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RETIREMENT AND PENSIONS SYSTEMS; SOCIAL SECURITY; TAX EXEMPTIONS; TAXES - INCOME;

OLR Research Report


February 25, 2010

 

2010-R-0119

STATE INCOME TAX ON SOCIAL SECURITY AND PENSIONS

By: Judith Lohman, Assistant Director

You asked for a summary of income tax exemptions for pension and Social Security income in Connecticut and other states. This report updates the following reports on this topic: 2004-R-0219 and 2008-R-0413.

SUMMARY

Connecticut's income tax excludes (1) 75% or 100% of federally taxable Social Security income, depending on the taxpayer's federal adjusted gross income (AGI); (2) 100% of railroad retirement benefits; and (3) 50% of federally taxable military retirement benefits. Connecticut has no exemptions for other types of pension income.

According to a 2009 survey by the National Conference of State Legislatures (NCSL), of the 41 states with personal income taxes, all but four (Minnesota, Nebraska, Rhode Island, and Vermont) have at least one state income tax exemption for some pension and retirement income. The most common exemptions are for Social Security and military pensions. Many states exempt federal, state, and local government pensions (often with limitations) and 24 states exempt some private pension income. Alabama, Hawaii, Illinois, Mississippi, and Pennsylvania exempt virtually all pension income from their state income taxes.

CONNECTICUT TAX ON PENSION INCOME

Except for Social Security, railroad retirement, and military retirement benefits, Connecticut's state income tax treats income from public and private pensions the same as any other income. The state has no other special exemptions for pension income.

Social Security and Railroad Retirement

Most Social Security and all railroad retirement benefits are exempt from the Connecticut income tax. (Federal law prohibits states from taxing railroad retirement benefits.) The Social Security exemption occurs in two ways. First, because Connecticut bases its state tax on each taxpayer's federal AGI, federal tax exemptions for a portion of Social Security income are automatically incorporated into state tax calculations. Second, Connecticut explicitly allows additional state exemptions for federally taxable Social Security benefits (CGS 12-701(20)).

Federal Income Tax Exemption. For federal tax purposes, Social Security and Tier I Railroad Retirement benefits are treated the same. The benefits are partly taxable for a recipient whose income exceeds a specified amount. The income counted for determining the exemption is all the non-Social Security or railroad retirement income a person receives (including any tax-exempt interest) plus 50% of his or her Social Security or railroad retirement benefits for the year. If that total exceeds $32,000 for a married couple filing jointly or $25,000 for a single person, head of household, or married person filing separately, then 50% of the Social Security or railroad retirement benefits are taxable. If the total exceeds $44,000 for joint filers or $34,000 for other filers, 85% of Social Security or railroad retirement benefits are taxable.

Connecticut Income Tax Deduction. The starting point for determining the Connecticut income tax is federal AGI and federal AGI includes any federally taxable Social Security or railroad retirement benefits. But state law allows a Connecticut taxpayer to deduct the following before figuring his Connecticut tax: (1) 75% or 100% of his or her federally taxable Social Security benefits, depending on income and (2) 100% of any railroad retirement benefits in excess of the Social Security benefits he deducts.

A Connecticut 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 federal AGI is less than $50,000 and (2) married filing jointly or a head of household whose 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 pay from the state income tax. The exemption applies to federal retirement pay to members of the U.S. Army, Navy, Air Force, Marines, Coast Guard, and Army and Air National Guard (CGS 12-701(20)(B)(xvii)).

PENSION INCOME TAXES IN OTHER STATES

According to NCSL, of the 41 states that have broad-based personal income taxes, 26 exempt 100% of Social Security benefits; 12 exempt 100% of military retirement benefits; 10 exempt all federal, state, and local government pension income; and 27 provide a full or partial exemption for private pension income. Pennsylvania is the only state that has an unlimited exemption for all public and private pension income.

Table 1 shows how states tax public and private pension and Social Security (SS) income, according to NCSL. Information applies to the 2009 tax year unless noted. Since no state taxes railroad retirement (RR) benefits, Column 5 shows only Social Security exemptions. Unless otherwise noted, the total income exemption for all pensions may not exceed the individual exemption amounts shown.

TABLE 1: STATE INCOME TAX EXEMPTIONS FOR PENSIONS

(2009 Tax Year, Unless Otherwise Noted)

State

PENSION TYPE

State/Local

Federal Civil Service

Military

Social Security

Private

Alabama

100%

100%

100%

100%

100% for defined benefit plans

Alaska

No income tax.

