On August 14, 1935, President Franklin D. Roosevelt signed into law the Social Security Act. The Social Security Act, which began collecting money in 1937, was set in place to act as a "retirement payment" for Americans. To supply Social Security with funds, American's paychecks are taxed monthly. After paying into Social Security during their lifetimes, many recipients find their states also tax their benefits.
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States That Tax Social Security
Thirteen states tax Social Security benefits. Among them are Minnesota, Nebraska, North Dakota, Rhode Island, Vermont and West Virginia. Connecticut, Iowa, Kansas and Montana impose a tax on residents' Social Security benefits when their total incomes reach a certain point. For example,in Iowa, if your adjusted gross income (AGI) is higher than $75,000, your Social Security benefits are subject to taxation. Colorado, New Mexico and Utah require you to add any of the untaxed portions of your Social Security benefits to your AGI, which, in turn, raises your income and may raise the amount of taxes you pay.
States That Do Not Tax Social Security
There are 27 states and Washington, D.C., that do not impose state taxes on their residents' Social Security benefits. Those 27 are Alabama, Arizona, Arkansas, California, Delaware, Georgia, Hawaii, Idaho, Illinois, Indiana, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Virginia and Wisconsin.
States That Are Doing Away With Taxing Social Security Benefits
Two states tax Social Security benefits, but will cease doing so soon. Missouri will not tax benefits after 2012 and Iowa will not impose a tax on Social Security benefits after 2014.