13 States Where Social Security Benefits Are Taxable

By Sandra Block, Senior Editor, Kiplinger's Personal Finance

Are Social Security benefits taxable? You better believe it. Uncle Sam taxes up to 85% of your benefits, depending on your income, and several states tack on a state tax of their own. West Virginia, for one, treats Social Security benefits the same way as the feds. Other states tax Social Security benefits only if income exceeds a state-specified threshold. For example, Connecticut taxes Social Security benefits if your income tops $50,000, or $60,000 if you’re married and file taxes jointly.

A tax on Social Security doesn’t necessarily make a state unsuitable for retirement. North Dakota, one of the 13 states that taxes Social Security, actually ranks as a very tax-friendly state for retirees. Weigh all state taxes when researching the best places to retire. For each state, we’ve included a link to our full guide to state taxes on retirees. Take a look at the 13 states that tax Social Security benefits.

Colorado

State Taxes on Social Security: For beneficiaries younger than 65, up to $20,000 of Social Security benefits can be excluded, along with other retirement income. Those 65 and older can exclude benefits and other retirement income up to $24,000. Also, Social Security income not taxed by the federal government is not added back to adjusted gross income for state income tax purposes.

Sales Tax: 2.9% state levy. Localities can add as much as 8.30%, and the average combined rate is 7.52%, according to the Tax Foundation.

Income Tax Range: All Colorado residents who have federal taxable income pay a flat rate of 4.63%. Taxpayers are also subject to a state alternative minimum tax.

Property Taxes: The median property tax on Colorado’s median home value of $264,600 is $1,516.

Inheritance and Estate Taxes: There is no inheritance tax or estate tax.

For details on tax breaks for retirees and state taxes on other retirement income, see the complete guide to taxes on retirees in Colorado.

Connecticut

State Taxes on Social Security: Social Security is exempt for individual taxpayers with federal adjusted gross income of less than $50,000 and for married taxpayers filing jointly with federal AGI of less than $60,000.

Sales Tax: The state taxes most items at 6.35%, but localities are not allowed to add to that. Jewelry valued at more than $5,000 and clothing, footwear and accessories priced at more than $1,000 per item are taxable at 7.75%.

Income Tax Range: Low: 3% (on up to $20,000 of taxable income for married joint filers and up to $10,000 for those filing individually); High: 6.99% (on the amount over $1 million for married joint filers and over $500,000 for those filing individually).

Property Taxes: The median property tax on Connecticut’s median home value of $269,300 is $5,443.

Inheritance and Estate Taxes: Connecticut imposes an estate tax on the transfer of estates valued at $3.6 million or more in 2019. Rates range from 7.2% to 12%. Connecticut is the only state with a gift tax on assets you give away while alive. The state’s tax law requires that you file Connecticut gift tax returns every year to identify such gifts; however, taxes (at rates ranging from 7.2% to 12%) are due only when the aggregate value of gifts made to any individual since 2005 exceeds $2 million.

For details on tax breaks for retirees and state taxes on other retirement income, see the complete guide to taxes on retirees in Connecticut.

Kansas

State Taxes on Social Security: Social Security benefits are exempt from Kansas income tax for residents with a federal adjusted gross income of $75,000 or less.

Sales Tax: 6.5% state levy. Localities can add as much as 4%, and the average combined rate is 8.68%, according to the Tax Foundation. These rates apply to groceries as well. Starting in 2020, sales tax on food could be lowered to 2%. A food sales tax credit of $125 per person is available to seniors and those claiming dependents; income limitations apply.

Income Tax Range: Low: 3.1% (on $2,500 or less of taxable income for single filers and $5,000 or less for joint filers);High: 5.7% (on more than $30,000 of taxable income for single filers and more than $60,000 for joint filers).

Property Taxes: The median property tax on Kansas’ median home value of $135,300 is $1,890.

Inheritance and Estate Taxes: There is no estate tax or inheritance tax.

For details on tax breaks for retirees and state taxes on other retirement income, see the complete guide to taxes on retirees in Kansas.

Minnesota

State Taxes on Social Security: Social Security income is taxable, but a married couple filing jointly can subtract $4,500 of their federally taxable Social Security benefits from their state income. (The break is $3,500 for single and head of household, $2,250 for married separate filers). Make more than $78,530 of income (for married filers) and the break gets phased out, and is gone for those with more than $101,030 of taxable income. Those are the 2018 limits; they’re adjusted each year for inflation.

