Social Security recipients may not be aware that some states will begin taxing their benefits in 2026. While not every state imposes this tax, several do, and it’s important for recipients to be aware of the potential impact on their retirement income.
States like Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, and West Virginia have policies in place that will tax Social Security benefits, according to NerdWallet.
The amount of tax paid will vary depending on a few factors, including the recipient’s adjusted gross income (AGI), tax-filing status, and age. The tax laws also differ between states, so it’s crucial for taxpayers to consult local authorities for updates and specific guidelines.
States That Tax Social Security Benefits
- Colorado: Social Security benefits are taxed depending on the amount received. Taxpayers aged 54 to 55 will not be taxed on the first $20,000 of benefits, but the remainder will be taxed. However, individuals aged 65 and older are not taxed on any Social Security benefits.
- Connecticut: Taxes on Social Security benefits apply only if a taxpayer’s AGI exceeds $75,000 for single filers or $100,000 for those filing jointly. There is also the possibility of an exemption on up to 25% of benefits.
- Minnesota: Social Security taxes apply to individuals whose AGI exceeds $84,490 or $108,320 for joint filers. For married couples filing separately, the threshold is $54,160.
- Montana: Taxes are based on filing status and AGI, with benefits potentially taxed up to 50% for those with AGIs over $25,000 and up to 85% for those with AGIs exceeding $34,000.
- New Mexico: Social Security benefits are taxed if individual income exceeds $100,000 or $150,000 for joint filers.
- Rhode Island: Social Security benefits are taxed for anyone who has not yet reached full retirement age (about 67), or for those with an AGI of $107,000 for singles or more than $133,750 for joint filers.
- Utah: This state taxes Social Security benefits at an AGI threshold of $54,000 for single filers and $90,000 for married couples filing jointly.
- Vermont: Social Security benefits are taxed for single filers with AGIs over $50,000 and joint filers with AGIs over $65,000.
- West Virginia: West Virginia imposes a straightforward 35% tax on Social Security benefits across the board.
How to Supplement Your Social Security Income
Given the uncertainties surrounding Social Security’s future, it’s crucial for workers to explore ways to supplement their retirement income. Experts, like Shannon Benton from the Senior Citizens League, recommend starting early with savings and investing in retirement accounts such as 401(k)s or IRAs.
- 401(k) Plans: These employer-sponsored retirement accounts allow workers to contribute on a tax-deferred basis. Many employers match contributions, often between 2% and 4% of salary, making it an excellent way to grow retirement savings. Maxing out 401(k) contributions, especially if the employer offers a match, should be a top priority.
- IRAs: An Individual Retirement Account (IRA) offers more flexibility than a 401(k), as it is not tied to an employer. Traditional IRA contributions are tax-deductible, and the funds grow tax-free until withdrawn, at which point they are taxed as income.
Tips to Reduce the Tax Burden
Financial experts suggest that residents of these nine states reduce their tax burden by lowering their income, delaying Social Security payments, or paying taxes throughout the year instead of in a lump sum during tax season.
Delaying Social Security benefits can also be a strategy to maximize your retirement income, as the highest benefits are available at age 70.
Deductions to Consider
As tax season approaches, it’s also important to remember the various deductions you may qualify for. Some unique deductions, such as pet-related tax credits, can help save money when filing your taxes.
FAQs
Q: Which states tax Social Security benefits?
A: Nine states that will tax Social Security benefits in 2026 include Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, and West Virginia.
Q: What factors affect how much of my Social Security benefits are taxed?
A: The amount of taxation depends on factors such as your adjusted gross income (AGI), your filing status, and your age.
Q: How can I reduce my tax burden on Social Security benefits?
A: To reduce the tax burden, you could lower your income, delay your Social Security payments, or spread out your tax payments throughout the year.
Q: What are some ways to supplement my Social Security income?
A: Consider investing in retirement accounts like 401(k)s and IRAs, as they allow you to save for retirement in a tax-advantaged way.
Q: Are there any deductions I can make when filing my taxes?
A: Yes, various deductions, including some for pet-related expenses, may apply to help reduce your overall tax burden.
