Social Security benefits are notoriously complex. So it may not come as a surprise that figuring out how those benefits are taxed can be complex as well.
In addition to federal tax considerations, many states have specific provisions regarding Social Security benefits, meaning the amount of tax you pay on your benefits may vary widely based on where you live.
The following maps should help you get a handle, at a high level, on whether you’ll need to pay state income tax on Social Security.
States that Don’t have Income Taxes
There are nine states that don’t have any state income tax. This extends to Social Security benefits, meaning you wouldn’t pay state tax on that income.
Additionally, 28 states have decided not to tax Social Security benefits, specifically. So, taken together, 37 states do not tax Social Security income.
Put another way, here’s a simpler breakdown of the 11 states that do tax Social Security benefits.
One note for anyone living in (or considering a move to) New Hampshire and Tennessee—while these states don’t tax wages, they do tax investment income and interest.
If you’re tempted to relocate to a state with no Social Security tax, remember that taxes are only one part of the equation. Just because a state doesn’t tax Social Security income (or doesn’t have an income tax), doesn’t mean the state is affordable. And just because you don’t need to pay state income taxes on your Social Security benefits doesn’t mean that income is completely tax free.
Federal Income Tax and Social Security Benefits
Whether you’ll need to pay federal income tax on your benefits depends on your total income.
The Social Security Administration looks at any retirement income you received outside of your Social Security benefits, then adds 50% of your total Social Security benefits for the year to that number.
● Your benefits will not be taxed if you make less than $25,000 per year as an individual or make less than $32,000 a year married filing jointly.
● Up to 50% of your benefits will be subject to income tax if you make $25,000–$34,000 as an individual or $32,000–$44,000 married filing jointly.
● Up to 85% of your benefits will be taxed (85% is the max) if your income is greater than $34,000 as an individual or $44,000 if you’re married and file jointly.
Of course, it’s always a good idea to check the Social Security website to see if these thresholds have changed. Generally, you can elect to have federal income tax withheld from your benefits to avoid a surprise tax bill when you file your tax return.
Since your income may fluctuate in retirement depending on your expenses and personal circumstances, it’s a good idea to check in about halfway through the year to see if your income aligns with expectations. If not, you can adjust your Social Security withholdings and plan accordingly.
A Bogart Wealth Advisor can help with this process, both in terms of helping you navigate the Social Security withholding paperwork and estimating your income in retirement. We may also be able to work with a tax professional on a strategy to help you minimize taxes in retirement. Contact us to learn more.