Sales Tax: 6.875% state levy. Localities can add as much as 2%, with an average combined rate of 7.43%, according to the Tax Foundation. Most clothing and footwear are exempt.

Income Tax Range: Low: 5.35% (on less than $25,890 of taxable income for single filers and on less than $37,850 for joint filers); High: 9.85% (on more than $160,020 of taxable income for single filers and on more than $266,700 for joint filers).

Property Taxes: The median property tax on Minnesota’s median home value of $191,500 is $2,234.

Inheritance and Estate Taxes: Minnesota’s estate-tax exemption of $2.7 million in 2019 will rise to $3 million in 2020. Taxable gifts made within three years prior to death are considered part of the estate. Rates range between 5.6% – 16%.

For details on tax breaks for retirees and state taxes on other retirement income, see the complete guide to taxes on retirees in Minnesota.

Missouri

State Taxes on Social Security: Social Security benefits are not taxed for single taxpayers with adjusted gross income of less than $85,000 and married couples with AGI of less than $100,000. Taxpayers who exceed those income limits may qualify for a partial exemption on their benefits.

Sales Tax: 4.225% state levy. Localities can add as much as 5%, and the average combined rate is 8.03%, according to the Tax Foundation. Food that qualifies for the federal supplemental nutrition assistance program (SNAP) and is intended for home consumption is taxed at 1.225%; local tax is also due.

Income Tax Range: 1.5% (on taxable of income of $103 or more); High: 5.9% (on more than $9,253 of taxable income). Kansas City and St. Louis have an earnings tax of 1 percent. Residents can deduct some of their federal income tax from state taxable income (up to $5,000 per single filer/$10,000 for combined filers).

Property Taxes: The median property tax on Missouri’s median home value of $141,200 is $1,408.

Inheritance and Estate Taxes: There is no inheritance tax or estate tax.

For details on tax breaks for retirees and state taxes on other retirement income, see the complete guide to taxes on retirees in Missouri.

Montana

State Taxes on Social Security: Social Security benefits are taxable. The taxable amount may be different from the federally taxable amount because Montana taxes some types of income that the federal government does not, and vice versa.

Sales Tax: No sales tax. Resort areas such as Big Sky, Red Lodge and West Yellowstone have local sales taxes.

Income Tax Range: Low: 1% (on up to $3,000 of taxable income); High: 6.9% (on taxable income over $17,900). Montana permits filers to deduct some of their federal income tax.

Property Taxes: The median property tax on Montana’s median home value of $199,700 is $1,698.

Inheritance and Estate Taxes: There is no inheritance tax or estate tax.

For details on tax breaks for retirees and state taxes on other retirement income, see the complete guide to taxes on retirees in Montana.

Nebraska

State Taxes on Social Security: A taxpayer may subtract Social Security income included in federal adjusted gross income if a taxpayer’s federal adjusted gross income is less than or equal to $58,000 for married couples filing jointly, or $43,000 for all other filers.

Sales Tax: 5.5% state levy. Localities can add as much as 2.0%, and the average combined rate is 6.89%, according to the Tax Foundation.

Income Tax Range: Low: 2.46% (on up to $3,150 of taxable income for single filers and $6,120 for married couples filing jointly); High: 6.84% (on taxable income over $30,420 for single filers and $60,480 for married couples filing jointly).

Property Taxes: The median property tax on Nebraska’s median home value of $137,300 is $2,506.

Inheritance and Estate Taxes: There is no estate tax. Nebraska’s inheritance tax is a local tax administered by counties and ranges from 1% to 18%; assets passing to a spouse or charity are exempt from inheritance taxes.

For details on tax breaks for retirees and state taxes on other retirement income, see the complete guide to taxes on retirees in Nebraska.

New Mexico

State Taxes on Social Security: Benefits are taxed. But Social Security income can be included as part of an overall retirement-income exemption of up to $8,000 per person, subject to income restrictions.

Sales Tax: 5.125% state levy. Localities can add as much as 4.13%, and the average combined rate is 7.78%, according to the Tax Foundation. New Mexico’s tax is a gross receipts tax that covers most services.

