As the SSA prepares to send out the checks for September 2024, many beneficiaries are concerned that their checks will result in a cut. While Social Security benefits are fairly stable, there are nine states that impose taxes on benefits, hence actually cutting how much recipients really take home. As you’ll read later, that comes with some significant implications about what it’s like to live in these states. Here are the nine states that could cause residents’ Social Security checks to shrink because of state taxation.
How Social Security Benefits work
Social Security is a lifeline of income for millions of Americans, especially for those who are retired, disabled, and low-income seniors. The SSA pays benefits on a monthly basis according to the birth date of the recipient. For September 2024, payments will be issued on the dates of:
- September 3: Beneficiaries receiving benefits before May 1997
- September 11: Recipients born between the 1st and the 10th
- September 18: Recipients born between the 11th and 20th
- September 25: Birthdays between the 21st and the 31st
Although these checks are provided on a regular basis, due in part to state tax laws, how much the person actually receives can fluctuate greatly.
The impact of state taxes on Social Security
Although federal taxes are not levied on Social Security benefits for most beneficiaries, some states impose a tax on such benefits. All of that could mean a reduced net amount for beneficiaries-a heavy blow if their main source of income is Social Security. Following are the nine states in 2024 that tax Social Security benefits:
- Colorado,
- Connecticut,
- Minnesota,
- Montana,
- Nebraska,
- New Mexico,
- Rhode Island,
- Utah,
- Vermont
Each state varies in how it levies taxes, some of which create provisions for or against the level of Social Security subject to tax. For example, Colorado’s taxation would widely hit most retirees, while Connecticut allows for deductions according to income threshold.
Tax policy breakdown for each state
- Colorado: Assessment of state income tax on Social Security benefits with exemptions for low-income seniors.
- Connecticut: If AGI is above $75,000 single or $100,000 joint filer, then taxation for benefits can apply, but deductions are available.
- Minnesota: This state taxes Social Security benefits depending on one’s income, but it gives many kinds of exemptions, especially for low-income retirees.
- Montana: For tax years beginning 2024, Social Security is taxed as it is from the federal level, but low-income individuals may be entitled to deductions.
- Nebraska: Benefits taxed on a sliding scale based on AGI, though certain income levels are excluded from taxation.
- New Mexico: This state has phased out taxes on Social Security, if the individual has less than $100,000 in income.
- Rhode Island: Taxpayers who are single with an AGI below $86,350, and those whose filing status is joint with an AGI below $107,950 do not pay state taxes on benefits.
- Utah: The state offers a tax credit for Social Security income. It’s phased out for higher earners.
- Vermont: Offers full exemptions for single filers with an AGI of $50,000 or less and partial exemptions for higher incomes.
Effects on beneficiaries
For residents of these nine states, this means that taxing the entire benefit could cut deeply into monthly income for low-income seniors and people who depend on this benefit most in order to meet their living expenses. Yet, as states continue to grapple with budgetary pressure, the prospect of taxation on Social Security is an urgent pending priority issue for many.
With beneficiaries heading into the month of September, along with their regular Social Security checks, it’s worth understanding a key factor in state taxation. People who reside in one of the nine states that tax Social Security benefits may realize that their monthly income will actually take a hit and need to work budgetary plans around such losses. Knowledge about such policies will help recipients better understand what is financially going on in their cases and make proper decisions regarding budgeting and spending.
