Americans rely on their Social Security benefits to cover a big portion of their expenses during their retirement. Even though people have payroll taxes withheld from their paychecks throughout their careers to pay for Social Security, some retirees have to pay federal income taxes on their benefits.
Adding insult to injury, a handful of states tack on their own income taxes on Social Security. Currently, thirteen states take their share from retiree’s monthly checks, but fortunately for taxpayers in one of those states, Social Security taxation is about to become a thing of the past. Keep reading to find out if it’s your state!
Save money: Here's why you should consider moving during retirement and why it might be easier to catch up on savings in 2020.
There's no formula to which states impose income taxes on Social Security and which don't. Neighboring states often have different rules, so be careful and do your homework.
The 13 states imposing Social Security taxes are:
· New Mexico
· North Dakota
· Rhode Island
· West Virginia (coming off the list)
Something to note is not all these 13 states tax Social Security in exactly the same way. Some charge tax only on the income on which federal tax rules impose income tax, which means that many residents get away without paying anything. Other jurisdictions have specific exemption amounts that help residents avoid tax on at least a portion of their benefits, while others set income limits that differ from federal law. Check with your CPA to know exactly the details in your state.
Be smart about your taxes
Taxes on Social Security aren't the only factor in deciding where you want to spend your retired years. Many locations that have low income taxes have higher property or sales taxes. Some states have no state tax, but property taxes are high and can cancel out the savings. You have to look closely at your financial situation to decide which place would be the best to live. Even then, plenty of nonfinancial issues can take precedence.
Now, for those who live in West Virginia – or who want to live there when they retire – the state Legislature's move to eliminate Social Security taxation by 2022 is good news. Many residents in the dozen states that'll be left will undoubtedly want to look at similar measures in the near future – especially if the West Virginia experiment works well and leads to greater economic prosperity for the Mountaineer State.
Behind in your retirement savings?
If you're like most Americans, you're a few years (or more) behind on your retirement savings. A handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Click here to discover how to learn more about these strategies by reaching out to us! Check out our page on Maximizing your Social Security income!