It doesn’t seem right that anyone should have to pay income tax on Social Security retirement benefits, at least until the benefits paid exceed the amount of money that the recipient paid into the system over the years. But, this ship has sailed and many of us will be taxed on Social Security income. The question for today is whether you might get hit with a double tax whammy – taxed at both the federal and state levels.
For individual filers, if your income (including Social Security) is between $25,000 and $34,000, you may have to pay tax on up to 50 percent of your benefits. If your combined income is greater than $34,000, up to 85 percent of your benefits may be taxable.
For joint filers, if you and your spouse have a combined income that is between $32,000 and $44,000, you may have to pay tax on up to 50 percent of your benefits. If your joint income is more than $44,000, up to 85 percent of your benefits may be taxable.
What about state income tax? Fortunately, only 14 states tax Social Security retirement benefits at all. Of those 14 states, six tax Social Security income in the same manner as the IRS. The remaining 8 states provide some sort of preferential tax treatment for Social Security income.
I plan on remaining in Tennessee for my primary retirement residence. Tennessee is one of the 36 states that keep their tax claws off your Social Security income. I don’t think that will change in my lifetime. Several attempts to create a general state income tax here have been met with aggressive citizen protests and defeats at the ballot box.
What about your retirement destination? Here is a link to a map that visually shows you how the different states tax Social Security income. It’s always something to consider when you are working on your retirement plan.