4 States That May Cut Taxes on Social Security Income

AARP Kansas has testified before the state Legislature in support of both measures, particularly HB 2107, which “will help ensure that even more middle-class retirees and their families can keep more of their hard-earned benefits,” state office Director Glenda DuBoise told the House Committee on Taxation in written testimony on Jan. 24. 

“Older Kansans on fixed incomes clearly feel the effects of inflation more than the rest of us,” DuBoise wrote. “Social Security tax relief is one way the state can help retirees stretch their hard-earned dollars.” 

Minnesota

Taxation of Social Security is expected to be a contentious issue in St. Paul this session after the collapse last year of a bipartisan budget compromise that would have ended the practice. This year, Gov. Tim Walz proposed cutting taxes on benefits, while several legislators have filed bills to eliminate them.

AARP Minnesota lists ending taxation of benefits as one of its top legislative priorities for 2023.  “With a historic $17.6 billion [budget] surplus, it’s time to stop taxing these hard-earned benefits,” AARP State Director Cathy McLeer wrote in a Jan. 10 letter to lawmakers.

Minnesotans can deduct some of their Social Security benefits from their state taxes if their income does not exceed $85,970 for a single taxpayer or $110,020 for a married couple filing jointly. 

Walz proposes raising the income cutoffs to $93,600 (single) and $120,000 (couple). His plan would also increase the maximum amount of benefit income Minnesotans can deduct from state taxes from $4,260 to $7,800 for an individual and from $5,450 to $10,000 for a couple. 

Missouri

Missourians can deduct 100 percent of Social Security income on their state tax returns if they are 62 or older and have an AGI of less than $85,000 for a single filer and $100,000 for a couple filing jointly. Bills to extend the full deduction to all beneficiaries have fallen short in recent years, but the idea is “getting some traction” this year, says Jay Hardenbrook, advocacy director for AARP Missouri.

That progress comes after legislators met in special session in September 2022 to enact tax cuts backed by Gov. Mike Parson, including lower income tax rates and new tax credits for farmers and ranchers. 

AARP lobbied to add provisions targeting tax relief for older Missourians, including the Social Security exemption and broader eligibility for the “Circuit Breaker,” a state property-tax credit for people who are 65-plus or have disabilities, but those were not included in the package Parson signed last fall.

After a “renewed push” by AARP Missouri and its members before the 2023 session, “both property tax relief and Social Security exemptions seem to be high on the priority list of the legislative leadership,” Hardenbrook says.

Utah

Utah does not tax Social Security benefits for residents with incomes less than $37,000 for an individual filer and $62,000 for a couple filing jointly, and the state offers partial tax credits on a sliding scale to beneficiaries with higher incomes. A bill before the state Legislature would raise the exemption thresholds to $44,000 and $74,000, respectively.

Another bill under consideration would eliminate income as a factor in determining taxation on benefits. Instead, Utahans who receive Social Security would get tax credits of up to $30,000 in benefit income for a single filer, $50,000 for a couple.

AARP Utah calls for full removal of the state tax on benefits and for that reason has not come out in support of either of the bills, says Harris, the state advocacy director. A survey commissioned by the state office last year found that two-thirds of Utah voters back eliminating the tax on benefits, with support consistent across age groups and party affiliations. 

AARP Utah has collected more than 4,500 signatures for an online petition calling on lawmakers to end the tax and has held tele-town halls on the subject.

“The state office is very confident there will be some level of tax relief for Social Security beneficiaries this year, and we’re fighting to eliminate it altogether, or at least make it as big as possible,” Harris says.

Update: Utah lawmakers approved a tax-cut package March 2 that expands the exemption for Social Security benefits to individuals with incomes up to $45,000 and joint filers with incomes up to $75,000, effective for the 2023 tax year. Gov. Spencer Cox signed the measure March 22. “We hoped to remove the tax entirely but are happy with this win,” Harris says.