Income Tax Range: Low: 1.7% (on up to $5,500 of taxable income for single filers and $8,000 for joint filers); High: 4.9% (on taxable income over $16,000 for single filers and over $24,000 for married couples filing jointly)

Property Taxes: The median property tax on New Mexico’s median home value of $161,600 is $1,232.

Inheritance and Estate Taxes: There is no inheritance tax or estate tax.

For details on tax breaks for retirees and state taxes on other retirement income, see the complete guide to taxes on retirees in New Mexico.

North Dakota

State Taxes on Social Security: Benefits are taxed to the same extent as on the federal tax return.

Sales Tax: 5% state levy. Localities can add as much as 3.5%, and the average combined rate is 6.83%, according to the Tax Foundation. “New farm machinery, new farm machinery attachments or new irrigation equipment [used] exclusively for agricultural purposes” is taxed by the state at 3%. Local taxes may still apply.

Income Tax Range: Low: 1.10% (on up to $38,700 of taxable income for singles and up to $63,400 for married couples filing jointly); High: 2.90% (on taxable income over $424,950).

Property Taxes: The median property tax on North Dakota’s median home value of $164,000 is $1,729.

Inheritance and Estate Taxes: There is no inheritance tax and no estate tax.

For details on tax breaks for retirees and state taxes on other retirement income, see the complete guide to taxes on retirees in North Dakota.

Rhode Island

State Taxes on Social Security: Rhode Island doesn’t tax Social Security benefits for single filers with up to $83,550 in adjusted gross income and joint filers with up to $104,450 in AGI. Those are the 2018 limits; they’re adjusted each year for inflation.

Sales Tax: 7% state levy. No local taxes. Clothing and footwear with an item price of $250 or less are exempt.

Income Tax Range: Low: 3.75% (on up to $62,500 of taxable income); High: 5.99% (on taxable income over $149,150).

Property Taxes: The median property tax on Rhode Island’s median home value of $238,200 is $3,929.

Inheritance and Estate Taxes: Rhode Island has an estate tax with an exclusion level that’s indexed to inflation (the 2019 threshold was $1,561,719). Rates range from 0.8% to 16%. There is no inheritance tax.

For details on tax breaks for retirees and state taxes on other retirement income, see the complete guide to taxes on retirees in Rhode Island.

Utah

State Taxes on Social Security: Social Security benefits are taxed. Benefits may qualify for a retirement-income tax credit.

Sales Tax: State levy is 5.95%, including a 2.15% tax that goes to local governments. Localities can add up to an additional 2.65% as well; the average combined rate is 6.78%, according to the Tax Foundation. Groceries are taxed at 3%.

Income Tax Range: Utah has a flat tax of 5%.

Property Taxes: The median property tax on Utah’s median home value of $223,200 is $1,480.

Inheritance and Estate Taxes: There is no inheritance tax or estate tax.

For details on tax breaks for retirees and state taxes on other retirement income, see the complete guide to taxes on retirees in Utah.

Vermont

State Taxes on Social Security: Under a law that went into effect in 2018, Social Security benefits are exempt for single filers making less than $45,000 a year ($60,000 for joint filers). This break phases out as income rises and expires for single filers making more than $55,000 ($70,000 for joint filers).

Sales Tax: 6% state levy. Municipalities can add 1% to that, but the average combined rate is 6.18%, according to the Tax Foundation. A wide range of clothing is exempt year round.

Income Tax Range: Low: 3.35% (on up to $38,700 of taxable income for singles and up to $64,600 for joint filers); High: 8.75% (on taxable income over for $195,450 for singles and up to $237,950 for joint filers).

Property Taxes: The median property tax on Vermont’s median home value of $218,900 is $3,893.

Inheritance and Estate Taxes: Estate tax is imposed on estates exceeding $2.75 million. The rate is a flat 16%. Vermont has no inheritance tax.

For details on tax breaks for retirees and state taxes on other retirement income, see the complete guide to taxes on retirees in Vermont.

West Virginia

State Taxes on Social Security: Social Security benefits are taxed to the extent that benefits are taxed by the federal government. Legislation to end this tax is under consideration in the state legislature.

Sales Tax: 6% state levy, municipalities can add up to 1% to that, but the average combined rate is 6.29%.

Income Tax Range: Low: 3% (on up to $10,000 of taxable income); High: 6.5% (on taxable income of $60,000 or more).

Property Taxes: The median property tax on West Virginia’s median home value of $107,400 is $629.

This article provided by NewsEdge.