AARP Eye Center
With 2023 legislative sessions in full swing, big budget surpluses in many states have governors and lawmakers eyeing targeted tax relief — including for older adults in at least some of the dozen states that still tax Social Security benefits.
All Social Security beneficiaries may be subject to federal income tax on their monthly benefits, depending on their total income. Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont and West Virginia also levy their own taxes on benefits.
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Unlike federal taxes on benefits, which go into the Social Security and Medicare trust funds to fund ongoing payments and benefits for retirees, survivors and workers with disabilities, the state levies flow into those states’ general funds.
“Social Security isn’t meant to fill state coffers,” says Danny Harris, director of advocacy for the Utah office of AARP. “It was meant to carry people throughout their retirement years.”
With a push from AARP, North Dakota stopped taxing Social Security benefits in 2021, and Nebraska is phasing its tax out over the next two years. Other states, including Colorado, New Mexico, Utah, Vermont and West Virginia, have reduced the tax burden on older residents by expanding exemptions and deductions for Social Security income.
AARP is ramping up advocacy efforts in several capitals to further shrink Social Security recipients’ state tax bills. Here’s how the landscape looks in four states weighing changes this year.
Kansas law shields Social Security income from state taxes for beneficiaries with an adjusted gross income (AGI) of $75,000 or less, regardless of their filing status. Lawmakers are considering two bills this session that would give older adults some tax relief by raising the income threshold, beginning with the 2023 tax year.
One measure, HB 2107, would expand the full exemption to beneficiaries with AGIs up to $100,000 and introduce a partial deduction for incomes up to $120,000. The other, HB 2109, would maintain the $75,000 ceiling for full exemption but allow beneficiaries with incomes up to $100,000 to subtract some of their benefits from the tax equation.