When we talk about retirement, no one wants the world of Social Security to intersect with the world of taxes. According to an AARP analysis, one in 7 retirees in the United States relies heavily on Social Security benefits for almost all of their daily living expenses. The problem here is that these benefits are taxed in some states, but that number is decreasing this year with new states joining the list of those where retirement checks are exempt from taxes.
But when did this tax vortex start to cut off a part of the checks to the elderly? The taxation on Social Security had its first advances in 1984, after Amendments were enacted in 1983: President Ronald Reagan, who was in office at the time, signed the law that established that up to 50% of Social Security benefits could be added to taxable income, provided that the taxpayer’s total income exceeded certain thresholds.
Growing Trend: More States to Abandon Taxation on Social Security
Some states add financial complications to retirees who rely on Social Security for their monthly needs by imposing state taxes on benefits. However, the good news is that not all states tax these benefits; in fact, most do not.
Luckily for the retirees, the list of states that do not tax Social Security is much longer than those that do. In addition, each state has its own rules, which can change over time, as recently happened in Missouri and Nebraska.
Both Missouri and Nebraska have decided to stop taxing Social Security benefits in 2024, which represents significant financial relief for beneficiaries.
It is easier to list the few states that still tax Social Security benefits, so if your state is not on the list below, you can breathe easy because your benefit collection will be tax-free:
- Colorado
- Connecticut
- Kansas
- Minnesota
- Montana
- New Mexico
- Rhode Island
- Utah
- Vermont
- West Virginia
And this is the list of the states that will NOT put any taxes on your Social Security checks:
- Alabama
- Alaska
- Arizona
- Arkansas
- California
- Delaware
- Florida
- Georgia
- Hawaii
- Idaho
- Illinois
- Indiana
- Iowa
- Kentucky
- Louisiana
- Maine
- Maryland
- Massachusetts
- Michigan
- Mississippi
- Missouri
- Nebraska
- Nevada
- New Hampshire
- New Jersey
- New York
- North Carolina
- North Dakota
- Ohio
- Oklahoma
- Oregon
- Pennsylvania
- South Carolina
- South Dakota
- Tennessee
- Texas
- Virginia
- Washington
- Wisconsin
- Washington, D.C.
- Wyoming
Will the Retirement Age Be Raised? There’s a Chance in the Congress
By 2024, Social Security is projected to pay $1.5 trillion in benefits to an average of nearly 68 million Americans each month.
Meanwhile, it is estimated that Social Security trust funds will be depleted over the next decade, which would result in an overall benefit reduction of at least 20% if no prior changes are made. As Congress considers this dilemma, it will also determine the future role of Social Security in the lives of American citizens.
On another related topic, the Republican Study Committee, which includes proposals from 192 Republican members of the House of Representatives, is suggesting that the retirement age be raised to give the system more time to replenish the funds of the Social Security system and avoid a financial catastrophe that is already in the making.
By raising the retirement age for everyone 59 and younger, Democrats on the Budget Committee estimate that 257 million people would have to work longer years to be able to retire with decent benefits.
