Can you have state taxes withheld from social security

Many people are surprised to learn that they can end up having to pay federal income tax on their Social Security benefits. To add insult to injury, some states also require residents above a certain income threshold to pay state income tax on what they receive from Social Security. Yet the majority of states are kind enough not to tax Social Security, so it's worth considering the issue in choosing where you want to live after you quit your job and start drawing your benefits.

Retirees in the South get a free pass with Social Security — except in one state

All but one of the 16 states of the South (as defined by the Census Bureau) are tax-friendly when it comes to Social Security. Florida, Tennessee, and Texas don't charge state income taxes generally, which makes Social Security taxation largely a moot point. But most of the other states in the region — Alabama, Arkansas, Delaware, Georgia, Kentucky, Louisiana, Maryland, Mississippi, North Carolina, Oklahoma, South Carolina, and Virginia — also have a blanket exemption on taxing Social Security. West Virginia is the only exception; it uses the federal rules to determine what gets included in state income taxes.

The Northeast: unfriendly to some retirees

By contrast, if you're looking to retire to the Northeast, be aware that fully a third of its nine states impose income taxes on some residents. Among the states in that region, New Hampshire doesn't have an income tax, and Maine, Massachusetts, New Jersey, New York, and Pennsylvania don't impose their state taxes on Social Security benefits.

However, Connecticut, Rhode Island, and Vermont do have provisions under which some retirees pay income tax on their Social Security. Of them, Vermont matches the federal law on taxation, using the same rules as the IRS to determine what gets taxed.

Social Security in the Midwest

Out in the Midwest, only seven of 12 states are free of Social Security taxes. South Dakota doesn't have an income tax. Meanwhile, Illinois, Indiana, Iowa, Michigan, Ohio, and Wisconsin have full state income tax protection for those receiving Social Security benefits.

On the other hand, Kansas, Minnesota, Missouri, Nebraska, and North Dakota tax Social Security in varying degrees. Minnesota and North Dakota are notable for following the federal rules on taxation.

How the West taxes Social Security

Nine of the 13 states in the West don't have income taxes on Social Security. Alaska, Nevada, Washington, and Wyoming don't have state income taxes at all, and Arizona, California, Hawaii, Idaho, and Oregon have special provisions exempting Social Security benefits from state taxation. That leaves Colorado, Montana, New Mexico, and Utah, which impose taxes on Social Security for some individuals.

Take advantage of breaks where you can get them

In 37 states, you don't have to worry about state income tax on Social Security. Yet even in some of the others, there are often things you can do. For instance, New Mexico has an exemption for some retirement income that lets you shelter Social Security if you choose to use it in that way. However, many residents use the exemption to protect IRA distributions or pension income instead.

Also, just because your benefits are taxable for federal purposes doesn't mean that they will be even in states that tax Social Security. Many states have much higher thresholds for taxation than the IRS.

Retirees like to hold onto as much of their Social Security as they can, and dealing with taxes is never ideal. Knowing which states tax Social Security at the local level means you can take that into consideration in planning where you want to spend your retirement.

This article was written by Dan Caplinger from The Motley Fool and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to .

Good news for many retirees the majority of states will not be taxing your Social Security benefits. ... [+]

With Social Security being a major part of many people's retirement income, paying less in taxes on this valuable benefit is like getting a raise. Put another way; you should be concerned about how much taxes you will owe on your retirement income, including your Social Security. What may seem like a good amount to live on may not seem so fabulous after taxes.

Depending on your total income in retirement, the IRS may take a cut of your Social Security benefit via federal income taxes. The news is a bit better at the state level depending on where live during your retirement. Currently, 37 states, soon to be 38 states, will not tax your Social Security benefits at the state level. That leaves 13 states, soon to be 12, that will be taxing your Social Security benefits at some level.  

While probably not a big enough issue to warrant moving in retirement, it is something to consider when choosing where you want to spend your golden years. At the very least, you need to know about Social Security taxation when figuring out how much additional income you will need to have in order to maintain your standard of living during retirement.

There has been news of people moving from high-tax states to lower-tax states. That migration appears to have accelerated a bit after the Trump Tax Plan was enacted. For those who don’t know, the state and local (SALT) tax deduction cap is terrible for people in high real estate value and high-tax states like California, New York and New Jersey. Coincidentally, those are some of the places where Trump does not appear to be very popular.

Where you choose to retire will determine if you owe taxes on your Social Security benefits at the ... [+] state level.

The States that Don’t Tax Social Security:

In alphabetical order, Alabama, Alaska, Arizona, Arkansas, California, Colorado, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, Nevada, New Hampshire, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina South Dakota, Tennessee, Texas, Virginia, Washington, Wisconsin, Wyoming.

Related: Is There a Maximum Social Security Benefit?

Which State Won’t Tax Social Security In the Future:

At some point in the future, West Virginia will be joining the list of states that do not tax Social Security. In 2019, a bill was passed that will allow West Virginian taxpayers to avoid paying taxes on all of their Social Security benefits by the year 2022.  

It will be interesting to see if any other states follow suit. Millions of Americans are not anywhere near on track for a secure retirement. Because of that, they will need every penny of their Social Security benefits. Similarly, the states will also need every single cent of tax dollars they can get to provide services to help keep their retirees out of poverty.

Related: Social Security Tips for LGBT Couples

Taxes on Social Security benefits can be a shock to many retirees.

When Are Social Security Benefits Taxed?

Roughly 60% of retirees will not owe federal taxes on their Social Security benefits. A large number will also be free from state taxes on their Social Security retirement income. From a tax standpoint, that is great news but from an income standpoint, it may not be great for their standard of living.

If your total income hits $25,000 as a single retiree or $32,000 as a married couple, your Social Security benefits will begin to get taxed at the federal level. Those income amounts are likely not going to leave you feeling rich. At those income levels, just 50% of your Social Security income will face taxation. Once your income reaches $34,001 for individuals or $44,001 for married couples, 85% of your Social Security benefits will face taxation from the IRS.

Related: How Will Social Security be Changing In 2020?

Planning for a Secure Retirement

Whether you live in a state that will or won’t be taxing your Social Security, in most cases, that monthly benefit will not be enough for you to live off comfortably. Before retiring, look for other ways to increase your retirement income or lower your expenses. That may be things like saving for retirement in your 401(k) plan or IRA. Other people may choose to pay off their homes thereby reducing how much income they will need in retirement. Also, working a few years longer will help to increase your Social Security benefits and reduce the amount of money you will need to fund your retirement.

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