Fifty-six percent of households receiving Social Security checks pay federal tax on those benefits, according to a nationwide survey by advocacy group The Senior Citizens League. "The tax on Social Security income takes new retirees by surprise," said TSCL chairman Ed Cates in a statement.
But there's another surprise: You might not be paying just federal taxes on that retirement income, if you're "unlucky" enough to live in one of the 13 states that also levy their own taxes on Social Security checks. Six of the states tax benefits in the same way the federal government does, while the other seven "determine benefit exemptions based on other factors, such as income or age or as a certain percentage of Social Security income," according to tax policy research organization the Tax Foundation.
"This is one retirement expense that must be carefully planned for," warned Cates of TSCL. CNBC.com takes an alphabetical look at the baker's dozen of states that take a second bite out of your retirement pay.
— By CNBC's Kenneth Kiesnoski
Posted 2 February 2016
Colorado
Social Security benefits are exempt up to a certain level in the Centennial State. If a Colorado household meets certain age requirements, qualifying retirement income can be excluded from income if it is taxable under the federal income tax (it's called the "pension/annuity subtraction" and is subject to a maximum amount).
Sources: The Tax Foundation; Wolters Kluwer Tax & Accounting US
Connecticut
In the Constitution State, the exemption is based on adjusted gross income. Connecticut lets residents fully exempt their Social Security benefits from state income tax if earnings total less than $60,000 (for joint filers).
Sources: The Tax Foundation; Wolters Kluwer Tax & Accounting US
Kansas
Exemption is based on adjusted gross income in the Sunflower State. Kansas exempts your Social Security benefits from state income tax if your federal AGI is $75,000 or less.
Sources: The Tax Foundation; Wolters Kluwer Tax & Accounting US
Minnesota
The Land of 10,000 Lakes likes counting ... money. Minnesota taxes Social Security benefits.
Sources: The Tax Foundation; Wolters Kluwer Tax & Accounting US
Missouri
"Show Me" the money, say Missouri tax collectors. Exemption is based on adjusted gross income. Missouri permits residents with AGI of under $100,000 (for joint filers) to deduct all of their taxable Social Security benefits from income.
Sources: The Tax Foundation; Wolters Kluwer Tax & Accounting US
Montana
The Treasure State is well named. The state tax exemption on Social Security income is based on adjusted gross income. Some Social Security benefits may be taxable in Montana. You can fill out a worksheet to figure out by how much the state taxable amount differs from the federally taxable amount. In general, if you earn less than $32,000 a year (for joint filers), your Social Security check won't be tapped by the state tax man.
Sources: The Tax Foundation; Wolters Kluwer Tax & Accounting US
Nebraska
In the Cornhusker State, Social Security is taxable to the extent of federal taxation.
Sources: The Tax Foundation; RetirementLiving.com
New Mexico
Social Security benefits are taxable in the Land of Enchantment. However, you can qualify for an exemption from New Mexico state tax if you are 65 years of age or older.
Source: The Tax Foundation
North Dakota
North Dakota — the Peace Garden State — taxes Social Security benefits to the extent of federal taxation.
Sources: The Tax Foundation; RetirementLiving.com
Rhode Island
The Ocean State taxes Social Security benefits to the extent of federal taxation.
Sources: The Tax Foundation; RetirementLiving.com
Utah
Employees at the Beehive State's tax commission are as busy as, well, bees. Utah's treatment of Social Security taxes is similar to Colorado's, except the deduction is administered as a credit rather than an exclusion or subtraction and is phased out by income level.
Sources: The Tax Foundation; RetirementLiving.com
Vermont
The Green Mountain State likes that green "paper." Vermont taxes Social Security benefits to the extent of federal taxation.
Sources: The Tax Foundation; RetirementLiving.com
West Virginia
Social Security income is taxable in the Mountain State, but only to the extent that it is included in your federal adjusted gross income.
Sources: The Tax Foundation; RetirementLiving.com
