Tax season is probably everyone’s least favorite time of year, especially for millions of Americans receiving Social Security benefits in certain states that impose additional taxes.
American retirees in these 9 states could lose some of their Social Security benefits soon — do these 3 things ASAP if you live in one of them. It's essential for retirees in Colorado, Connecticut, Vermont, Montana, Minnesota, New Mexico, Rhode Island, West Virginia, and Utah to closely monitor their income thresholds to avoid unnecessary taxes. Knowing how to navigate your tax obligations is vital to protecting your benefits.
Check Income Thresholds
Most states that levy taxes on Social Security benefits do so above specific income thresholds. For example, in Connecticut, married couples filing jointly will pay state tax on their Social Security benefits only if their combined income exceeds $100,000. Those filing under different status will owe taxes at an adjusted gross income (AGI) level above $75,000. In states like New Mexico and Rhode Island, similar thresholds exist, varying depending on your filing status.
At the federal level, if you’re single with total income above $25,000 or married with a combined income exceeding $32,000, some of your Social Security benefits may be taxable according to the IRS, complicating financial planning for many retirees in these challenging states.
Tracking all your various income sources is crucial, especially if you expect future earnings changes. It's advisable to forecast these earnings to ensure you stay under the threshold. Utilize tools or spreadsheets to keep accurate records of your complete financial picture, preventing unwanted surprises come tax season.
Explore Tax Credits or Exemption Rules
Some states do provide exemptions or credits designed to relieve taxes for lower- and middle-income retirees. For instance, Colorado residents aged 65 and older can deduct their total Social Security benefits from their state taxable income. If you received $7,000 in Social Security that was taxed federally, you can subtract that same amount when filing your Colorado state tax return. This policy provides a substantial incentive for residents to take advantage of such benefits.
Vermont is another state that offers exemptions on Social Security taxes and other partial credits based on income levels. Not only could these deductions lighten your financial burden, but knowing the rules set by your state can pave the way for maximizing your benefits.
Conduct thorough research during tax season to ensure you’re claiming all possible deductions and credits. Engaging with your state's revenue department may provide additional insights into tax rules specific to retirees.
Speak to an Expert
Despite the complexities of the tax system, a recent survey showed only 24% of Americans plan to hire a tax professional. Many individuals are opting instead for DIY methods or third-party tools like TurboTax or H&R Block. Yet, given the intricate nature of tax situations, especially for retirees on fixed incomes, seeking the expertise of a professional could prove invaluable.
Consulting with an experienced tax planner or a Certified Public Accountant (CPA) can help you navigate tax season with peace of mind. Their seasoned understanding of the financial landscape can ensure you don’t miss out on credits or endure unnecessary state tax burdens on your Social Security benefits.
Investing in expert advice, especially in states where taxation is prevalent, means you can confidently manage your financial future and potentially save money in the long run. This move safeguards your earnings and helps you utilize all available opportunities to secure your retirement.
American retirees in these 9 states, stay vigilant about the thresholds that may affect your Social Security benefits. Being informed about tax deductibles and exemptions will empower you to make the best choices for your financial stability. By seeking out professional guidance, staying updated on state rules, and keeping a close eye on your income, you can safeguard your hard-earned benefits.
Tax season doesn't have to be a daunting time. With the right strategies and resources, retiring comfortably while navigating state taxes can become manageable for you. Start taking action now to ensure your benefits remain intact and your tax journey is as smooth as possible.