When people in America are planning or preparing to retire, one of the main issues they have to solve is ensuring their Social Security will last as long as possible. Although most states do not tax the Social Security benefits, there are exceptions, meaning that the state in question will tax these benefits at a lower bracket than they usually use. Retirees need this information to manage their taxes well and gain good income to support their lifestyle.
Colorado
Colorado may be medium-favorable regarding taxes for retirees. The state currently taxes Social Security benefits but offers considerable exemptions that can lower the composite taxes. Anyone between 55 and 64 can deduct up to $20000 social security benefits, and anyone 65 years and older can deduct up to $24000 from their state income taxes. Colorado has a maximal income taxation of 4.4%. It is one of the lowest in the country, making it the most preferred state for retirees who want to pay little taxes.
West Virginia
West Virginia is generally not considered a famous retirement state, but it has been improving its laws concerning taxing social security income. In 2020, West Virginia started gradually eliminating the taxation of Social Security income, and in the fiscal year 2022, 35 percent of the benefits will be made tax-free for single taxpayers having an AGI up to $50,000 and married couples filing joint returns up to $100,000. Again, it must be noted that there will be no state taxes on any Social Security benefits by 2025, making West Virginia an ideal place to retire.
New Mexico
It may also be good to note that New Mexico is among the few states that have a policy of imposing taxes on social security benefits, and this remains one of the major concerns of the state, even though it is also good to highlight that the state has the policy of providing tax exemptions to the retirees. The state allows a deduction of $8,000 for individuals receiving income of less than $28,500 for individuals filing as single or $51,000 for married filing. This exception can drastically lower the taxes imposed on Social Security benefits.
Utah
Utah taxes Social Security income and provides a Retirement Tax Credit that assists in reducing this tax. This credit for taxpayers who are 65 years and above is aimed at offering relief to middle-income retirees. It is below this maximum credit, and each individual could receive up to $450 to be used against state taxes on Social Security income. It became apparent that the country follows a flat income tax regime at a rate of over 4%. Only 85% of the total, Utah is still one of the most tax-generic states for retirees.
Missouri
Social Security income is one of the taxable types in Missouri. However, Missouri provides extensive exemptions to retirees. For state taxation purposes, one can deduct 100% of the Social Security income if their adjusted gross income is less than $85,000 in case of single or $100,000 in case of married filing jointly. This puts Missouri among the top less-taxing states for retirees with relatively small incomes.
Kansas
Kansas income tax is levied on Social Security income; however, there is a comprehensive exclusion for everyone earning $75,000 or less on their Adjusted Gross Income regardless of the filing status. This exemption makes Kansas particularly suitable for middle-income retirees seeking to pay the least taxes possible. The state also provides the bonus of a low cost of living and inexpensive homes for more significant money gains during retirement.
Connecticut
Connecticut taxes Social Security, but like most states, has become significantly more retiree-friendly in recent years compared to 10 or 20 years ago. From the tax year 2023, its maximum exclusion was set at 100% for anyone with an AGI of up to $75,000 for single filers or $100,000 for married filing jointly. This change makes Connecticut look more susceptible to retirees who want to live in Connecticut, but the high taxes make it unbearable.
North Dakota
North Dakota has an income tax on Social Security income, but seniors can be excused based on specific amounts of income. Exempt from taxation in states, Social Security benefits, subject to state and state tax, can be excluded by the applicants with an adjusted gross income of $50,000 for single filers and $100,000 for joint filers.
Rhode Island
Rhode Island excludes single defendants earning $95,800 or less and joint defendants earning $119,750 or less annually. This exemption helps to decrease the amount of tax that has to be paid by retirees and distinguishes “Rhode Island as a state that has a low tax regime.”
Alabama
Social security benefits are taxed, and Alabama does allow a retirement tax credit. For single individuals, the Social Security income is entirely tax-exempt if their AGI does not exceed $12,000. In contrast, for married couples filing jointly, any income they earn from Social Security is fully exempted if their AGI is at most $24,000. This policy puts Alabama on the list of the best states to retire in with a low tax rate.
South Carolina
It is essential to highlight that South Carolina is quite friendly to pensioners concerning tax regulations. Yes, Florida does tax Social Security benefits, although it offers Form R-136 as a deduction that limits the amount of taxed money. For single individuals resident in South Carolina, above 65 years of age, $15000 of their Social Security income can be excluded, while for married persons over 65 years of age, a deduction of $30000 of their Social Security income can be applicable.
Tennessee
Tennessee’s retirement tax climate is fair for seniors even if the state taxes SSIA. However, the state provides an exemption on Social Security income, which is especially advantageous for retirees from low to middle-income earners. For the 2024 tax year, the taxation of Social Security benefits is not because this state does not have a personal income tax, and distributions from pensions are not taxed at the local level. With Tennessee not being a state that imposes taxes on wages above the federal level, this exception can make the state financially viable for retired people.