Taxes are an unavoidable fact of life, even after you stop working.
Uncle Sam can tax plenty of types of retirement income — including Social Security benefits. And the taxation doesn’t necessarily stop with the federal government.
Some state governments also expect a cut from your Social Security income.
As we recently reported in “How All 50 States Tax Your Retirement Income,” that list includes the following 13 states:
- Colorado
- Connecticut
- Kansas
- Minnesota
- Missouri
- Montana
- Nebraska
- New Mexico
- North Dakota
- Rhode Island
- Utah
- Vermont
- West Virginia
How Social Security income is taxed
Whether your Social Security retirement benefits are subject to federal income taxes depends on your tax filing status and what the U.S. Social Security Administration calls your “combined income.” That includes wages and self-employment income, interest and dividends, and other taxable income.
If your benefits are subject to federal taxes, Uncle Sam will tax up to 85 percent of your benefits. Again, the exact percentage of your Social Security income on which you must pay federal taxes depends on your filing status and combined income. We break it down further in “5 Ways to Avoid Paying Taxes on Your Social Security Benefits.”
Now, states that tax Social Security benefits do so according to their own regulations — which not only vary from state to state but also can differ from the federal tax code.
So, even if your benefits are not subject to federal taxes, they could still be subject to state income taxes — and vice versa. It depends on how that state taxes income and whether it offers any tax breaks that apply to Social Security income.
Connecticut, for example, offers a full exemption for benefits.
Residents of the Constitution State generally pay no taxes on their Social Security income if their federal adjusted gross income is less than $50,000 and their tax filing status is single or married filing separately. The threshold is less than $60,000 for married filing jointly, head of household and qualifying widow or widower.
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