Retirees in 13 states across the nation could face a reduction in their social security checks due to state income tax rules.
One of the positives about retirement income has always been that social security was not subject to income tax withholding. Unfortunately, that is only the case in 37 states.
Retirees whose total income meets or exceeds certain thresholds could be subject to have more tax withheld. This rule generally applies to those who meet the financial metrics of upper-middle-class and wealthy, according to The Motley Fool.
The 13 states where these laws apply are:
- New Mexico
- North Dakota
- Rhode Island
- West Virginia
Residents in these states are subject to state income taxes. Retirees who happen to receive both social security checks and pensions from their former place of employment may find themselves with a reduced monthly benefit amount.
To be sure of one’s liability, it is wise to check with the state Department of Revenue.
Retirees who live in any of these 13 states and whose income may place them in the higher income brackets have options.
First, there’s relocation. Although this may be easier said than done, moving to one of the 27 states that do not have tight tax laws for social security benefits may be the more obvious remedy.
Another way that retirees can reduce tax liability on their benefits is by making use of individual retirement accounts, also known as IRAs. Knowing how to manage the income in those accounts can make the state tax reductions less devastating in the overall scheme of total taxes.
Most retirees still pay federal income tax on at least a portion of their benefits. The goal is to reduce the total tax liability.
Retirees are tasked with figuring out how to be financially comfortable for the rest of their life after their highest-earning years have ended. Pre-retirement income mapping and tax planning is always a wise idea.