Personal Finance

4 States Where Taxes on Social Security May Fall Soon

Senior man with money
aerogondo2 / Shutterstock.com

Paying federal income taxes on Social Security benefits is a source of great irritation for millions of retirees. After years of coughing up payroll taxes to support the system, some retirees find it galling to be on the hook for an additional levy once they begin receiving benefits.

Even worse, depending on where you live, you might have to pay state income taxes on Social Security benefits, too.

Not every state has such a tax. In fact, 26 states do not Social Security tax benefits at all as of the 2020 tax year, the one for which your return is due this spring. Other states tax benefits to varying degrees.

This year, some states are considering reducing or eliminating such taxes. Following are a handful of states where government officials may give retirees a break on Social Security taxes.

1. West Virginia

New River Gorge Bridge
Kenneth Keifer / Shutterstock.com

In West Virginia, falling Social Security taxes are not simply a possibility, but a reality. As we have reported, the Mountain State has been phasing out all taxes on Social Security income for qualifying taxpayers: those with income of $100,000 or less, if their tax-filing status is married filing jointly, and income of $50,000 or less, if they have any other tax-filing status.

For the 2020 tax year, 35% of a qualifying taxpayer’s benefits are exempt from income taxes. For the 2021 tax year — the one for which your return is due in April 2022 — that figure rises to 65%. And by the 2022 tax year, the tax will be gone altogether for qualifying taxpayers.

2. Utah

Salt Lake City, Utah
Rigucci / Shutterstock.com

A bill moving through the Utah Legislature, House Bill 86, would provide a Social Security tax break to retirees earning up to $50,000 annually. The bill has passed the House and is on its way to the Senate.

The bill’s sponsor, Republican Sen. Walt Brooks, told St. George News:

“It’s a big step forward. … Technically, Social Security is something you’ve already paid over your lifetime.”

3. New Mexico

New Mexico Capitol
Zack Frank / Shutterstock.com

House Bill 49, which is being debated in the House Tax and Revenue Committee, would eliminate state Social Security taxes for all residents. If it passes the committee, it will move to the full House for consideration.

The bill faces some opposition, as opponents say it would cost New Mexico around $100 million in revenue. The notion of eliminating state Social Security taxes first arose in the 2020 Legislature but did not make significant progress.

4. Colorado

Denver Colorado
Kevin Ruck / Shutterstock.com

In his recent “state of the state” speech to Colorado lawmakers, Democratic Gov. Jared Polis proposed eliminating state taxes on Social Security benefits.

Polis said the proposal is part of a package of ideas intended to jump-start Colorado’s economy in the wake of the coronavirus pandemic:

“As Coloradans face tough times, we need to help folks get back on their feet and make life more affordable in our state, from job training to more affordable housing to reducing the tax burden on middle-class families.”

One Colorado newspaper noted that eliminating the state Social Security tax wouldn’t be especially costly. The state already exempts from taxation the first $24,000 in benefits from private, government and military retirement plans.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.


Source link

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button