Last month, April, was National Social Security Month. I hope you enjoyed it and attended many Social Security parties. If not, perhaps you at least took a moment to appreciate the security it provides to tens of millions of Americans. For example, it provides 31% of the income for those older than 65. (This year is the program’s 90th anniversary, too.)
You may be wondering just how much income Social Security provides, though, and whether that income will be taxed. Read on for some answers.
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Average Social Security benefits
The average monthly Social Security benefit for retirees was $2,000, or close to $24,000 for the year, as of April. Clearly, that’s not a lot. That’s just an average, though; if you earned more than average in your working life, you can expect higher-than-average benefits. Still, even the maximum Social Security benefit isn’t as generous as you might think, at $5,108 per month (a little more than $61,000 for the year).
To get a much clearer estimate of how much you can expect to receive from Social Security, set up a my Social Security account at the Social Security Administration (SSA) website.
It’s also worth noting that Social Security’s coffers are shrinking, and if nothing is done, retirees may be receiving reduced benefits in a few years. Also worrisome is that President Donald Trump has made or proposed some changes to Social Security that could hurt Social Security’s outlook. (There are, however, multiple ways to strengthen the program.)
Now, on to the issue of taxation. The good news is that most states do not tax Social Security benefits.
41 states don’t tax Social Security
Here are the 41 states (along with Washington, D.C.) that don’t tax Social Security benefits. See if your state is among them:
Alabama
Alaska
Arizona
Arkansas
California
Delaware
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Mississippi
Missouri
Nebraska
Nevada
New Hampshire
New Jersey
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
South Carolina
South Dakota
Tennessee
Texas
Virginia
Washington
Wisconsin
Wyoming
These 9 states do tax Social Security benefits
The nine states below do tax Social Security benefits. If your state is among them, don’t start hyperventilating. In many of these states, many retirees see their benefits taxed very lightly or not at all.
For example, in Montana, benefits are partially taxed based on income levels and are exempt for incomes below $25,000 for single people and below $32,000 for those who are married and file jointly. In New Mexico, most seniors will not have their benefits taxed at all, as singles earning less than $100,000 and married couples filing jointly with incomes under $150,000 will be exempt.
Colorado
Connecticut
Minnesota
Montana
New Mexico
Rhode Island
Utah
Vermont
West Virginia
Don’t forget the federal government!
The news isn’t all good, though, because the federal government does tax some Social Security benefits. Still, many retirees escape this tax, too. Specifically, up to 85% of your benefits may be taxed federally. The table below offers details:
Filing As | Combined Income* | Percentage of Benefits Taxable |
|---|---|---|
Single individual | Between $25,000 and $34,000 | Up to 50% |
Married, filing jointly | Between $32,000 and $44,000 | Up to 50% |
Single individual | More than $34,000 | Up to 85% |
Married, filing jointly | More than $44,000 | Up to 85% |
Data source: Social Security Administration.
*Your “combined income” is your adjusted gross income (AGI) plus non-taxable interest, plus half of your Social Security benefits.
Be sure you’re reading the table correctly: It doesn’t show a tax rate of 50% or 85% — you won’t see 85% of your benefits lopped off in taxes. Instead, those are the portions of your benefits that might end up being taxed.
The big tax picture
While it’s important to have a good handle on the taxes you’ll face, be sure to consider your big tax picture, and don’t just focus on any one kind of tax. Your state may tax Social Security, for example, but it might not tax income or property. Conversely, you may be happy to pay no property taxes in your state, but your state income tax rate may be high. After all, every state needs to generate revenue.
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