All the States That Don’t Tax Social Security

The retirees learn that the federal government taxes the benefits of their social services under special conditions. But there are some states that exempt social security taxes.

Social Security: What and Why?

Social Security is an insurance program that grants benefits to retirees, disabled people, and survivors. The program is funded by the contribution of both the employers and the employees following the Federal Insurance Contribution Act. 

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Social Security provides people with a retirement plan. It also provides insurance to the workers who became disabled and to the families who lost their breadwinners. In easy words, Social Security protects one from poverty in old age or other harsh living conditions. 

Social Security

The Plan for Retirement

The most important aspect of a retirement plan is income. Social Security is the biggest source of income for many old men. It is better to plan about your current cash flow and requirements so that you can determine when you should avail your Social Security benefits and how to structure your pension pay-outs.

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Also, Federal taxes are not the only taxes that you have to look out for. Based on the source of income, you may be subjected to some additional taxes as well. 

There are some other factors too, which you should keep in mind while planning where to live after retirement. The factors include property cost, healthcare facilities, proximity to friends and family, availability of recreational parks, and also climate and living conditions. 

States That Exempt Social Security

Two types of States do not deduct Social Security tax from the income of the retirees.

  • States with no Income taxes

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7 States in the US do not collect Income taxes from their residents. You will receive your Social Security benefits without any deduction of taxes if you live in any of these cities, regardless of how much income you have. The list of cities include Alaska, Nevada, South Dakota, Florida, Texas, Washington, and Wyoming

  • States that exempt Social Security taxes from Income tax

28 states do collect income taxes but allow the retirees to deduct Social Security taxes from their income. These states include Alabama, Arkansas, California, Arizona, Delaware, Georgia, Hawaii, Illinois, Idaho, Indiana, Iowa, Kentucky, Louisiana, Maine, Mainland, Massachusetts, Michigan, Mississippi, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Virginia, and Wisconsin.

13 states do not deduct Social Security taxes as a taxable income. These states include  New Mexico, Utah, Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota, Rhode Island, Vermont, and West Virginia. Although these states do not completely exempt the Social Security charges, they do provide breaks and other incentives.

Also, if you are a low earner, you can qualify for Social Security tax exemptions.

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How Much of Your Income Is Taxable?

The Social Security taxes first came into action in 1983 and no inflation adjustments are made since. All people who receive Social Security are subjected to taxes on the benefits. Retirees with low income do not have to pay taxes on their benefits.

However, for retirees having a gross income of 25000$ or a couple’s joint income over 32000$, up to 50% of their benefits will be subjected to taxes. Whereas for retirees with a gross income of 34000$ or a couple’s joint income of 44000$, they have to pay taxes on up to 85% of their Social Security income. 

The bottom line is that you should start planning about your Social Security benefits if you do not a big chunk of it going to the State under the title of taxes.

The most efficient way to do that is to plan it all before your retirement, and the main aspect of it is that when you retire, or when you start taking Social Security benefits. The easiest answer to that is to retire at 70 and get a big amount and if you plan, you can minimize your tax burden in your golden days. 

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