State Income Taxes On Social Security And Pension Income

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State Income Taxes On Social Security And Pension Income

Transcript Of State Income Taxes On Social Security And Pension Income

Office of Legislative Research Research Report
November 7, 2014

2014-R-0261

STATE INCOME TAXES ON SOCIAL SECURITY AND PENSION INCOME

By: John Rappa, Chief Analyst

FEDERAL ADJUSTED GROSS INCOME (AGI)
Connecticut and several other states base their personal income taxes on the amount of income subject to federal income taxes (federal AGI) and require taxpayers to add and subtract specified income and expenses from that amount to compute the state’s AGI.
By adopting the federal AGI, states exclude federal taxexempt income from the state AGI. Federal taxexempt income includes a portion of Social Security income.
Some states, including Connecticut, exempt some or all of federally taxable Social Security income. Connecticut, for example, allows taxpayers to exempt all of that income depending on their filing status and federal AGI.

ISSUES Does Connecticut exempt Social Security income from the income tax? How many states exempt Social Security and other retirement income from this tax?
SUMMARY Connecticut exempts from its income tax (1) Social Security income the federal government exempts from its income tax and, (2) depending on a taxpayer’s federal AGI, some or all of the Social Security income the federal government taxes. That is because Connecticut bases its income tax on federal adjusted gross income (AGI), which taxpayers must determine to compute their federal income taxes. The adjustments to the federal AGI include exemptions for various types of retirement income, including Social Security and railroad retirement income.
Connecticut also exempts from its income tax 100% of railroad retirement income and 50% of federally taxable military retirement income. It does not exempt other types of pension income.

Phone (860) 240-8400 http://www.cga.ct.gov/olr [email protected]

Connecticut General Assembly Office of Legislative Research Stephanie A. D'Ambrose, Director

Room 5300 Legislative Office Building Hartford, CT 06106-1591

Of the 41 states with broad-based personal income taxes, all but Rhode Island and Vermont have at least one income tax exemption for retirement income in addition to the retirement exclusions incorporated in federal AGI. As Attachment 1 shows, we divided retirement income into five categories by source: State and Local Pensions, Federal Civil Service Pensions, Military Pensions, Social Security, and Private Pensions. Some states, such as Alabama, Hawaii, and Pennsylvania fully exempt the income from most of these sources. Most of the other states exempt some of the income from at least one of these sources.
The most common exemptions are for Social Security and military pensions. Twenty-seven states exempt all Social Security income and three exempt some. Connecticut and five other states exempt all or most of this income for people meeting specified income limits. Fifteen states exempt all military pension income and 21, including Connecticut, exempt some. Ten states exempt all public pension income and 23 exempt some. Five states exempt all private pension income and 21 exempt some.
CONNECTICUT INCOME TAX EXEMPTION FOR PENSION INCOME
Social Security and Railroad and Military Retirement Income Connecticut exempts some or all of Social Security, railroad retirement, and military retirement income from the income tax. It does not exempt public and private pension income from the tax. Part of Connecticut’s Social Security income tax exemption results from the use of federal AGI as the starting point for computing the state income tax.
Federal Social Security Income Tax Exemption. The federal income tax partially exempts Social Security and Tier I Railroad Retirement income for taxpayers whose incomes exceed a specified amount. The income counted for determining the exemption is all the non-Social Security or railroad retirement income a taxpayer receives (including any tax-exempt interest) plus 50% of his or her Social Security or railroad retirement benefits for the year. Fifty percent of the Social Security or railroad retirement income is taxable if that total exceeds (1) $32,000 for a married couple filing jointly or (2) $25,000 for a single person, head of household, or married person filing separately. The taxable share jumps to 85% for taxpayers whose incomes exceeds $44,000 for joint filers and $34,000 for other filers.
However, Connecticut taxpayers would have to pay income taxes on their federally taxable Social Security and railroad retirement income if the state did not exempt some or all of that income from the Connecticut income tax.

