AMERICANS in nine US states are at risk of seeing their Social Security checks slashed each month – a scary reality that could have an impact on your retirement planning.
While every beneficiary is potentially hit with taxes on Social Security income by the federal government, certain Americans are forced to shell out even more of their benefits.
Certain Americans residing in nine US states may see their Social Security benefits slashed[/caption]
Some Americans are forced to pay more than just federal taxes on their Social Security benefits[/caption]
Millions of retirees are heavily dependent on their monthly Social Security checks, which make up a major source of income for roughly six in 10 seniors, per a recent Gallup poll.
That marks one of the highest responses since 2002 when the poll began, highlighting just how crucial the social program is for many.
While some Americans see income tax deduced from their monthly Social Security benefits by the federal government, others are at risk of having a greater chunk of their crucial payments slashed.
Retirees in nine states may potentially lose up to 10% of their monthly checks due to state taxes, based on their income and where they live.
COLORADO
Colorado residents aged 65 or older, individuals with an adjusted gross income below $75,000, or joint filers with an AGI under $95,000 do not have to pay taxes on Social Security.
For individuals under the age of 65 whose income is too high for a full exemption, a deduction of up to $20,000 can be applied to their federally taxable Social Security income.
Any federally taxable amount that exceeds this $20,000 deduction is subject to a 4.4% tax.
CONNECTICUT
Connecticut residents with an AGI under $75,000 or joint filers with an AGI below $100,000 are exempt from paying state taxes on Social Security benefits.
For those with higher AGIs, only up to 25% of their benefits may be subject to the state tax.
The tax rate applied varies by income and falls between 4.5% and 6.99%.
MINNESOTA
In Minnesota, individuals with an AGI under $84,490, or $108,320 for joint filers, do not have to pay state taxes on their Social Security payments.
For every $4,000 above the AGI thresholds, taxpayers in the state are taxed on an additional 10% of their Social Security benefits, as included in their federal taxable income.
The applicable state income tax rate ranges from 6.8% to 9.85%, depending on overall income.
MONTANA
In Montana, any portion of an individual’s Social Security benefits that are included in their federal income can also be taxed by the state.
Residents older than 65 are given an additional $5,660 deduction on their state taxes.
The tax rate ranges from 4.7% to 5.9%.
NEW MEXICO
Residents of New Mexico with an AGI of $100,000 or less, or $150,000 or less for joint filers, do not owe the state any taxes from their Social Security.
For all other taxpayers in the state, any portion of their Social Security benefits already taxed at the federal level will also be taxed by New Mexico at a rate between 4.9% and 5.9%.
What is AGI?
AGI, or adjusted gross income, is your total gross income – earnings from all sources before taxes or other deductions – minus specific adjustments.
Your AGI is the starting point for calculating your taxable income and impacts many of the tax deductions and credits you can take at tax time.
This is important because deductions and credits can increase your tax refund or reduce the amount of taxes you owe.
While you may be subject to AGI limits depending on your filing status, these limits usually apply to higher-income earners.
Generally, the more deductions and credits you take, the lower your taxable income.
RHODE ISLAND
Taxpayers in Rhode Island with an AGI under $104,200, or $130,250 for joint filers, are not required to pay state taxes on Social Security.
All others will be taxed on any payments included in their federal income at a rate ranging from 4.75% to 5.99%.
UTAH
In Utah, Social Security income that is included in one’s federal taxes is likewise subject to state taxes.
Residents with an AGI under $45,000 for individuals or $75,000 for joint filers, however, qualify for a tax credit to help offset the state taxes owed on their federally taxable Social Security benefits.
Those with AGIs above the caps may be eligible to receive a partial credit.
The applicable tax rate is 4.55%.
VERMONT
Taxpayers in Vermont with AGIs under $50,000 for individuals or $65,000 for joint filers are not taxed on their Social Security income.
Those with incomes within $10,000 of these thresholds may qualify for a partial deduction.
If AGI exceeds $60,000 for individuals or $75,000 for joint filers, any portion of Social Security benefits included in federal taxable income is also subject to state tax.
The applicable tax rate ranges from 3.35% to 8.75%, depending on income.
WEST VIRGINIA
In West Virginia, individuals with an AGI below $50,000, or $100,000 for joint filers, do not have to pay state taxes on Social Security benefits.
Those with higher incomes are taxed on 35% of the Social Security benefits included in their federal taxable income.
The state tax rate ranges from 4.44% to 4.82%.
However, starting in 2026, West Virginia will fully eliminate state taxes on Social Security income for all residents.
In another US state, shoppers will see the sales tax skyrocket in just days after a July 1 law tacks on a 2% charge.
Meanwhile, Americans are set to get a $3,000 direct IRS refund this month – see the payment schedule and why yours might be delayed.
