Hate taxes? 37 states release Social Security – The Fool Motley

Over the course of your career, you will likely have tens of thousands of dollars in social security contributions withheld on your pay check. Workers are convinced that by paying these taxes at the outset, they will be able to collect social security benefits all their lives when they decide to retire, which represents a fair compromise for financial security and peace of mind. the benefits will give them.

Surprisingly, the federal government requires some social security recipients to include a portion of their benefits in their taxable income. It's shocking for those who feel they have already paid their taxes to earn these benefits. However, taxpayers can at least be reassured by the fact that the vast majority of states do not add insult to injury by adding state income taxes on their residents' income through social security. Below, we will take a closer look at social security taxes to see what you can expect – and an initiative may be wise.

Source of the image: Getty Images.

Why you might have to pay federal tax on your social security

The federal government uses rules to determine whether you must pay tax on your social security benefits. Only beneficiaries who have an accounting income above certain limits should be concerned about the taxation of benefits. Even for those who are subject to tax, only a portion of these benefits is counted.

There are two essential things to keep in mind:

• For the purposes of determining income for social security taxation, you must use your income from sources other than social security, and then add half of what you receive for the year.
• The initial thresholds are $ 25,000 for singles and $ 32,000 for common filers, above which you may need to include up to half of your benefits in your taxable income. Above the upper thresholds of $ 34,000 for singles and $ 44,000 for common filers, up to 85% of social security could be imposed.

Bucking the IRS

You might expect state governments to follow suit by taxing social security. After all, most states struggle to generate enough revenue to keep budgets balanced. However, many states are working hard to financially incentivize their retirees to stay in the state after the end of their careers to help them support their local economies. Igniting retirees with a state social security tax is not the friendliest way to prevent residents from fleeing into less arduous jurisdictions.

As a result, you will find 37 states – with the District of Columbia – that do not impose state income tax on social security.

These states do not tax social security

Graphic by author.

Of these 37 states, you will find seven that have no income taxes: Alaska, Florida, Nevada, South Dakota, Texas, Washington State and the United States. Wyoming. Two others, New Hampshire and Tennessee, have only limited income taxes, which apply only to certain types of income.

Yet for the other 28 states listed above, state governments make a conscious decision in choosing not to collect income tax from social security benefits. The idea is that they hope to keep enough positive spinoffs of retaining retirees in their respective jurisdictions to offset any loss of tax revenues resulting from the exemption.

What you will find elsewhere

Even in states that are not on the list above, the news is not always bad. Only a few states follow the federal rules to the letter, using the same formula to calculate what is included in taxable income.

In most other countries, there are ways to get around at least some taxes. Some states offer exemption amounts that allow you to protect a certain amount of your retirement income from state tax. Others have relatively high income thresholds and if your total income is lower than them, you will not have to pay tax on your benefits.

How to pay the least possible state tax?

There are different strategies you can use to avoid or minimize the state income tax on social security benefits:

• The most obvious is to live in one of the 37 states with no taxation on social security benefits.
• If that does not work, then look at the exemptions available to see if you can qualify. By taking steps to limit retirement income or other types of income, you can sometimes avoid tax altogether.
• If you are likely to have to pay taxes, making sound financial decisions can reduce your tax burden. For example, if your state withdraws from IRAs and 401 (k), using less money on these accounts could reduce your income, potentially increasing the benefit of your benefits. At the very least, less taxable income will result in a reduction in the state's tax bills.

As boring as the fact that the IRS requires some social security recipients to pay taxes on their benefits, you can do some things to reduce your tax burden. Knowing which states consider social security as tax-exempt, you will be able to breathe better, knowing that at least a handful of hands-free hands will not attempt to reduce your hard-earned monthly social security checks.