Arizona

$2,500

$2,500

$2,500

100%

None

Arkansas

$6,000

$6,000

$6,000

100%

$6,000 (includes IRA distributions after age 59 )

California

Tax credit of $98 for each taxpayer over age 65. No pension tax exclusions except for Social Security.

100%

None

Colorado

Age 55-65: $20,000

Age 65+: $24,000

Age 55-65: $20,000

Age 65+: $24,000

Age 55-65: $20,000

Age 65+: $24,000

Age 55-65: $20,000

Age 65+: $24,000

Age 55-65: $20,000

Age 65+: $24,000

Table 1: -Continued-

State

PENSION TYPE

State/Local

Federal Civil Service

Military

Social Security

Private

Connecticut

None

None

50%

100% for AGI under $50,000 single/$60,000 joint; 75% for higher AGI

None

Delaware

Under 60: $2,000

Age 60+: $12,500

Under 60: $2,000

Age 60+: $12,500

Under 60: $2,000

Age 60+: $12,500

100%

Under 60: $2,000

Age 60+: $12,500

District of Columbia

Age 62+:

$3,000

Age 62+: $3,000

Age 62+: $3,000

100%

None

Florida

No income tax.

Georgia

Age 62+:

$35,000

Age 62+:

$35,000

Age 62+:

$35,000

100%

Age 62+:

$35,000

Hawaii

100%

100%

100%

100%

100% for contributory plans

Idaho

Age 65+ or 62+ if disabled: $21,900 single/$32,850 joint minus SS /RR benefits

(exemption limited to certain public safety officer benefits)

Age 65+ or 62+ if disabled: $21,900 single/$32,850 joint (minus SS/RR benefits)

Age 65+ or 62+ if disabled: $21,900 single/$32,850 joint (minus SS/RR benefits)

100%

None

Illinois

100%

100%

100%

100%

100% for qualified plans

Indiana

None

Age 62+: $2,000 ($4,000 per couple) minus SS benefits

Age 60+: 100% up to $5,000

100%

None

Iowa

Age 55+: $6,000 single/ $12,000 joint

Age 65+:

$24,000 single/$32,000 joint)

Age 55+: $6,000 single/ $12,000 joint

Age 65+:

$24,000 single/$32,000 joint

Age 55+: $6,000 single/

$12,000 joint

Age 65+:

$24,000 single/$32,000 joint

100% under certain income; 50% over. Tax being entirely phased out from 2007 to 2014 (see notes)

Age 55+: $6,000 single/ $12,000 joint

Age 65+:

$24,000 single/$32,000 joint

Kansas

Kansas pensions: 100%

Out-of-state pensions: None

100%

100%

100% if

federal AGI is

$75,000 or under

None

Kentucky

100% for benefits earned before 1/1/98. Prorated for benefits earned later with exemption cap of $41,110

100% for benefits earned before 1/1/98. Prorated for benefits earned later with exemption cap of $41,110

100% for benefits earned before 1/1/98. Prorated for benefits earned later with exemption cap of $41,110

100% for income under $41,110

100% for benefits earned before 1/1/98. Prorated for benefits earned later with exemption cap of $41,110

Table 1: -Continued-

State

PENSION TYPE

State/Local

Federal Civil Service

Military

Social Security

Private

Louisiana

Louisiana state pensions: 100%

Out-of-state pensions: Same as private

100%

100%

100%

Age 65+: $6,000 single/ $12,000 joint

Maine

$6,000 minus SS/RR benefits

$6,000 minus SS/RR benefits

$6,000 minus SS/RR benefits

100%

$6,000 (for 401(a), 403, and 457(b) plans only)

Maryland

Age 65+: $24,500 per person (adjusted annually) minus SS/RR benefits

Age 65+: $24,500 per person (adjusted annually) minus SS/RR benefits

Up to $5,000 plus

$24,500 per person (adjusted annually) minus SS/RR benefits at age 65

100%

Age 65+: $24,500 per person (adjusted annually) minus SS/RR benefits. (Not applicable to IRA, Roth IRA, SEP, Keogh, or ineligible deferred compensation plans.)

Massachusetts

Mass. pensions: 100% Out-of-state pensions exempt if home state has reciprocal exemption for Mass. pensions

100%

100%

100%

None

Michigan

Michigan pensions: 100%

Out-of-state pensions exempt if home state has reciprocal exemption for Mich. pensions.

Otherwise treated like private pensions

100%

100%

100%

$45,120 single/ $90,240 joint minus public retirement benefits (adjusted annually). (Income from 457 deferred compensation plans excluded.)

