During 2023 legislative sessions, big budget surpluses in many states had 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.
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.
Unlike federal taxes on benefits, which go into the Social Security and Medicare trust funds to fund ongoing payments and benefits for retirees, workers with disabilities and members of their families, 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 ramped up advocacy efforts in several capitals to further shrink Social Security recipients’ state tax bills. Here’s how proposals played out in four states that weighed 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 considered 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 have expanded 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, maintained the $75,000 ceiling for full exemption but proposed allowing beneficiaries with incomes up to $100,000 to subtract some of their benefits from the tax equation.
AARP Kansas testified before the state Legislature in support of both measures, particularly HB 2107, which “will help ensure that even more middle-class retirees and their families can keep more of their hard-earned benefits,” state office Director Glenda DuBoise told the House Committee on Taxation in written testimony on Jan. 24.
“Older Kansans on fixed incomes clearly feel the effects of inflation more than the rest of us,” DuBoise wrote. “Social Security tax relief is one way the state can help retirees stretch their hard-earned dollars.”
What happened: A wide-ranging tax bill that, among other provisions, would have established a partial tax break on Social Security income for Kansans with incomes between $75,000 and $100,000 was vetoed April 24 by Gov. Laura Kelly. Kelly had favored a Social Security tax cut but said she objected to the bill’s central element, a statewide flat income tax. The state Senate failed to override the veto, meaning there will be no change this year in how Kansas taxes Social Security benefits.