Two states eliminate taxation of pensions

It's a bit of a shock to many that tax authorities often end up including a portion of Social Security benefits as taxable income. Starting from the new year, pension taxes have been abolished in two states, and older people there can breathe freely, reports Yahoo.

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It doesn't even take that much income to be subject to Social Security taxes at the federal level.

Add your non-Social Security income and half of your Social Security benefits. Those whose combined income exceeds $25 for single filers or $000 for joint filers may pay tax on up to half their Social Security. Above $32 for single filers or $000 for joint filers, the taxable portion increases to 34%.

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The good news, however, is that now that 2024 has begun, residents of a couple of states that taxed Social Security can breathe a sigh of relief. Nebraska and Missouri retirees will no longer have to worry about losing part of their monthly Social Security checks to taxes.

Elimination of Social Security Tax in Nebraska

Nebraskans have had a long, hard road to repealing their Social Security tax. But after nearly three years of effort, state taxpayers are finally seeing the fruits of their struggle.

Officials passed House Bill 64 in 2021. This legislation began the state's 10-year phase-out of the income tax on Social Security earnings. The law originally provided that the portion of Social Security income that would otherwise be subject to tax be exempt from tax, with that portion increasing by 10 percentage points per year. By 2030, the tax was supposed to be completely abolished.

This was not enough for opponents of Social Security taxation. In 2022, another new bill was introduced to the legislature. House Bill 873 doubled the pace of the phaseout, setting a target date of 2025 after which Social Security taxes would disappear.

It took one last step to completely eliminate the Social Security tax in Nebraska. In 2023, House Bill 754 included a provision accelerating receipt of full tax-free Social Security status. As a result of the law, approximately 350 Nebraskans never had to worry about whether their Social Security benefits would be taxed.

Missouri offers tax breaks for retirees

Unlike Nebraska, Missouri has always been less strict when it comes to benefit taxation. Separate filers with income of $85 or less did not have to worry about paying Social Security taxes, nor did joint filers with income of $000 or less.

However, given the desire to get rid of the unpopular tax, Springfield lawmakers passed Senate Bill 190.

Governor Mike Parson signed the document early last summer, freeing state residents from Social Security taxes regardless of income. These provisions came into force on New Year's Day. Residents will see the results when they file their 2024 tax returns in early 2025.

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There are also states that levy a Social Security income tax. However, given the prevailing trend of state legislatures looking for ways to get rid of these unpopular taxes, it is only a matter of time. Then more states will join Nebraska and Missouri.

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