No one enjoys tax time, but for seniors, this annual event can bring unique challenges. Many seniors rely on a fixed income, making tax payments particularly burdensome. The Internal Revenue Service (IRS) typically does not withhold taxes from retirement account withdrawals, which can lead to unexpected bills when filing returns. In addition to retirement withdrawals, seniors may also face taxes on their Social Security benefits if their income surpasses specific thresholds.
If you reside in one of the nine states that tax Social Security benefits, it’s essential to understand your obligations. However, before you panic, take a moment to double-check your state's tax rules; you might find that you qualify for an exemption. Below is a detailed rundown of how different states handle Social Security benefit taxes for seniors.
For the upcoming 2024 tax year, Colorado allows residents aged 65 and older to subtract the amount of Social Security benefits included in their federal taxable income from their state taxable income. For instance, if you report $5,000 of Social Security benefits on your federal return, you can also deduct this amount from your state tax return. This benefit applies only to single filers with an adjusted gross income (AGI) of $75,000 or less, and married couples with AGIs of $95,000 or less. Starting in 2025, this rule will expand to all residents aged 55 and older, while the AGI limits will remain in effect.
Connecticut does not tax Social Security benefits for residents whose AGI is below $100,000 for married couples filing jointly and $75,000 for all other filing statuses. Those exceeding these limits may still qualify for a partial exemption, making Connecticut a favorable state for seniors managing their tax burdens.
Similar to Colorado, Minnesota offers exemptions for some or all federally taxable Social Security benefits from state taxes. The AGI limits for the state’s benefit tax for the 2024 tax year will vary, so it’s vital for seniors to review their financial situation and understand how these thresholds apply to them.
Montana mirrors the federal government’s approach to taxing Social Security benefits by considering provisional income—defined as AGI plus nontaxable interest and half of your annual Social Security benefits. The state has specific tables that outline the potential tax liability based on your provisional income and marital status, making it important for residents to familiarize themselves with these guidelines.
In New Mexico, residents are exempt from state Social Security benefit taxes if their income is under $100,000 for single filers. Married couples filing jointly, heads of household, and qualifying widow(er)s can qualify for an exemption if their income is $150,000 or less. For those filing separately, the income limit is set at $75,000.
Rhode Island offers a significant exemption for seniors, allowing residents to exclude up to $20,000 per person ($40,000 for married couples) of their Social Security benefits from state income tax. To qualify, individuals must meet two criteria: they must be at or over their full retirement age and have a federal AGI within certain limits. For single filers and heads of household, the AGI cap is $101,000, while married couples filing jointly can earn up to $126,150.
Although Utah taxes all residents on their Social Security benefits, the state offers a tax credit designed to reduce tax liabilities. The amount of this credit varies based on filing status and modified AGI. There is ongoing discussion within Utah's government about potentially eliminating the tax on Social Security benefits in the future, which could provide relief for retirees.
Vermont exempts all Social Security benefits from state taxes for those with AGIs below $65,000 for married couples filing jointly and $50,000 for all other filing statuses. Additionally, there is a partial credit available for couples with AGIs ranging from $65,001 to $74,999 and for other filers with AGIs from $50,001 to $59,999.
West Virginia does not tax Social Security benefits for individuals with AGIs of $50,000 or less or for joint filers with AGIs of $100,000 or less. For the 2024 tax year, the state will also exempt 35% of benefits for those exceeding these income limits, increasing to 65% in 2025 before eliminating the tax entirely by 2026.
If you have questions regarding your state’s taxation of Social Security benefits and how it may impact your finances, consulting a tax professional can provide valuable personalized advice. Understanding the nuances of state tax laws is crucial for seniors navigating their financial landscape.
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