It might surprise some people to find out that Social Security benefits are not exempt from being taxed, taking a bite out of their potential retirement income.
But the number of states that tax Social Security will decrease by one in 2022, when West Virginia residents will be able to exclude 100% of Social Security benefits from their taxable income.
It’s a phased approach: for their 2020 state tax returns, West Virginia taxpayers can shield 35% of Social Security benefits from taxable income. That number goes up to 65% in 2021, before the full 100% in 2022. “The Social Security deduction is only allowed for a married couple filing a joint return, not over $100,000, or $50,000 for single individuals or a married individual filing a separate return,” explained Metro News.
Correction: An earlier version of this article omitted the face that the bill was amended during the state’s legislative process, as two helpful readers from West Virginia pointed out.
Are you currently living in one of the states that taxes Social Security benefits? Check the list at the bottom of this article to find out.
While those states will take a bite from your Social Security benefits, some of the other 37 states don’t have any state income tax at all, including Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. So if you live in one of those states, this may be no big news to you.
But a heads-up: Just because your state doesn’t tax your Social Security doesn’t mean those benefits can’t be taxed on the federal level.
Provisional income is a measure used by the IRS to determine if recipients of Social Security are required to pay taxes on their benefits. Calculating your provisional income is important because it will give you an idea of whether you can expect to pay federal taxes on your Social Security benefits, regardless of which state you live in.
The tax rates for provisional income work like this: A single filer whose total is between $25,000 and $34,000, or a joint filer with a total is between $32,000 and $44,000, can pay federal taxes on up to 50% of their Social Security income.
But gathering as much information, including a state’s tax laws, is helpful when faced with a decision.
If your provisional income exceeds $34,000 as a single tax filer, or exceeds $44,000 as a joint filer then you could pay federal taxes on up to 85% of your benefits.
And if you already don’t live in one of the 13 states below, that decision may be just a little bit easier.
States that tax Social Security benefits
- New Mexico
- North Dakota
- Rhode Island
- West Virginia (until 2022)
This article originally appeared on Considerable.com and was syndicated by MediaFeed.org.
Featured Image Credit: DepositPhotos.com.AlertMe