The money provided by Social Security is supposed to help seniors maintain a basic standard of living in retirement — but almost half of them (46%) — pay federal taxes on their benefits due to their level of income.
And to add insult to injury, several states also tax seniors on Social Security benefits. But that number may soon shrink.
A few states are considering (or have recently passed) legislation to reduce or eliminate Social Security taxes. Following is a look at which states are pushing to keep more money in retirees’ pockets, and how.
On May 23, the Minnesota State Legislature passed an omnibus tax bill that makes changes to Social Security taxes, among a vast number of other changes. Once the bill is signed into law, residents with gross incomes of up to $78,000 and joint filers with gross incomes of up to $100,000 will not be taxed on Social Security benefits.
The change means three-quarters of seniors would avoid such state taxes, starting with the 2023 tax year — the one for which taxes are due in spring 2024.
Seniors in the Show-Me State could say “show me the money” beginning with the 2024 tax year if a recent bill is signed into law. Passed by the Missouri Legislature in early May, SB 190 would remove the income eligibility requirements needed for a full tax deduction on certain retirement and Social Security benefits.
The move could leave as much as $318 million more per year in seniors’ pockets, according to St. Louis Public Radio.
The Kansas Legislature recently attempted to pass SB 169, a tax bill that would have reduced the amount of Social Security benefits that are taxable for people with gross incomes between $75,000 and $100,000. (Existing state law already exempts anyone earning less than $75,000 from Social Security taxes.)
States that recently cut taxes on Social Security
In Utah, a law created in March increases the number of seniors who won’t pay state taxes on Social Security benefits by raising the income thresholds for a nonrefundable tax credit on benefits. It kicks in for the 2023 tax year, for which taxes are due in 2024.
In Nebraska, a similar exclusion is more valuable for the 2023 tax year, although this change is not new. It stems from a law created in 2022.
To learn more about both these changes and similar ones in effect this year, check out our article about states that are taxing retirees less in 2023.