ALL THE MONEY NEWS YOU NEED TO KNOW | | | | | | Medora Lee | Money and Personal Finance reporter
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Good morning. This is Medora Lee with your Daily Money, Tax Edition. |
First, my apologies. I got sidetracked catching up on movies the week before the Oscars and forgot to post our usual Sunday tax edition on March 3. |
The good news is this week you'll get two tax newsletters instead of one. Then we'll be back to our regular Sunday schedule where between now and April 15 we'll walk you through what's new and newsworthy in Tax Season 2024. |
Now, let's talk about state taxes on Social Security. |
How do states tax Social Security benefits? |
Only a dozen states tax Social Security benefits. While each state has different rules on how they will tax your Social Security money, age and income usually determine if you pay. You should check with your state to determine the exact parameters. |
Read more about how states determine the Social Security tax. |
12 states that tax Social Security benefits |
| • | Colorado: If you're 65 or older and your Social Security benefits included in your federal taxable income tops $24,000, you can subtract the full amount of those benefits from your Colorado tax returns. However, if you're under 65 years old, only up to the first $20,000 isn't taxed. | | • | Connecticut: Single Social Security recipients with adjusted gross income (AGI) below $75,000, and $100,000 for married joint filers, aren't taxed on their benefits. However, if your income tops those thresholds, 25% of your benefits may be taxed. | | • | Kansas: If your AGI tops $75,000, your benefits are taxed. | | • | Minnesota: Social Security benefits are fully or partially exempt from Minnesota's income tax. Exemptions phase out at $105,380 if married and filing jointly, or $82,190 for singles. | | • | Missouri: For one more year, if your AGI, excluding Social Security benefits, reaches $100,000 or more as a married couple filing jointly, or $85,000 as a single filer, you'll have to pay some tax on your benefits unless the amount your AGI exceeds the threshold is less than your Social Security benefit amount. Beginning in tax year 2024, no one will have to pay tax on Social Security benefits. | | • | Montana: Your AGI will determine how much tax you pay on your Social Security benefits. | | • | Nebraska: For tax year 2023, 60% of your Social Security benefits are exempt from tax. Starting in 2024, you won't have to pay any tax on Social Security checks. | | • | New Mexico: Only the very top earners must pay tax on their benefits. Most Social Security recipients don't. Single taxpayers with incomes below $100,000, married filing jointly couples earning less than $150,000, and married filing separately couples earning below $75,000 are exempt from Social Security tax. | | • | Rhode Island: If your income exceeds $101,000 for single filers or $126,250 if you're filing jointly, or if you're younger than what Social Security considers full retirement age, you get no tax break. | | • | Utah: Your benefits will be taxed if your income is $45,000 or more, $75,000 or more if you're head of household or married filing jointly, or $37,500 if married filing separately. Below those thresholds, you may be able to claim a nonrefundable credit for your benefits. | | • | Vermont: Single taxpayers with AGI below $50,000, and joint filers with AGI below $65,000 don't pay any tax on their benefits. For all other filers, the income threshold for the full exemption is $50,000. The exemption phases out beyond those levels. | | • | West Virginia: Most lists don't include West Virginia but if your income hits $100,000 or more for couples filing jointly, or $50,000 or more for single filers, your benefits may be taxed. | | "When you add the potential of taxes being assessed on (social security) benefits as well, it pays to be knowledgeable on how 'retirement friendly' your state is," says Heather Schreiber, the president of HLS Retirement Consulting. BackyardProduction/Getty Images/iStockphoto |
How can you avoid state taxes on Social Security benefits? |
The best way to avoid taxes on Social Security benefits is to limit your income. |
You can do this by investing with a Roth IRA or Health Savings Account (HSA) while saving. Roth IRA and qualified HSA withdrawals aren't counted as taxable income. They are tax-free. |
Read more about how to avoid Social Security taxes, in general. |
This has been a special Tax Edition of The Daily Money. Each weekday, The Daily Money delivers the best consumer news from USA TODAY. We break down financial news and provide the TLDR version: how decisions by the Federal Reserve, government and companies impact you. | | | | If you had a Marketplace health plan and received an advance premium tax credit, file your taxes to see if you're due a refund or owe money from it. | | | |  | Age matters in taxes. When can you take the Child Tax Credit or an extra standard deduction? Here's a list of tax birthdays to mark on your calendar. | | | | Believe it or not, if you've lost your tax return for 2022, you're not alone. People move. Boxes filled with paper get lost. Tax preparers retire. | | | | President Joe Biden announced plans to tax corporations and those making over $400,000, in an effort to lower the country's financial deficit. | | | | Tax refunds continue to arrive for early filers. The good news for some is the average tax refund issued so far is $3,182, which is up from last year. | | | | Biden's proposed taxes on corporations and billionaires are a direct counter to the economic legacy of Donald Trump. | | | | IRS Free File program use jumps almost 10% from this time a year ago, according to the IRS. | | | | There's a free tax program, but few people are apparently taking advantage of it. Pennygem's Justin Kircher has the story. | | | | Tax Day, or the deadline to file taxes is April 15 this year, although you can request an extension. | | | | After pausing during the pandemic, the IRS is sending out LT38 Notices for the first time in two years. Don't panic. Also don't ignore them. | | | | |  | Sign up for the news you want | Exclusive newsletters are part of your subscription, don't miss out! We're always working to add benefits for subscribers like you. | | | | | | |
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