Sorting out where to live as a retiree is very important. And while many retirees have beautiful abodes and communities to call home, priorities tend to shift when retirement comes knocking on your door. You see, all that hard-earned retirement and Social Security income need to last.
While the majority of states in America opt out of taxing retirees’ Social Security benefits, there are some unfortunate exceptions to the rule. If retirees live in one of these 13 states, chances are your Social Security and other retirement income is being heavily taxed.
Both Social Security and Railroad Retirement income are taxed in the state of Colorado. However, there is some good news. Taxpayers between the ages of 55 and 64 are able to exclude a total of $20,000 of retirement income. For taxpayers 65 years or older, a total of $24,000 can be excluded. That includes IRAs, 401(k)s, private pensions, and public pensions. As for anything beyond this $20,000 to $24,000, all residents possessing federal taxable income are required to pay the flat tax rate of 4.63%. On the brighter side, seniors in Colorado do receive other tax breaks like homestead exemptions and rebates on property taxes and heating expenses.
Unfortunately, Connecticut is one of the least tax-friendly states in the country, particularly for retirees. With the exception of military pensions, Connecticut offers absolutely zero exemptions for pensions and retirement incomes. When it comes to Social Security benefits, only individuals with $50,000 or less AGI and joint filers with less than $60,000 AGI are exempt from taxation. Everyone else is subject to pay the regular income tax rate, which ranges anywhere from 3% to 7%.
Another unfriendly state when it comes to taxes is Kansas. All distributions received from retirement accounts, 401(k)s, and pensions from out-of-state are required to pay full state income taxes. As for Social Security benefits, individuals with an AGI of $75,000 or more are expected to pay full state income tax rates. The only individuals excluded from the Social Security income taxation are those with an AGI of less than $75,000. And in 2018, the income tax rate will range anywhere from 3.1% to 5.7%.
When it comes to taxes in Minnesota, retirees will certainly feel the pangs. Luckily a few exemptions exist but don’t get too excited. When it comes to Social Security benefits, married couples are allowed to subtract $4,500 from their taxable Social Security income. As for singles and head of households, that figure drops to $3,500. Lastly, married separate filers are allowed to subtract $2,250. Unfortunately, that tax break is phased out for married filers making more than $77,000 and becomes null and void for anyone making over $99,500.
While Social Security benefits are taxed in Missouri, quite a bit of leeway exists. Only single taxpayers exceeding an AGI of $85,000 and married taxpayers exceeding an AGI of $100,000 are required to pay taxes on Social Security benefits. But for those having to pay taxes, some exemptions do exist. Moving forward, all military pensions are exempt from taxes, but IRAs and 401(k)s are taxed at the ordinary tax rates ranging from 1.5% to 6%.
Don’t be fooled by Montana’s lack of sales tax. When it comes to retirees, nearly every part of the income from Social Security and other pensions and annuity incomes are subject to taxations. Besides Social Security benefits getting slapped with the ordinary tax rates that range from 1% to 6.9%, pensions aren’t getting much of a break either. Single taxpayers over the age of 65 are able to exclude up to $800 from their taxable incomes, and married taxpayers can double that to $1,600. These exclusions apply to IRAs, 401(k)s, private pensions, and public pensions.
It’s safe to say Nebraska isn’t handing out tax breaks like candy. In fact, only if married taxpayers’ federal AGI is less than $58,000 can Social Security income be subtracted. The same rules apply for other taxpayers with federal AGI of less than $43,000. And while Railroad Retirement benefits are exempt from taxation, all other retirement income and pensions are subject to the normal tax rates that range from 2.46% to 6.84%.
8. New Mexico
The only retirees benefiting from tax exemptions in New Mexico are those with low to middle range incomes. So, what classifies low to middle range? An $8,000 retirement income exemption applies to single retirees whose AGI doesn’t exceed $28,500, and married filers whose AGI doesn’t exceed $51,000. The state does offer a low to middle-income exemption with a maximum of $2,500 for single filers with an AGI of less than $36,677. The same exemption applies to married filers with an AGI of less than $55,000. All well-off retirees will have their pensions and retirement income taxed at 4.9%.
9. North Dakota
Retirement income and Social Security tax breaks for retirees in North Dakota do not exist. But there is an upside. Luckily, income tax rates are so low, that retirees aren’t hit as hard in this state. All retirement income is subject to tax rates that range from 1.10% to 2.90%. The only exception is Railroad Retirement income, which is completely exempt from taxation.
10. Rhode Island
For years, Rhode Island has been tough on retirees. And for the most part, it still is. Fortunately, in 2017, the state reduced the high-end of its tax rate from 9.9% to 5.99%, which gave retirees a bit of a break. When it comes to Social Security benefits, the state will not tax the income if the taxpayer has an AGI of less than $80,000. The same rule applies to married taxpayers with an AGI of less than $100,000. For other retirement incomes like IRAs, 401(k)s, and pensions, the first $15,000 is exempt as long as the taxpayers meet the above AGI requirements.
In the state of Utah, Social Security benefits are subject to the state’s flat tax rate of 5 percent. The only way around it is if retirees meet certain income-eligibility limits. Kiplinger says it best, “Taxpayers younger than 65 can claim a nonrefundable tax credit of up to 6% of eligible retirement income or $288, whichever is less. The credit is phased out at 2.5 cents per dollar of modified AGI over $16,000 for married individuals filing separately, $25,000 for singles and $32,000 for married people filing jointly.”
The Green Mountain state may be beautiful, but Vermont certainly isn’t showing much love to retirees. In fact, retirees’ Social Security income is taxed at a rate ranging from 3.55% to 8.95%. And while Railroad Retirement accounts aren’t taxed, all other retirement incomes like IRAs, 401(k)s, and pensions are taxed.
13. West Virginia
West Virginian retirees have very little leeway when it comes to retirement income tax breaks. Social Security benefits are taxed anywhere from 3% to 6.5%. As for other retirement incomes, the first $8,000 for single taxpayers and $16,000 for married taxpayers can be excluded from state taxation. Civil and state pensions can exempt up to $2,000.