Corteva Retirees Need to be Aware of These States that Tax Social Security Benefits

Effective from the next fiscal year, Corteva retirees domiciled in Missouri will enjoy significant financial relief, as they will be exempted from state income tax on public pension and Social Security payments. This new legislation, Senate Bill 448, promises to bolster the economic comfort of these Corteva retirees by saving them an estimated aggregate of $309 million annually.

Background of the Missouri Tax Exemption

Before the enactment of Senate Bill 448 in July, the tax situation in Missouri was quite different. Retired residents who were 62 years or older with a gross income exceeding $85,000, and couples whose gross income surpassed $100,000, were liable for state income taxes that could reach up to 4.95%. This exemption is rooted in the state's empathy towards retirees who, like many across the nation, are grappling with the escalating living expenses.

This topic is not unique to Missouri. Across the U.S., the average monthly Social Security payout stands at approximately $1,699, culminating in around $20,388 yearly, as per data from the Social Security Administration. However, a considerable fraction of retirees still bear the burden of taxes on this retirement income, inclusive of Social Security benefits.

The Framework of Federal Social Security Tax

This tax is determined by the provisional income, calculated by summing the gross income and half of an individual’s Social Security benefits. Beneficiaries might be taxed on as much as 85% of their Social Security payments federally. However, they escape this federal tax if their provisional earnings are below $25,000 (or $32,000 for couples).

Though the majority of American states exempt Social Security benefits from taxation, around a dozen still impose a tax, either partially or wholly, on these benefits. It is pertinent to highlight that this doesn't pertain to the Supplemental Security Income, designed for individuals aged 65 or above and for adults and children grappling with disabilities or vision impairments.

State-specific Taxation on Social Security Benefits

Following Missouri’s exemption, the remaining states taxing these benefits include Colorado, Connecticut, Kansas, Minnesota, Montana, Nebraska, New Mexico, Rhode Island, Vermont, Utah, and West Virginia.

Each of these states adopts a unique policy, but commonalities include the provision of certain breaks or exemptions contingent on the beneficiary's income and age. There's a noteworthy movement across several states towards enhancing the exemptions and deductions accessible to Social Security recipients. Deductions essentially reduce an individual's taxable income, subsequently lowering their tax liability.

In relation to Missouri's recent decision, it's intriguing to note the migration trends of Corteva retirees. According to a study published by the United Van Lines in 2020, states with tax-friendly policies for Corteva retirees, like Florida, saw a significant influx of senior residents. In contrast, some states that tax Social Security benefits witnessed an outflow. As Corteva professionals evaluate their post-retirement destinations, considering states with favorable tax treatments might not only offer financial benefits but also align with broader migration trends, ensuring a community that resonates with their retirement aspirations.

Here is a brief overview of the taxation policies in some of these states:

Colorado: From 2021, retirees 65 and above can fully deduct Social Security benefits from their state income tax, an upgrade from the previous limit of $24,000. Those between 55 and 64 can deduct only up to $20,000.
Connecticut: Tax exemptions are based on adjusted gross incomes (AGIs). Single beneficiaries with AGIs below $75,000 and couples under $100,000 are exempt. Beyond these limits, 75% of their benefits remain tax-free.
Minnesota: The state recently broadened its exemptions, granting full deductions for single retirees earning up to $78,000 and couples earning up to $100,000.
Montana: Reflecting federal rules, retirees with incomes below certain thresholds are exempt. The state is actively contemplating fully revoking its Social Security income tax.
Nebraska: Corteva retirees under certain AGI limits are exempt, and there's an ongoing movement to eliminate Social Security taxes by 2025.

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New Mexico: Recent legislation grants full deductions to single residents and couples under specific AGIs.
Rhode Island: Full exemptions apply for residents of the standard Social Security retirement age with AGIs under set thresholds.
Utah: The state mirrors federal calculations and offers credits on taxable benefits based on income brackets.
Vermont: Tax exemptions were expanded in 2022, with full or partial exemptions available based on AGIs.
West Virginia: The state initiated a phase-out of Social Security taxes for eligible individuals and couples in 2020.

In Closing

The evolving landscape of Social Security income taxation highlights the efforts of states to provide financial relief to retirees. As costs of living surge, such policies are essential for ensuring the financial well-being of our senior citizens. As potential retirees or those already in retirement, understanding these policies can guide decisions related to residency and financial planning.

Navigating retirement tax policies is like plotting a course through a series of islands. Missouri has just unveiled a bridge, offering retirees smooth passage with no state income taxes on public pension and Social Security. Yet, as you continue your journey, you'll find 11 other islands (states) that still require a toll, with varying charges and criteria. For those aboard the Corteva ship, plotting a course with this map ensures smoother sailing in retirement's waters, allowing for a voyage filled with more treasure and fewer unexpected costs.