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Connecticut Social Security Income Tax Deduction. Taxpayers determine their Connecticut Social Security or railroad retirement exemption by computing their Connecticut AGI, which is based on their federal AGI. Connecticut law allows them to deduct the following amounts before determining their Connecticut tax:
1. 75% or 100% of federally taxable Social Security benefits, depending on income and
2. 100% of any railroad retirement benefits in excess of the deducted Social Security benefits.
A taxpayer can deduct 100% of his or her federally taxable Social Security benefits if he or she is:
1. single or married filing separately and his or her federal AGI is less than $50,000 or
2. married filing jointly or a head of household and his or her federal AGI is less than $60,000.
A filer whose federal AGI equals or exceeds the applicable threshold can deduct 75% of his or her federally taxable benefits (CGS § 12-701(20)(B)(x)).
Military Retirement Benefits Connecticut exempts 50% of federally taxable military retirement income from the state income tax. The exemption applies to retirement income for service in the U.S. Army, Navy, Air Force, Marines, Coast Guard, and Army and Air National Guard (CGS § 12-701(20)(B)(xvii)).
COMPARISON OF HOW STATES TAX RETIREMENT INCOME Of the 41 states that levy a broad-based personal income tax:
1. 27 exempt all Social Security income, three exempt some of this income, six exempt all of the income for taxpayers meeting specified income limits, and five incorporate the federal exclusion in the state AGI (Connecticut incorporates the federal exclusion in the state AGI and provides a full or partial exemption for federally taxable social security income for taxpayers meeting specified income limits);
2. 15 states exempt all military pension income and 21 exempt some;
3. 10 states exempt all state and local public pension income and 22 exempt some and these same 10 states also exempt all federal civil service pension income;

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4. 23 states exempt some federal pension income, including the same 22 states that exempt some state and local pension income; and
5. five states exempt all private pension income and 21 exempt some.
California, Indiana, Ohio, and Utah provide income tax credits to taxpayers over a specific age and, in some cases, who also meet income guidelines.
Attachment 1 shows how states tax public and private pension and Social Security income. The information applies to the 2013 tax year unless otherwise noted. Since no state taxes railroad retirement benefits, Row 5 shows only Social Security exemptions.
JR:ts

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Attachment 1: State Income Tax Exemptions for Retirement Income (2013 Tax Year, Unless Otherwise Noted)

Retirement Income Exemptions
State and Local Pensions

Alabama 100%

Alaska Not applicable, no personal income tax

Federal Civil Service 100% Pension

Not applicable, no personal income tax

Military Pension

100%

Not applicable, no personal income tax

Social Security

100%

Not applicable, no personal income tax

Private Pension

100% for defined benefit Not applicable, no

plans

personal income tax

Other Exemptions None

None

Arizona $2,500

States Arkansas
$6,000

$2,500

$6,000

$2,500

$6,000

100%

100%

None

None

None

None

California None
None
None
100%
None
$98 tax credit for each taxpayer over age 65

Colorado
 Age 65 and over: $24,000
 Age 55-65: $20,000
 Age 65 and over: $24,000
 Age 55-65: $20,000
 Age 65 and over: $24,000
 Age 55-65: $20,000
 Age 65 and over: $24,000
 Age 55-65: $20,000
 Age 65 and over: $24,000
 Age 55-65: $20,000
None

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Attachment 1: State Income Tax Exemptions for Retirement Income (2013 Tax Year, Unless Otherwise Noted), continued

Retirement Income

Exemptions

State and Local

None

Pensions

Connecticut

Delaware  Age 60 and over: $12,500  Under age 60: $2,000

Federal Civil Service None Pension

 Age 60 and over: $12,500  Under age 60: $2,000

Military Pension

50%

 Age 60 and over: $12,500  Under age 60: $2,000

Social Security Private Pension

Incorporates federal Social Security exemptions in state AGI
Additional exemption:  100% for federal adjusted
gross income (AGI) for: o single filers under $50,000 or o joint filers under $60,000
 75% for higher AGIs None

