“Discover the impact as over 40 states spare retirees from Social Security tax in 2024 leading to substantial savings. Explore the state-specific tax exemptions and the positive financial for retirees.
A notable positive aspect for retirees is the fact that over 40 states, along with Washington, D.C., decided not to tax Social Security tax in 2024. (Photo: The Motley Fool)
Retirement Financial Relief: Overview of States Exempting Social Security Tax in 2024
In 1984, the taxation of Social Security benefits took effect, with up to 50% of the benefits to be added to income if the taxpayer’s total income exceeded specific thresholds. However, according to an AARP analysis, close to 1 in 7 retirees in the U.S. rely on Social Security for almost all their income. A notable positive aspect for retirees is the fact that over 40 states, along with Washington, D.C., decided not to tax Social Security tax in 2024.
The allev of Social Security taxation is a welcome relief for retirees, particularly those heavily dependent on these benefits for their income. States such as Missouri and Nebraska have recently ceased taxing Social Security benefits, resulting in substantial collective annual savings of approximately $309 million and $17 million, respectively. These revisions signify a significant financial boost for retirees who can now retain these funds rather than seeing them by state taxes.
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The state-specific tax provisions and deductions for below certain thresholds or ages make each state’s approach unique. Only 10 states will continue to tax Social Security benefits in 2024, including Colorado, Connecticut, Kansas, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, and West Virginia. The detailed breakdown of states sparing retirees from this tax lends insight into the considerable savings and finances this decision offers to this demographic.
For retirees residing in states that do not tax Social Security benefits, the potential savings on taxes can be calculated by deriving the effective rate of tax for all taxable income sources and applying it to the total Social Security benefits. This underscores the substantial financial impact of the absence of Social Security taxation in these states, providing retirees with a more secure and financial future.
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