As you enter retirement, chances are good you'll be counting on your Social Security checks to help you cover your costs after your paychecks end. But did you know that where you live can affect whether you get to keep all of the income these entitlement benefits provide?
How does your choice of retirement locales impact your Social Security payments? Here's what you need to know.
Living in these 37 states means you don't need to worry about losing benefits to your local government
The reason why some retirees get to keep more of their Social Security checks than their peers is because there are 37 states that do not impose taxes on these benefits — and 13 states that do. The 37 states where you won't have to worry about your state government taking a cut of your retirement checks include:
In these locations, you're able to bring in as much income as you want without worrying about state tax on Social Security checks — although federal taxes could still be an issue.
The IRS may end up reducing the amount of benefits you get by taxing you on up to 50% of benefits on the federal level once your provisional income exceeds $25,000 for single tax filers or $32,000 for married joint filers. And up to 85% of benefits could be subject to federal tax with a provisional income of $34,000 for single filers or $44,000 for married joint filers. Provisional income is half of Social Security benefits, all taxable income, and some nontaxable income.
What if you live in the other 13 states?
If you live in the other 13 states as a retiree, it may be frustrating to find that your choice of residence could potentially leave you with less Social Security income than seniors who live across the state border in another locale.
But the good news is, not everyone who lives in one of these 13 places will end up getting hit with a big tax bill. How much you'll owe, and if you'll be taxed at all, is going to depend on the specifics of the rules where you live, as well as the amount of income you have. That's because many lower-income Americans are exempt from state tax on benefits even when taxes are assessed on higher earners.
Your state's Department of Revenue is a good resource to help you determine if you'll likely be taxed on Social Security checks. If you find yourself in the group that will owe a state tax bill, you should prepare for this when making retirement plans. Specifically, your benefits won't stretch as far, so it's a good idea to set a higher savings goal to help you make ends meet.
You could also consider a relocation to one of the majority of places where your benefits are yours to keep without your state taking a cut — but you should consider many factors, including the cost of living and how other retirement income is taxed, when deciding if this is the best move.
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