Social Security benefits are a primary source of income for millions of retirees across America. And although this income isn't enough to support you without funds from other sources, you still want to make sure your money stretches as far as possible.
One way to make it go further: Limit the taxes you pay. One of the best and easiest ways to do that is to live in a state that doesn't tax Social Security benefits. Currently, there are 37 of them and soon there will be 38.
Which are those states? Here's a list of them.
These are the 37 states that won't tax your Social Security benefits
This is the list of the 37 states that will not impose a tax on your Social Security retirement income:
- New Hampshire
- New Jersey
- New York
- North Carolina
- South Carolina
- South Dakota
West Virginia will soon be added to this list as well. In 2020, 35% of Social Security benefits can be excluded from taxable income on West Virginia state tax returns. In 2021, 65% of benefits will not be taxed, and in 2022, West Virginians won't pay any tax on any of their Social Security retirement funds.
Does living in one of these states mean you won't owe any taxes on your Social Security benefits?
Living in these states means you don't have to worry about owing your local government money out of your Social Security checks. But that doesn't mean you'll enjoy your benefits entirely tax-free. You may still owe the federal government.
The good news is, the IRS taxes Social Security benefits only after your income has hit a certain threshold:
- Single filers will see up to half their benefits taxed if their income is between $25,000 and $34,000. For single filers with income above $34,000, up to 85% of Social Security benefits are subject to tax.
- Married joint filers will be taxed on up to 50% of their benefits with an income between $32,000 and $44,000 and will be taxed on up to 85% of benefits once income exceeds $44,000.
Income doesn't have the standard meaning when determining if your benefits are taxed. Instead, it's calculated by adding half of your Social Security benefits to all of your other taxable income and also adding in some income from non-taxable sources, such as interest from muni bonds.
If your income using this calculation hits the thresholds mentioned above, at least part of your benefits will be subject to federal tax at your ordinary income tax rate.
Should you relocate to a state that won't tax your benefits?
If you are worried your Social Security benefits and retirement savings won't be enough to support you, relocating in retirement could help you make your money last.
Of course, there are a lot of factors to consider beyond just how Social Security is taxed. Still, the savings could be considerable, so if you worry you'll face financial struggles, it may be worth looking into a move if you live in one of the minority of states that tax your Social Security checks.