Many retired couples in the United States move from one state to another, looking for better benefits or tax reductions on their retirement. However, many do not understand what the implications of that are. Some wonder what happens to the benefit: Will there be changes automatically? Well, the answer may seem complicated, but it’s actually not.
The amount you can keep of these benefits could be affected due to differences in the cost of living between states. Many states can offer benefits to retirees, from a better quality of life to job opportunities and even a climate more suited to the physical needs and health of individuals. However, this decision should also be considered from a financial point of view, since a new place of residence involves a lot of expenses in moving and possibly a new structure of income and expenses.
The direct impact of the move on Social Security benefits lies in the fact that the cost of living varies from state to state. For example, if you move to a state with a high cost of living such as California or New York, you may have to allocate more money per month to cover the cost of housing, medicine and food. On the contrary, if you move to a lower cost of living state, your expenses may decrease, and you may even improve your saving ability.
It is worth clarifying that the amount of your benefit will not change because the Social Security Administration (SSA) uses the same formula to calculate benefits for all seniors in all states, regardless of where they live. The SSA uses the number of years you have worked, the income during those years, and the age at which you claimed benefits to determine how much the monthly check will be.
One of the key points is the amount of taxes that Social Security benefits pay in different states. In 2024, 10 states are taxing Social Security benefits for some of the seniors.
Watch Out for Taxes Over Social Security Benefits
Colorado: In Colorado, residents age 65 and older pay no taxes on Social Security benefits. However, those under the age of 65 who receive more than $20,000 in benefits could owe 4.4% of any amount over this threshold.
Connecticut: In Connecticut, taxpayers are exempt from state taxes on Social Security benefits if their adjusted gross income (AGI) is less than $100,000 for married couples filing a joint return, or $75,000 for other taxpayers. Those with higher AGIS could qualify for a partial exemption, limiting their taxable Social Security benefits to 25% of the amount received during the year. State income tax rates start at 2%.
Kansas: Kansas taxes the Social Security benefits of all beneficiaries with AGI over $75,000, regardless of their filing status. The tax rate for these residents is 5.7%.
Minnesota: In Minnesota, residents can deduct up to $4,560 for single taxpayers and heads of household, and up to $5,840 for married couples filing a joint return. Those filing a separate return have a deduction limited to $2,920. These limits are lower for those with incomes above certain thresholds. State income tax rates range from 5.35% to 9.85%.
Montana: Montana uses combined income to determine who owes taxes on Social Security benefits. Single adults with combined income over $25,000 and married couples filing a joint return with combined income over $32,000 owe taxes of 4.7% or 5.9%.
New Mexico: New Mexico exempts seniors from taxes on Social Security benefits if their income falls below certain thresholds. State income tax rates range from 1.7% to 4.9%.
Rhode Island: In Rhode Island, the Social Security benefits of seniors claiming below their full retirement age are taxed if their AGI exceeds certain thresholds. Income tax rates in the state range from 3.75% to 5.99%.
Utah: Utah exempts seniors from state taxes on Social Security benefits if their modified adjusted gross income (MAGI) is below certain thresholds. The income tax rate is 4.65%.
Vermont: Vermont does not tax the Social Security benefits of married couples with AGIS below certain thresholds. State income tax rates range from 3.35% to 8.75%.
West Virginia: In West Virginia, married couples with AGI below certain thresholds are exempt from state Social Security benefit tax. Those who do not qualify for this exemption could pay between 3.825% and 5.525% in income taxes on their benefits.