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38 States That Don't Tax Social Security Benefits

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38 States That Don't Tax Social Security Benefits

With retirement getting more expensive all the time, people want to figure out how to stretch their Social Security dollars as far as possible. You probably know about things you can do to increase your benefits, like boosting your income today. But most people don't give enough thought to avoiding Social Security benefit taxes.

Not all states have them, but if yours does, you could lose a chunk of your checks to the government every year. Here's what you need to know.

Image source: Getty Images.

These 38 states don't have Social Security benefit taxes

The following 38 states don't tax the Social Security benefits of any of their residents:

  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. Iowa
  14. Kentucky
  15. Louisiana
  16. Maine
  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 D.C., you also won't have to worry about any district taxes on your Social Security benefits. But it's a different story for 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 beneficiaries in these states owe taxes. Each state government sets its own rules that determine who owes, but it's generally those with high incomes or high annual Social Security benefits. If you're worried, check with your state's department of taxation to learn how it determines who pays Social Security benefit taxes.

The federal government taxes benefits, too

Even if your state government doesn't take any of your benefits, the federal government might. It decides how much you owe by looking at your combined, or provisional, income. This is your adjusted gross income (AGI), plus nontaxable interest, and half your annual Social Security benefit.

Here's how much you could owe based on your combined income and your marital status:

Marital Status

Up to 50% of Benefits Taxable

Up to 85% of Benefits Taxable

Single

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

Provisional income greater than $34,000

Married, filing jointly

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

Provisional income greater than $44,000

Data source: Social Security Administration.

This doesn't mean you'll lose up to 85% of your benefits. It just means you could owe taxes on that much, but the amount you'll owe depends on your tax bracket for the year. If you fall in the 12% tax bracket, for example, you might only owe 12% in taxes on up to 85% of your benefits.

Sometimes, it's possible to avoid federal and state benefit taxes by adjusting your spending or relying more upon your Roth savings account for withdrawals as you near the threshold for benefit taxation. But if you don't have Roth savings or you need to spend more to cover your essential expenses, this may not be an option.

If you know you'll owe taxes, the best thing to do is accept it and set aside the funds necessary to cover the bill. Or if you get hit with 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 tax debt you're unable to pay, the federal government could start garnishing your Social Security checks before they even get to you. No one wants that, so do your best to stay on top of all of your taxes.

The $18,984 Social Security bonus most retirees completely overlook

If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $18,984 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how to learn more about these strategies.

The Motley Fool has a disclosure policy.

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