Social Security Benefits Get a Boost: Three More States Exempt from Income Tax
As of 2024, three additional states – Kansas, Missouri, and Nebraska – have joined the growing list of states that exempt Social Security benefits from income tax. This brings the total number of states offering this exemption to 44. The trend towards reducing taxation on Social Security benefits is gaining momentum, with more states likely to follow suit.
A Brief History of Social Security Taxation
Until 1984, Social Security retirement benefits were exempt from federal and state income taxes. However, with the signing of a law by President Ronald Reagan, a portion of benefits above a certain income level became subject to taxation. This marked the beginning of a trend towards increasing taxation of Social Security benefits, with many states following suit.
The Reversal of the Trend
In recent years, the trend has reversed, with federal initiatives and state-level legislation aiming to eliminate taxes on Social Security benefits. By 2024, only nine states still tax Social Security benefits. The exemptions are expected to continue, with West Virginia and Utah likely to be the next states to join the list.
The Impact on Retirees
Exempting Social Security income from state income taxes has an immediate benefit for retirees, increasing their after-tax income. However, it also reduces the revenue available to state governments. At the federal level, exempting Social Security benefits from taxes directly affects the stability of the Social Security system.
Kansas, Missouri, and Nebraska Lead the Way
In Kansas, Social Security recipients will no longer pay state income taxes on their benefits, saving the state’s retirees approximately $100 million annually. In Missouri, Social Security retirement benefits will be tax-free for recipients aged 62 or older, saving residents $309 million in tax payments annually. Nebraska has accelerated its phase-out of Social Security benefit taxes, exempting all benefits from state income taxes starting in 2024.
Planning for Retirement
A financial advisor can help you develop a retirement plan that includes Social Security and beyond. With the ever-changing landscape of taxation on Social Security benefits, it’s essential to stay informed and adapt your strategy accordingly. Get matched with a financial advisor today and start planning for a secure retirement.
Tools for a Secure Retirement
Use SmartAsset’s Social Security Calculator to estimate your government retirement benefits. Build an emergency fund to cover unexpected expenses, and consider a high-interest savings account to earn compound interest. Compare savings accounts from top banks and start planning for a secure financial future.
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