Thursday, July 31, 2008

State income taxes on social security income vary widely

A sensitive issue for some retirees is state income taxation of social security benefits.

Remember, there are seven states with no state income tax at all: Alaska, Florida, Nevada, South Dakota, Texas, Washington, Wyoming. Furthermore, Tennessee and New Hampshire don’t tax wages; only dividend and interest income. A good source on this is Wikipedia, link.

Many states with a regular state income tax don’t tax social security proceeds. But fourteen states do have some taxation: Colorado, Connecticut, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont and West Virginia have some taxation.

Iowa is gradually phasing this out by 2014; Missouri is increasing deductibility of social security income through 2012, and Kansas does not tax social security income for those with AGI’s under $75000.

The story (“Retirement: How states differently tax retirees”) was printed today (July 31, 2008) in DC Examiner on p 14 and is authored by Mary Beth Franklin of Kiplinger Personal Finance. The online version of the story does not appear yet on either the Examiner or Kiplinger.

I found an older table on states income taxes and social security (1996) at “Tax Admn” here.

Another site with this information, apparently more recent information, is “Retirement Living” here Change the last digit to 2 or 3 to see all states.

Update: August 13

Kiplinger has an important "Wallet Pop" essay ("Retiree Tax Heaven -- and Hell") comparison local and state taxes for retirees in various locations. Link is here. California is not a particularly desirable state.

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