Minnesota

None

None

None

Same as federal

None

Mississippi

100%

100%

100%

100%

100% for qualified plans

Table 1: -Continued-

State

PENSION TYPE

State/Local

Federal Civil Service

Military

Social Security

Private

Missouri

Greater of $6,000 single/ $12,000 joint (reduced by amount total income exceeds certain limits) or 35% of benefits for 2009 (rising to 100% for 2012) minus amount of any Social Security exclusion. Income limits apply (see notes)

Greater of $6,000 single/ $12,000 joint (reduced by amount total income exceeds certain limits) or 35% of benefits for 2009 (rising to 100% for 2012) minus amount of any Social Security exclusion.

Income limits apply (see notes)

Greater of $6,000 single/ $12,000 joint (reduced by amount total income exceeds certain limits) or 35% of benefits for 2009 (rising to 100% for 2012) minus amount of any Social Security exclusion. Income limits apply (see notes)

35% excluded for 2009 to increase to 100% in 2012, subject to income limits

$4,000 (counted towards the $6,000 cap if applicable)

Montana

Up to $3,600 (adjusted annually for inflation) for filers with AGI under $30,000

Up to $3,600 (adjusted annually for inflation) for filers with AGI under $30,000

Up to $3,600 (adjusted annually for inflation) for filers with AGI under $30,0000

Taxable if income (including SS) is greater than $25,000 single/ $32,000 joint

Up to $3,600 (adjusted annually for inflation) for filers with AGI under $30,000

Nebraska

None

None

None

Same as federal

None

Nevada

No income tax.

New Hampshire

No broad-based income tax. Tax on interest and dividends only.

New Jersey

Age 62+: $15,000 single/

$20,000 joint. Income limits apply (see notes).

Age 62+: $15,000 single/

$20,000 joint. Income limits apply (see notes).

100%

100%

Age 62+: $15,000 single/

$20,000 joint. Income limits apply (see notes).

New Mexico

Pension and SS income taxable; RR income exempt. General income exemption for age 62+: $10,000 single/$16,000 joint. Exemption phases out with increased AGI. Full phase-out at $25,500 single /$51,000 joint.

New York

NY pensions: 100%;

Out-of-state treated like private pensions

100%

100%

100%

Age 59 +: $20,000

North Carolina

$4,000 single/

$8,000 joint (100% for certain beneficiaries who had five years' service credit before 1989.)

$4,000 single/

$8,000 joint

$4,000 single/

$8,000 joint

100%

$2,000 single/

$4,000 joint

Table 1: -Continued-

State

PENSION TYPE

State/Local

Federal Civil Service

Military

Social Security

Private

North Dakota

$5,000 minus SS (limited to certain public safety retirements)

$5,000 minus SS

$5,000 minus SS

Same as federal

None

Ohio

Certain tax credits apply (see notes)

Certain tax credits apply (see notes)

100%

100%

See notes

Oklahoma

Amount included in federal AGI up to a maximum of $10,000 per retiree for all benefits

Amount included in federal AGI up to a maximum of $10,000 per retiree for all benefits

Amount included in federal AGI up to a maximum of $10,000 per retiree for all benefits

100%

Maximum $10,000 for retirees with income below $37,500 single/$75,000 joint

Oregon

Credit up to 9% of taxable pension income. Income limits apply.

Credit up to 9% of taxable pension income. Income limits apply.

Credit up to 9% of taxable pension income. Income limits apply.

100%

Credit up to 9% of taxable pension income. Income limits apply.

Pennsylvania

100%

100%

100%

Same as federal

100%

Rhode Island

None

None

None

Same as federal

None

South Carolina

Under 65: $3,000

Age 65+: $10,000 (see notes)

Under 65: $3,000

Age 65+: $10,000 (see notes)

Under 65: $3,000

Age 65+: $10,000 (see notes)

100%

Under 65: $3,000

Age 65+: $10,000

(see notes)

South Dakota

No income tax.

Tennessee

State income tax applies only to interest and dividends. Taxpayers age 65+ may exclude $16,200 single/$27,000 joint.

Texas

No income tax

Utah

Nonrefundable retirement tax credit for the single rate individual income tax as follows: (1) up to $450 for person age 65+ and born on or before 12/31/52; and (2) credit equal to the lesser of $288 or 6% of retirement income for person under age 65 and born or before 12/31/52. Credits reduced by 25 cents for each dollar of income over $32,000 (joint or head of household), $16,000 (married filing separately), or $25,000 (single).

