Do you ever feel like taxes are the most complicated thing on the planet? That a game of professional chess might be easier to understand? And there’s Social Security, which is and isn’t taxed depending on your income. The whole process can be overwhelming. But knowing your tax situation is imperative to your retirement’s success. One thing to double check — how does your state tax Social Security?
Social Security is taxed in a unique way; once your earnings surpass a certain threshold, you must pay taxes on Social Security benefits. While this is true for every state, some states play it differently. According to The Motley Fool’s Christy Bieber, reporting for USA Today, there are 13 states that tax your benefits further.
Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia. All these states have some taxation on retired seniors that reduce benefits. If you are native to any of these states, you don’t necessarily owe taxes depending on your situation; however, if you do, you may owe more than you’d expect.
Luckily, these states have their own solutions to avoid Social Security tax liability. Tax credits can be granted and applications to certain write-offs can be applied for; but needless-to-say, the rules become considerably more confusing.
Seniors should take these types of factors into consideration when planning the next stages of their retirement. It’s a big country to live in. If you’re living in one of these states, or planning on moving, you need to do your research with the state’s tax commission. Knowing how your benefits are affected by where you live makes your money go farther, so you can be in more control of your own retirement.