Pamela Kweller RSSA Staff
Tax season has officially begun and it’s crucial to be aware that your Social Security income may be subject to both federal and state taxation.
Referred to by some as the Social Security “stealth” tax, many individuals are unaware of this potential tax implication and fail to incorporate it into their financial planning.
Prior to 1983, Social Security was not a source of income subject to federal taxation. For nearly 50 years after President Franklin D. Roosevelt signed the Social Security Act in 1935, Social Security remained untaxed. However, a pivotal change occurred in 1983 under President Ronald Reagan’s administration through the Bipartisan agreement. This change allowed a portion of Social Security benefits to be subjected to federal taxation.
Federal taxation does not apply to all Social Security beneficiaries as there is a special formula used to determine if your Social Security income will be taxed. If your “combined income” or “provisional income” exceeds a specific threshold, a portion (up to 85%) of your Social Security income will be taxed. These thresholds vary depending if you are a single filer or joint filer.
You can learn more about federal taxation here.
As of 2024, there are only 9 states where your Social Security income may also be subject to taxation. These states include:
- New Mexico
- Rhode Island
If you reside in one of these states, it’s crucial to factor in this potential taxation when planning your retirement and filing for Social Security. Different states have varying rules and regulations, with some using the federal government’s calculation and others having their own criteria.
Even if you don’t reside in these specific states, it’s essential to note that your Social Security income may still be subject to federal taxation.
Regardless of your location, understanding the nuances of who gets taxed and how it’s calculated forms a significant part of your retirement planning process. Being well-prepared and informed about potential future taxes ensures that you won’t be caught off guard when the time comes.
Revised Editor’s Note: This article was initially titled “Ten States that Tax Social Security in 2024,” and it previously included Nebraska as one of those states. However, Nebraska’s plan to tax Social Security was slated to phase out by 2025, but the change occurred one year ahead of schedule.
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