100%
 Age 60 and over: $12,500  Under age 60: $2,000

Other Exemptions None

None

States Florida
Not applicable, no personal income tax
Not applicable, no personal income tax
Not applicable, no personal income tax
Not applicable, no personal income tax

Georgia
 Age 65 and over: $65,000  Age 62-64 or under 62 and disabled:
o $35,000 for single filers o $70,000 joint filers  Age 65 and over: $65,000  Age 62-64 or under 62 and disabled: o $35,000 for single filers o $70,000 joint filers
 Age 65 and over: $65,000  Age 62-64 or under 62 and disabled:
o $35,000 for single filers o $70,000 joint filers 100%

Not applicable, no personal income tax
None

 Age 65 and over: $65,000  Age 62-64 or under 62 and disabled:
o $35,000 for single filers o $70,000 joint filers None

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Attachment 1: State Income Tax Exemptions for Retirement Income (2013 Tax Year, Unless Otherwise Noted), continued

Retirement Income Exemptions
State and Local Pensions

100%

Hawaii

Federal Civil Service 100% Pension

Military Pension Social Security Private Pension
Other Exemptions

100%
100%  100% of income from
entirely employerfunded plan  Partial taxation of plans to which employees contributed None

Idaho Exclusion applies to certain Idaho public safety officers’ benefits, minus SS or RR benefits.
Benefit caps for 2014:  $31,704 for single filers  $47, 556 for joint filers Exclusion applies to only to federal CSRS benefits, minus SS or RR benefits.
Benefit caps for 2014:  $31,704 for single filers  $47, 556 for joint filers Benefit caps same as those for CSRS 100% None
None

States Illinois 100%
100%
100% 100% 100% for qualified plans
None

Indiana None

Iowa Age 55 and over:  $6,000 for single filers  $12,000 for joint filers

Age 62 and older, $2,000

per spouse, minus SS 

benefits



Age 55 and over: $6,000 for single filers $12,000 for joint filers

Age 60 and older, $5,000 per spouse 100% None

100% starting 2014 tax year
100% starting in 2014 Age 55 and over:  $6,000 for single filers  $12,000 for joint filers

Taxpayers over 65 filing None joint return qualify for up to $140 credit depending on income

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Attachment 1: State Income Tax Exemptions for Retirement Income (2013 Tax Year, Unless Otherwise Noted), continued

Retirement Income Exemptions
State and Local Pensions

Kansas 100%

Kentucky
 100% for benefits earned before 1/1/98
 Prorated for benefits earned after that date up to $41,100

Federal Civil Service 100% Pension

Military Pension

100%

Social Security Private Pension

100% for federal AGI under $75,000 None

 100% for benefits earned before 1/1/98
 Prorated for benefits earned after that date up to $41,100
 100% for benefits earned before 1/1/98
 Prorated for benefits earned after that date up to $41,100
100% for income under $41,100
 100% for benefits earned before 1/1/98
 Prorated for benefits earned after that date up to $41,100

Other Retirement None

None

Exemptions

Louisiana Louisiana state pensions: 100%
Out of state pensions:  Must be 65 or
older  $6,000 for single
filers  $12,000 for joint

States Maine (for 2014 Tax Year) $10,000 minus Social Security and Railroad Retirement income

Maryland Taxpayers 65 and over qualify for annually adjusted exemption ($27,800 in 2013), minus Social Security and Retirement income for income from qualified plans.

100%

$10,000 minus Social Security and Railroad Retirement income

Taxpayers 65 and over qualify for annually adjusted exemption ($27,800 in 2013), minus Social Security and Retirement income for income from qualified plans.

100%

$10,000 minus Social Security and Railroad Retirement income

Taxpayers 65 and over qualify for annually adjusted exemption ($27,800 in 2013), minus Social Security and Retirement income for income from qualified plans.

