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- Do Montana Residents Pay State Income Tax on Social Security Benefits?
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Social Security benefits supplement your income later in life. Even though the benefits are paid by the federal government, they might still count as taxable income on your return. So, depending on your total income, you could find yourself in a higher income tax bracket because of your Social Security benefits.
Taxes on SS Income
Only a portion of your Social Security benefits, if any, count as taxable income on your federal return. The taxable percentage of your benefits depends on your combined income and your filing status. The higher your combined income, the larger the taxable percentage of your benefits. For example, as of 2013, up to 50 percent of your benefits counts as taxable income if you're single and your combined income falls between $24,000 and $34,000. If your combined income is higher, up to 85 percent is taxable.
Calculating Combined Income
Your combined income won't appear on any particular line of your income tax return, so you have to calculate it. To do so, add your your adjusted gross income to your nontaxable interest income. Then, add half your Social Security benefits. For example, say your adjusted gross income without your benefits is $20,000, you have $10,000 in nontaxable interest and $18,000 in benefits. Add $20,000 to $10,000 to get $30,000. Then, add $9,000 -- half your Social Security benefits) to $30,000 to find your combined income equals $39,000.
Tax Bracket Effects
If some of your Social Security benefits are taxable, this could push you into a higher tax bracket. However, that higher rate only applies to the income actually in that bracket, not all of your income. For example, say you're a single filer and the 15 percent bracket runs up to $36,250 and then income is taxed at 25 percent. If your income without your Social Security benefits is $30,000 and $9,000 of your benefits are taxable, the first $6,250 of your benefits are taxed at 15 percent and the last $2,750 of your benefits are taxed at 25 percent.
According to the Social Security Administration, most states don't tax your Social Security benefits. So, when you go to figure your state income taxes, you take out any taxable Social Security income from your federal adjusted gross income. Therefore, unless you live in a state that does tax your benefits, your state tax bracket won't go up because you receive them.
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