West Virginia Plans to Stop Taxing Social Security: Is Your State Next?

Social Security is hiding a dirty secret. Monthly Social Security checks are considered taxable income. Many retirees are shocked to find out that this benefit is federally taxed. Only a handful of states tax Social Security benefits at every income level.

Due to changes in tax laws, senior citizens in Missouri and Nebraska no longer have the burden of paying state income tax on benefits and West Virginia may be the next state to cut taxes on Social Security.

West Virginia and Social Security taxes

During Governor Jim Justice’s recent State of the State address, he mentioned planning “the biggest tax cut in the history of the state.” This included a variety of cuts, including completely removing the taxes on Social Security benefits. 

He continued,” I’m proposing a 50% reduction in our PIT (personal income tax) across the board right now.” Currently, the State doesn’t tax single people with an income of $50,000 or less or couples who earn under $100,000. Now, he’s planning on getting rid of taxes on Social Security benefits.

Cutting the Social Security tax would come in the form of a benefit exemption on taxes, as well as implementing a new child and dependant care tax credit and another for seniors who own property in the state. This could impact more than 60,000 senior households.  

This type of tax treatment could make West Virginia an interesting retirement destination for many, especially as you properly plan for retirement. Could West Virginia replace Florida, Arizona, or New Mexico as a hot retirement spot? Only time will tell.

Where Social Security taxes stand in your state

According to the Social Security Administration, individuals whose combined income ranges between $25,000 to $34,000 may have to pay up to 50% income tax on benefits. If making over $34,000, then up to 85% of benefits may be taxable. 

For those who file a joint income tax return, combined incomes that range between $32,000 to $44,00 may have to pay an income tax of up to 50% of the benefits. For couples whose combined income is over $44,000, 85% of benefits could be taxed.

Each state has different rules regarding income tax and taxing Social Security benefits.

States without income tax

Nine states don’t have income tax and they also don’t charge a tax on Social Security benefits. These states are: 

• Alaska
• Florida
• Nevada
• New Hampshire
• South Dakota
• Tennessee
• Texas
• Washington
• Wyoming

If you live in one of these states then you can avoid throwing money away to Social Security taxes in your state but you'll still be subject to federal taxes. 

States that don’t tax Social Security benefits

Other states do charge income taxes if you live there but they specifically don't currently tax Social Security benefits. Here are those states that have already adopted what West Virginia is proposing: 

• District of Columbia
• Missouri
• Nebraska
• Alabama
• California
• North Carolina
• South Carolina
• Colorado
• Delaware
• Georgia
• Hawaii
• Idaho
• Illinois
• Iowa
• Kentucky
• Louisiana
• Maine
• Maryland
• Massachusetts
• Michigan
• Mississippi
• New Jersey
• New York
• Ohio
• Oklahoma
• Oregon
• Virginia
• Wisconsin
• Indiana
• Pennsylvania

These states will still tax you on other income and you'll still be subject to federal taxes if you live in one of these locations. 

States that have varied Social Security benefit tax rules

Some states tax Social Security benefits at certain income levels, but don't automatically require tax payments for everyone. Here are each of those states and the threshold for each:

• Connecticut: Senior citizens whose gross income is $75,000 for singles, and $100,000 for couples can deduct most of their benefits. For incomes over $100,000, retirees can deduct 75% of their benefits.
• Kansas: Retirees whose income is under $75,000, whether single or couple, do not need to pay taxes on benefits.
• Missouri: Individuals whose income is under $85,000 and couples whose income is under $100,00 are exempt from paying taxes on Social Security benefits.
• New Mexico: Social Security benefits taxes are no longer required of individuals whose income is under $100,000 and couples whose income is below $150,000.
• Nebraska: Individuals whose income is under $44,460 and couples whose income is under $59,100 do not have to pay taxes on benefits.
• Rhode Island: Individuals whose income falls under $86,350, and couples whose income falls under $107,950 do not have to pay taxes on Benefits. State residents who are at the required retirement age are exempt from paying taxes on Social Security
• Vermont: Individuals whose income is $50,000 or less are exempt from paying taxes on Social Security benefits. For joint filers, income must be $65,000 or less. Single filers whose income is between $50,000 to $60,000 have a partial exemption. Couples can get a partial exemption if the joint income is between $65,000 and $75,000.
• Utah: This state has a state tax credit for individuals whose income is $37,500 or less. For joint filers, the credit is applied to incomes who file at $75,000 or less.

Looking ahead

It appears that states like West Virginia are following Missouri’s lead to stop taxing Social Security benefits. Other states like Colorado recently overhauled their benefits tax structures. Other states may look to either reduce or change existing taxes on Social Security benefits on the state level in the future. 

Ultimately, the takeaway from this activity is that states are seeing the financial pinch that many Americans have experienced over the last few years and don't want those in retirement to be negatively impacted by taxes. If these fixed-income households get help in West Virginia soon, then even more states may follow suit.

Bottom Line

West Virginia is the latest state to rethink its tax structure when it comes to taxing Social Security benefits on the state level. The reduction increases senior citizens’ quality of life. It may also prevent retirees from moving to a state with lowered taxes. Which in turn, could bolster a state’s economy. 

Only time will tell for sure to see what states take this approach, and how it could impact both the individual and the state as a whole. Understanding the tax laws in your state is important if you're planning for retirement and looking for the right place to spend your golden years. 

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