Social Security taxes seem like they should be straightforward, but the truth is that there are lots of variables that can impact Social Security taxes. Lots of states have their own specific guidelines related to these taxes. The way Social Security is taxed from state to state can actually vary wildly. The good news is that with a little information, it’s actually easy to better understand how Social Security taxes work where you live. Here’s an overview of Social Security taxes by state.
9 States That Don’t Have Income Taxes
There are nine states without income taxes:
- South Dakota
- New Hampshire
Just because a state doesn’t have income tax, it doesn’t mean that living there will prove affordable. It’s easy to zero in on these states when we all want a lower tax bill; and usually, saving some money isn’t that easy.
How do states without income tax work?
Usually, states that lack income tax make up for those funds. Sometimes it’s through additional taxes. Other times, it’s through reduced services. State taxes look different from place to place. Most tax experts can help you with taxes anywhere, but some specialize in their own states’ laws.
New Hampshire and Tennessee
Of the nine states on this list, seven of them don’t levy any personal income tax at all. New Hampshire and Tennessee don’t tax wages. They do, however, tax investment income and interest. Those taxes are set to disappear soon; but, for now, residents should consider them a component of their financial planning.
Social Security Taxes By State: 37 States That Don’t Have Social Security Tax
Some state laws mean that individuals must pay taxes on Social Security benefits at both the federal and the state level. Other states don’t require this. There are 37 states that don’t tax Social Security:
- New Hampshire
- New Jersey
- New York
- North Carolina
- South Carolina
- South Dakota
Social Security helps many older Americans continue to live their lives once their normal incomes stop. Social Security benefits are subject to different degrees of taxation depending on where you live. So, if you’re planning to rely on Social Security benefits, it’s important to understand how taxes on those benefits work in your state.
What does no Social Security tax mean for retirees?
Living in a state without Social Security or income tax doesn’t mean you’re tax-free. Living in a state that doesn’t tax Social Security benefits doesn’t free you from your responsibility to pay federal taxes.
- Not everyone needs to pay federal taxes– it’s dependent on income; you can ask a financial advisor for more information
- Most people do meet the requirements to pay federal tax on Social Security benefits because those requirements are very low
In states without income tax, Social Security is not taxed
Social Security benefits fall into the category of income. If a state does not have income tax, it automatically does not tax Social Security benefits. There are seven states that don’t have state income taxes and, as a result, don’t collect taxes on Social Security benefits:
- South Dakota
When Your Social Security Benefits Will Still Be Taxed
Just because these 37 states don’t enact specific taxes on Social Security, it doesn’t mean you won’t be taxed on Social Security by the federal government (provided you meet the threshold).
The Social Security Administration relies on a concept called “combined income” to determine how much you pay in federal taxes. Your combined income is equal to:
- Half of your total benefit amount for the tax year PLUS
- Any other retirement income (pensions are always a good example)
If you make less than $25,000 per year and file as an individual (or have a combined income under $32,000 per year and file jointly), your benefits will not be taxed. Up to 50% of your benefits are taxable if you make anywhere from $25,000 to $34,000 per year (or $32,000 to $44,000 per year jointly).
Those who have a combined income of more than $34,000 per year (if filing as an individual) will be taxed on up to 85% of their benefits. If you have a combined income and you are married filing jointly, your benefits will be taxed up to 85% once you make more than $44,000 per year.
When is the best time to consult a financial expert and fine-tune my finances?
Most people benefit from a financial tune-up about midway through the year. It’s a good opportunity to see an overview of your finances and start planning how you want to handle things during the upcoming tax year. Plus, since the previous tax season will have ended by the midway point of any given year, it’s easy to learn from missteps in the past.
- You can take another look at your taxes
- You can make plans and resolutions about how to manage your finances
- You can review your investments
- You can get a professional’s opinion of your financial health
- You can double-check your retirement savings
Questions About Social Security Benefits, Retirement Benefits, or Income Tax? Bogart Wealth Can Help
Social Security taxes look different from state to state. People who have fairly similar financial circumstances within the same state may even have totally different tax experiences. Some retirees opt to move to states that don’t tax Social Security benefits, but they still need to worry about federal taxes. Retirement planning is tricky; but luckily, there are financial experts who are prepared to help make it easier. Bogart Wealth is a team of financial professionals that can help. Visit our website today to learn more or contact us to speak to a customer service representative about your concerns. We can help you determine whether you have taxable social security benefits.