In retirement, many Americans rely on Social Security to assist them in making ends meet. For this reason, many people find it surprising to hear that tax authorities frequently include a percentage of their Social Security payments in taxable income, increasing potential tax liabilities.
Social Security COLA; Source- Investopedia
Taxation On Social Security Benefits
The federal government doesn’t even need to tax Social Security benefits at all. Once your non-SS income is added to half of your Social Security payments, you may be required to pay taxes on up to half of your Social Security if your total income exceeds $25,000 for single taxpayers and $32,000 for joint filers. When an individual’s income exceeds $34,000 or $44,000 for joint filers, up to 85% of the total becomes taxable. And if that weren’t awful enough, in certain states state income taxes are also levied on Social Security payouts. The good news is that people in two states who had been among those who had their Social Security taxes imposed on them can now exhale with relief as 2024 has begun.
Nebraska Repealed Social Security Taxes
The effort of Nebraskans to get rid of the Social Security tax has not been easy. However, the Cornhusker State’s taxpayers are finally reaping the rewards of their nearly three-year labor. Legislative Bill 64 was passed by Lincoln lawmakers in 2021. With the passage of this act, the state taxes on income on Social Security income began a 10-year phase-out. When the law was first put into effect, a portion of Social Security income that would have otherwise been taxable was to be exempted, and that share would have increased by 10 percentage points a year. The tax should have been eliminated by 2030.
The pace of the phase-out was increased by Legislative Bill 873, which also set 2025 as the target year for the elimination of Social Security taxes. In Nebraska, it took one last blow to eliminate the Social Security tax. A clause of Legislative Bill 754 from 2023 expedited Social Security’s full tax-free status by one year. The final countdown to around 350,000 Nebraskans not having to be concerned about whether their Social Security payments would be taxed began when Governor Jim Pillen approved that bill into law.
Taxable Income For Social Security
In contrast to Nebraska, which applied the federal guidelines to determine the amount of Social Security to encompass taxable income, Missouri has consistently levied benefits differently. Neither single filers earning $85,000 or less nor joint filers earning $100,000 or less were required to pay Social Security taxes. Senate Bill 190 was nevertheless approved by Springfield lawmakers to repeal an unpopular tax. With Governor Mike Parson’s signing early this summer, everyone, regardless of income level, was eligible for the full exemption from Social Security benefits. Residents will notice the effects of such measures when they submit their 2024 tax returns in early 2025.
