As you approach retirement, chances are you’ll rely on your Social Security benefits to help you afford your expenses once your wages stop coming in. But did you know that where you live impacts whether or not you get to keep all of the money from these entitlement benefits?
What Effect Does Your Retirement Location Have on Your Social Security Payments?
If you live in one of these 37 states, you wouldn’t need to worry about losing government assistance.
Because 37 states do not tax Social Security payments and 13 states do, some retirees get to keep more of their Social Security checks than their colleagues.
You won’t have to worry about your state government taking a share of your retirement checks in 37 states, including:
- Alabama
- Alaska
- Arizona
- Arkansas
- California
- Delaware
- Florida
- Georgia
- Hawaii
- Idaho
- Illinois
- Indiana
- Iowa
- Kentucky
- Louisiana
- Maine
- Maryland
- Massachusetts
- Michigan
- Mississippi
- Nevada
- New Hampshire
- New Jersey
- New York
- North Carolina
- Ohio
- Oklahoma
- Oregon
- Pennsylvania
- South Carolina
- South Dakota
- Tennessee
- Texas
- Virginia
- Washington
You can earn as much money as you want in these places without worrying about state taxes on Social Security benefits. However, federal taxes may still be an issue.
Once your provisional income surpasses $25,000 for single tax filers or $32,000 for married joint filers, the IRS may reduce the amount of benefits you receive by taxing you on up to 50% of the benefits at the federal level.
As many as 85% of benefits could be taxed for people who make up to $34,000 for single taxpayers or $44,000 for married joint filers. This provisional income is made up of half of Social Security payments, all taxable income, and some nontaxable income.
What If You’re A Resident Of One Of The Other 13 States?
If you are a retiree living in one of the other 13 states, you may be disappointed to learn that your choice of residence may result in you receiving less Social Security income than seniors who live across the state line in another location.
The good news is that not everyone who lives in one of these 13 locations will face a large tax payment. The nature of the rules will determine the amount you owe and whether you’ll be taxed at all in your area, as well as the amount of income you earn.
Many lower-income Americans are exempt from state benefit taxes, even though higher-income individuals are subject to them.
The Department of Revenue in your state can help you figure out if your Social Security benefits will be taxed. If you are among those who may have to pay a state tax bill, you should factor this into your retirement planning. Because your benefits will be stretched thinner, it’s a good idea to set a bigger savings target to help you get by.
You might also explore moving to one of the majority of places where your benefits are yours to keep without your state taking a share. Still, you should weigh many aspects, including the cost of living and how other retirement income is taxed, before deciding if this is the best choice for you.​​​​​​​
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