Social Security benefits, including disability, supplemental security income and retirement, are taxable at the federal level. Recipients of Social Security benefits might also owe income tax to their state government, depending on the state of residence, the amount of benefits received during the year and the recipient's gross income.
States that Tax Social Security
At the time of publication, 13 states require recipients of Social Security benefits to include the amount they receive in their taxable income: New Mexico, Missouri, Kansas, Colorado, Utah, Nebraska, Minnesota, North Dakota, Montana, West Virginia, Connecticut, Rhode Island and Vermont. The 37 remaining states impose no tax on Social Security income, regardless of the amount received or the recipient's gross income.
Excluding Other Retirement Income
Some of the states that exempt Social Security income from taxation also allow retirees to exclude other retirement income on their tax returns. For example, some of these states are also states that don't tax pensions. The sales and property tax rates in these states tend to be higher to compensate, though. Social Security can't withhold state tax from your benefits, but it can withhold federal tax if you complete an authorization form.
Social Security Taxation Guidelines
If you live in one of the states that impose tax, the exact amount you will pay varies based on state law. For example, in Missouri, you will only pay tax on Social Security benefits if your adjusted gross income exceeds $85,000, or $100,000 for married couples, and the Social Security tax rate is the rate used for regular income. However, even if you exceed the limit, you might qualify to exclude a portion of your Social Security benefits from your taxable income. Conversely, New Mexico taxes Social Security benefits regardless of the recipient's adjusted gross income.
Reduce the Tax with a Federal Deduction
If you must pay state income tax on the Social Security benefits you receive, you can recover some of the payment by taking a federal tax deduction. The Internal Revenue Service allows taxpayers to deduct any state or local income tax they paid during the year from their federally taxable income. To deduct state income tax, you must itemize your deductions using Schedule A of Form 1040, but note that Form 1040 is changing for the 2018 tax year.
Amanda McMullen is a freelancer who has been writing professionally since 2010. She holds a bachelor's degree in mathematics and statistics and a second bachelor's degree in integrated mathematics education.