Vermont

None

None

None

Same as federal

None

Table 1: -Continued-

State

PENSION TYPE

State/Local

Federal Civil Service

Military

Social Security

Private

Virginia

Age 62-64: $6,000

(Not available to those who turn age 62 after 1/1/04.)

Age 65+: $12,000

Dollar-for- dollar reduction for future beneficiaries if federal AGI, excluding SS, exceeds $50,000 single/$75,000 joint

Age 62-64: $6,000

(Not available to those who turn age 62 after 1/1/04.)

Age 65+: $12,000

Dollar-for- dollar reduction for future beneficiaries if federal AGI, excluding SS, exceeds $50,000 single/$75,000 joint

Age 62-64: $6,000

(Not available to those who turn age 62 after 1/1/04.)

Age 65+: $12,000

Dollar-for- dollar reduction for future beneficiaries if federal AGI, excluding SS, exceeds $50,000 single/$75,000 joint

100%

Age 62-64: $6,000

(Not available to those who turn age 62 after 1/1/04.)

Age 65+: $12,000

Dollar-for- dollar reduction for future beneficiaries if federal AGI, excluding SS, exceeds $50,000 single/$75,000 joint

Washington

No income tax

West Virginia

100% for public safety pensions

All others: $2,000

$2,000

(100% for certain retired federal law enforcement officers)

$22,000

Same as federal

None

Wisconsin

$5,000 for AGI under $15,000 (single)/$30,000 (joint)

$5,000 for AGI under $15,000 (single)/$30,000 (joint)

100%

100%

$5,000 for AGI under $15,000 (single)/$30,000 (joint)

Wyoming

No income tax.

Source: National Conference of State Legislatures, “State Personal Income Taxes on Pensions and Retirement Income: Tax Year 2009,” September, 2009, updated by individual state income tax forms and instructions.

Notes:

Arkansas: Exemption total excludes SS/RR retirement income.

Colorado: SS/RR retirement income not taxed by the federal government is excluded from AGI for state income tax purposes.

Delaware: Exemption total excludes SS/RR retirement income.

Georgia: Exemption total excludes SS/RR retirement income plus up to $4,000 of earned income.

Indiana: Taxpayers over 65 may be entitled to a tax credit ranging from $40 to $100, depending on federal AGI.

Iowa: Exemption total excludes SS.

Michigan: Taxpayers age 65+ may subtract interest, dividends, and capital gains from AGI up a maximum for 2007 of $9,420 single/$18,840 joint. The subtraction must be reduced by the amount of any pension exclusion claimed.

Missouri: Exemption for Social Security benefits, Social Security disability benefits, and benefits received from a nonprivate retirement system for individuals age 62+ is being phased in as follows: 2009, 50%; 2010, 65%; 2011, 80%; and 2012 and thereafter, 100%. Maximum deduction is available for AGI up to $85,000 single/ $100,000 joint. The exemption decreases dollar for dollar for AGIs exceeding that amount. If a taxpayer receives both Social Security and public retirement benefits, the maximum deduction for the publicly funded retirement benefits is decreased by $1 for every dollar of SS benefits received if the benefits are not included in taxpayer's Missouri AGI. The maximum deduction for the publicly funded retirement benefits is limited to the maximum SS benefits available for the tax year less any SS benefits not taxable to Missouri.

New Jersey: Taxpayers over age 62 are entitled to an additional income exclusion to allow them to reach the amount of the pension exemption. The sum of the pension exemption and the additional exemption may exceed the pension exemption if the recipient is ineligible for SS retirement benefits. Exclusion eliminated for AGI over $50,000 single/$100,000 joint.

Ohio: A retirement income tax credit of up to $200 is allowed, depending on income. A senior citizen tax credit of $50 per tax return is allowed to filers age 65+. A one-time tax credit is available for lump-sum distributions to people over 65. The credit is $50 multiplied by remaining life expectancy.

Oregon: Tax credit of up to 9% of taxable pension income is available to recipients of pension income, including most private pension income, whose household income was less than $22,500 for single and $45,000 for joint filers and who received less than $7,500/$15,000 in SS or RR benefits. The credit is the lesser of tax liability or 9% of taxable pension income. Some federal pension income is exempt if beneficiary was employed by the federal government before 10/1/91.

South Carolina: Each taxpayer over age 65 is entitled to an income exemption of up to $15,000 ($30,000, married filing jointly) minus the retirement income exemption claimed.

West Virginia: Each taxpayer over 65 can claim an $8,000 exemption, from which the pension exclusions noted in the table must be deducted.

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