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Tax season can be confusing for retired workers and other Social Security recipients. Benefits can be taxed at the federal and state levels, but the taxable portion of Social Security income varies based on income. Also, the deductions and exemptions vary between states.
Here’s what retired workers and other recipients need to know.
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Retired workers may have to pay federal income tax on Social Security benefits
Social Security is subject to federal income tax when combined income is greater than certain thresholds. Combined income equals adjusted gross income (AGI) plus nontaxable interest plus one-half of Social Security income. The chart below details the taxable portion of benefits at different combined income thresholds based on filing status.
|
Taxable Portion of Benefits |
Combined Income (Single Filer) |
Combined Income (Joint Filer) |
|---|---|---|
|
0% |
Less than $25,000 |
Less than $32,000 |
|
50% |
$25,000 to $34,000 |
$32,000 to $44,000 |
|
85% |
More than $34,000 |
More than $44,000 |
Data source: The Social Security Administration. Congressional Research Service.
Social Security was first subject to federal income tax in 1984. The combined income thresholds have never been adjusted for inflation, but benefit payments tend to increase each year due to wage growth and cost-of-living adjustments (COLAs). Consequently, a far greater percentage of beneficiaries owe tax on Social Security today versus when the law took effect 40 years ago.
Importantly, retirees that owe tax on Social Security income must make quarterly estimated payments to the Internal Revenue Service (IRS). Alternatively, retirees can request that a portion of their benefits be withheld by submitting a Form W-4V to their local Social Security office by mail or fax.
Retirees in certain states may have to pay tax on Social Security income
The number of states that tax Social Security has declined in recent years. However, retired workers in the nine states listed below may still owe taxes in certain situations. Exemptions and deductions vary between states, so beneficiaries need to be familiar with the pertinent rules.
Colorado: The state tax rate is 4.4% for tax-year 2024, but that figure will decline to 4% in 2025. Taxpayers aged 65 and older can deduct all federally taxable Social Security income from their state return. Taxpayers under age 65 can deduct up to $20,000.
Connecticut: The state tax rate ranges from 2% to 6.99%. Social Security is exempt from state income tax for (1) single filers with an AGI below $75,000 and (2) joint filers with an AGI below $100,000. Taxpayers above those thresholds qualify for a partial exemption. No more than 25% of Social Security is subject to tax.
Minnesota: The state tax rate ranges from 5.35% to 9.85%. Social Security is exempt from state income tax for (1) single filers with an AGI below $82,190 and (2) joint filers with an AGI below $105,380. The deductions are phased out by 10% for each $4,000 in excess of the thresholds.
Montana: The state tax rate ranges from 4.7% to 5.9%. Taxpayers aged 65 and over can subtract $5,500 from taxable income, but no other exemptions or deductions are available. Montana is one of the states in which Social Security is taxed most aggressively.
New Mexico: The state tax rate ranges from 1.7% to 5.9%. Social Security is exempt from state income tax for (1) single filers with an AGI below $100,000 and (2) joint filers with an AGI below $150,000.
Rhode Island: The state tax rate ranges from 3.75% to 5.99%. Social Security is exempt from state income tax for (1) single filers with an AGI below $104,200 and (2) joint filers with an AGI below $130,250.
Utah: The state tax rate is 4.65%. Utah offers a tax credit on Social Security for (1) single filers with a modified AGI below $45,000 and (2) joint filers with a modified AGI below $75,000.
Vermont: The state tax rate ranges from 3.35% to 8.75%. Social Security is exempt from state income tax for (1) single filers with an AGI below $50,000 and (2) joint filers with an AGI below $65,000.
West Virginia: The state tax rate ranges from 2.36% to 5.12%. Social Security Is exempt from state income tax for (1) single filers with an AGI below $50,000 and (2) joint filers with an AGI below $100,000.
Importantly, the 41 states not listed above (plus Washington D.C.) do not tax Social Security. Additionally, 13 states do not tax retirement income in any capacity, including Social Security, 401(k) plans, IRAs, and pension benefits.
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