100%

100%

100%

 Age 65 and over:  $6,000 for single
filers  $12,000 for joint
None

$10,000 minus Social Security and Railroad Retirement income
Exclusion applies to income from specified employer – funded plans None

Taxpayers 65 and over qualify for annually adjusted exemption ($27,800 in 2013), minus Social Security and Retirement income for income from qualified plans.
None

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Retirement Income Exemptions
State and Local Pensions
Federal Civil Service Pension

Massachusetts 100% for Massachusetts pensions
Out-of-state pension income exempted if home state exempts Massachusetts pensions 100%

Military Pension

100%

Social Security Private Pension

100% None

Other Exemptions

None

Attachment 1: State Income Tax Exemptions for Retirement Income (2013 Tax Year, Unless Otherwise Noted), continued

State Michigan 100% for Michigan pensions and out-of-state pensions from home states that also exempt Michigan pensions
Other state and local pensions capped at:  $48,302 for single filers  $96,605 for joint filers

Minnesota For taxpayers 65 and over qualify for maximum:  $9,600 exemption for single filers  $12,000 for joint filers

Mississippi 100%

100%
100%
100% Capped at annually adjusted levels for eligible private plan In 2013, for taxpayers 69 and over:  $48,302 for single filers  $96,605 for joint filers In 2013: for taxpayers born between 1946 and 1952:  $20,000 for single filers  $40,000 for joint filers
68 and over qualify for exemption from interest, dividend, and capital gains exemption included in AGI capped at:  $10,767 for single filers  $21,534 for joint filers

For taxpayers 65 and over qualify for maximum:  $9,600 exemption for single filers  $12,000 for joint filers For taxpayers 65 and over qualify for maximum:  $9,600 exemption for single filers  $12,000 for joint filers Incorporates federal Social Security exemptions in state AGI For taxpayers 65 and over qualify for maximum:  $9,600 exemption for single filers  $12,000 for joint filers

100%
100%
100% 100% for qualified plans

None

None

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Attachment 1: State Income Tax Exemptions for Retirement Income (2013 Tax Year, Unless Otherwise Noted), continued

Retirement Income Exemptions
State and Local Pensions
Federal Civil Service Pension
Military Pension

Missouri Greater of $6,000 or 100% of pension amount ($$35,939 in 2013), subject to income limits:  Single filers with income up to $85,00  Joint filers with income up to $100,000 Greater of $6,000 or 100% of pension amount ($$35,939 in 2013), subject to income limits:  Single filers with income up to $85,00  Joint filers with income up to $100,000
60%

Social Security

100% for:  Single filers with income up to $85,00  Joint filers with income up to $100,000

Private Pension Other Exemptions

$6,000 for:  Single filers with income up to $25,000  Joint filers with income up to $32,000  Married, filing separately with income up to
$16,000 None

States Montana  Up to $3,900 for single filers  Up to $32,480 for joint filers with retirement income up to $7,800  Up to $3,900 for single filers  Up to $32,480 for joint filers with retirement income up to $7,800  Up to $3,900 for single filers  Up to $32,480 for joint filers with retirement income up to $7,800
100% only for taxpayers with income including Social Security under:  $25,000 for single filers,  $32,000 for joint filers  $16,000 for married filing
separately
 Up to $3,900 for single filers  Up to $32,480 for joint filers with retirement income up to $7,800 None

Nebraska None
None
2014, none
Starting in 2015 taxpayer may choose to exclude:  40% for seven years or  15% for all years upon
turning 67 2014, incorporates federal Social Security exemptions in state AGI
100% starting in 2015 for:  Single filers with incomes
$58,000 or less  Joint filers with incomes
under $ 43,000 or less None
None

Nevada Not applicable, no personal income tax Not applicable, no personal income tax Not applicable, no personal income tax
Not applicable, no personal income tax
Not applicable, no personal income tax Not applicable, no personal income tax

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