up to 50% of Social Security benefits could be added to taxable income, provided the taxpayer’s total income exceeded certain thresholds.
Let’s dig a little deeper into each state’s social benefits:
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Some States Tax Social Security for Retirees
To worsen financial matters for retirees depending on Social Security to make ends meet, some states tax their benefits. Fortunately, there aren’t nearly as many states imposing their tax on Social Security as those that don’t.
“The list of states that do not tax Social Security is much longer than those that do,” said Brian Kuhn CFP, CLU, SVP and financial advisor at Wealth Enhancement Group. “And each state makes its own rules, which sometimes change, including, recently, in Missouri and Nebraska.”
Missouri and Nebraska have decided to stop taxing Social Security benefits in 2024.
Only 10 States Will Tax Social Security in 2024
Only 10 states do or will continue to tax Social Security benefits in 2024.
“They are Colorado, Connecticut, Kansas, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont and West Virginia,” Kuhn said. “Each state has tax provisions that could provide deductions for individuals below certain thresholds or ages, making each state unique.”
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Most States Won’t Tax Social Security in 2024
Most states — plus Washington, D.C. — won’t tax your Social Security benefits in 2024.
These states are:
Alabama
Alaska
Arizona
Arkansas
California
Delaware
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Mississippi
Missouri
Nebraska
Nevada
New Hampshire
New Jersey
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
South Carolina
South Dakota
Tennessee
Texas
Virginia
Washington
Wisconsin
Washington, D.C.
Wyoming
How Much Do Retirees Save on Social Security Taxes in These States?
Kuhn pointed out that you can calculate how much you’re saving on taxes — assuming you live in a state that does not tax Social Security benefits — by looking up the effective rate of tax you paid to your state for all taxed income sources and applying that to your total Social Security benefits.
“So, for example, if your effective rate in your state was 5%, and you received $30,000 in Social Security benefits, that would be a savings of $1,500,” Kuhn said.
From a big-picture perspective, the amount saved among retirees whose benefits aren’t taxed is quite impressive.
“In Missouri, for instance, retirees are looking at a collective annual saving of around $309 million,” said Jeff Rose, CFP, founder of Good Financial Cents. “Over in Nebraska, it’s about $17 million. That’s a lot of money that retirees get to keep in their pockets instead of it being drained away by state taxes.”
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This article originally appeared on GOBankingRates.com: 41 States That Won’t Tax Social Security Benefits in 2024