Approximately 1 in 7 retirees in the United States rely on social security According to an AARP analysis, it covers almost all of its income. But these benefits don’t always come without Uncle Sam’s conditions.
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Taxation of Social Security began in 1984 after enactment of the 1983 amendment signed by President Reagan. Under that law, Up to 50% of Social Security benefits can be added to taxable incomeOnly if the taxpayer’s total income exceeds a certain threshold.
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Some states tax Social Security for retirees
To compound the financial problems of retirees who rely on Social Security to survive, some states impose their own state income taxes on benefits. Fortunately, fewer states impose their own taxes on Social Security than do not.
“The list of states that don’t tax Social Security is much longer than the states that do,” said Brian Kuhn, CFP, CLU, senior vice president and financial advisor. wealthy group. “And each state sets its own rules, which change from time to time, including most recently in Missouri and Nebraska.”
Both Missouri and Nebraska have decided to stop taxing Social Security benefits in 2024.
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Only 10 states will tax Social Security in 2024
Only 10 states have or will continue to tax Social Security benefits in 2024.
“Colorado, Connecticut, Kansas, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont and West Virginia,” Kuhn said. “Each state has tax provisions that can provide deductions to individuals under certain thresholds or ages, making each state unique.”
Most states will not tax Social Security in 2024
The majority of states (and Washington, D.C.) will not tax Social Security benefits in 2024. These states are:
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Alabama
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alaska
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arizona
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arkansas
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California
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Delaware
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florida
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georgia
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Hawaii
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idaho
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illinois
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Indiana
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iowa
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kentucky
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louisiana
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maine
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maryland
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Massachusetts
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michigan
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mississippi
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missouri
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nebraska
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nevada
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new hampshire
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new jersey
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new york
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north carolina
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north dakota
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Ohio
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oklahoma
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Oregon
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pennsylvania
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south carolina
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south dakota
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tennessee
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texas
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Virginia
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Washington
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wisconsin
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Washington DC
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wyoming
How much can retirees save in Social Security taxes in these states?
Assuming you live in a state that doesn’t tax Social Security benefits, Kuhn can calculate how much you can save in taxes by looking at and applying the effective tax rate you pay to your state on all sources of taxable income. he pointed out. It affects your total Social Security benefits.
“So, for example, if your state’s effective tax rate is 5 percent and you receive $30,000 in Social Security benefits, you’ll save $1,500,” Kuhn said.
From a big-picture perspective, the amount saved by retirees whose Social Security benefits are not taxed by their state of residence is quite impressive.
“In Missouri, for example, retirees can expect to save approximately $309 million annually in total,” said CFP founder Jeff Rose. excellent financial center. “It’s about $17 million in Nebraska. That’s a lot of money that retirees can keep in their own pockets instead of having it siphoned off in state taxes.”
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This article was first published GOBankingRates.com: 41 states that won’t tax Social Security benefits in 2024