Social Security benefits are the bread and butter of many families. However, you may have to pay some taxes depending on the state where you live. You are not free from paying taxes either on your working life or on your retirement. Luckily, not all states have taxes for these Social Security benefits. However, if you live in one of the 12 states, you may have to pay them and get less money.
Among these states, we find West Virginia, Vermont, Utah, Rhode Island, New Mexico, Nebraska, Montana, Missouri, Minnesota, Kansas Connecticut, and Colorado. Getting rid of taxes is something many US retirees long for. Even if there are taxes on benefits you may not have to pay them. There are some states that have a limit to your income, so you only pay it if you exceed it.
So it is always best to get some information regarding your state’s rules and see if you can get out of taxes. Hopefully, your situation is an exception to the rule or law. Apart from the income tax your state may have, you could also end up paying taxes to the Federal government. Take for example provisional income, because this will tell you whether you have to pay federal taxes or not.
What is the provisional income for single or joint filers subject to Social Security taxes?
According to Social Security Administration if you are a single filer and your provisional income is under $25,000 this year, the percentage of your benefits subject to Federal taxes is 0%. It will be up to 50% if a single filer earns between $25,000 and $34,000. Or up to 85% if your provisional income is over $34,000 per year. For those who are joint filers the amount per year is different. Below $32,000, the amount of taxes is 0%.
Then, if it is over $32,000 a year up to $44,000 the percentage is up to 50%. The final amount is if you earn more than $44,000 a year which could be up to 85%. Therefore, 85% is the maximum amount that could be subject to taxes regardless of the amount you earn over $44,000. If you would like to avoid taxes like the plague, keep your income below $25,000.
A further point is that many people who have Roth IRA or Roth 401(k), benefit from not paying taxes while retired. If you withdraw money from these accounts, they are not taken into account for your provisional income. There are some retirees that have a large lump sum in these accounts, so it could help them duck federal taxes. Social Security benefits and one of these Roth accounts are a good match.