How to Avoid Taxes on Your Massachusetts Social Security Retirement Income

by | Oct 28, 2022 | Divorce |

Where you live, how much money you earn and how carefully you plan could all affect this essential retirement income.

As you prepare for retirement, it’s essential to understand what your taxes will be.

You may think your Social Security benefits are tax-free. After all, why would the government pay you money with one hand and take it back with the other?

But the truth is, you may pay taxes on your Social Security benefits if you have other sources of income in retirement.

At a certain level of overall income – that includes your Social Security benefits, paid work, withdrawals from investments, passive income or other sources – your Social Security benefits are taxed. And, if you work while taking Social Security before your full retirement age, your benefits are reduced.

Following are the ways your Social Security benefits could be reduced and how to handle them.

Social Security and Federal Income Tax

Once you hit a certain age, the rules for Social Security taxes are similar to other federal income taxes in that the more money you make overall, the more you are taxed.

But even at the highest tax rate, at least 15% of your Social Security benefits are shielded from tax.

IRS Rule of Thumb for Social Security Taxes

The IRS has a rule of thumb for savers who want to see if their Social Security benefits are taxable: add one-half of your Social Security benefits to all your other income, including tax-exempt interest.

Lowest Bracket: If the number is greater than $25,000 for single filers or $32,000 for married couples, you will owe tax on your benefits.

Middle Bracket: If you exceed the threshold for tax-exempt benefits, but your combined income for single filers is below $34,000, you pay tax on half of your benefits. Fifty percent of your benefits are taxable If you are married and filing jointly, and you make between the minimum amount but less than $44,000 in combined income.

Highest Bracket: Single people making more than $34,000 and married couples making more than $44,000 combined income have 85% of their benefits taxed. But remember, that doesn’t mean the government takes 85% of your benefit!

Fifteen percent of the benefit for high earners is tax-free, and the part that is taxable is only taxed at your income tax bracket, for example, 24% for married couples making between $168,401 and $321,450.

State Taxes on Social Security Benefits

The rules given above for taxing Social Security benefits only apply to federal taxes.

Thirteen states also tax Social Security benefits.

  • Four states tax them the same way the federal government taxes them.
  • Nine states make exemptions for age or income, reducing the tax burden somewhat.

Thirty-seven states do not tax Social Security benefits.

States That Tax Social Security Like the Federal Government

Minnesota, North Dakota, Vermont, and West Virginia apply state taxes to Social Security benefits using the same brackets as the federal government.

States That Tax Social Security Benefits but Have Different Rules Than the Federal Government

These states each have their own taxation rules for Social Security benefits: Colorado, Connecticut, Kansas, Missouri, Montana, Nebraska, New Mexico, Rhode Island, and Utah.

States That Do Not Tax Social Security Benefits

These 37 states (and the District of Columbia) do not tax Social Security retirement income: Alabama, Alaska, Arizona, Arkansas, California, Delaware, District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, Nevada, New Hampshire, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Virginia, Washington, Wisconsin, and Wyoming.

Additional Social Security Deductions If You Work and Collect Benefits Before Full Retirement Age

State and federal taxes are not all you need to worry about with Social Security benefits. There can also be a temporary reduction in benefits if you have not yet reached full retirement age and you are receiving work income above a certain level.

So while you are allowed to start benefits as soon as you turn 62 , the sooner you start collecting your benefits, the less your monthly benefit will be. Conversely, the longer you wait (up to 70 years old), the more your monthly income will be.

And the other downside to starting benefits early is that if you elect to start collecting benefits before your full retirement age and you are also still receiving work income, you will get less money than if you wait to collect, and the combined income you get will be subject to tax.

The full retirement age from 2022 onward is 67 for anyone born after 1960.

Temporary Reduction in Benefits if You Are Working

For work before full retirement age, Social Security will deduct money from your benefits according to the following guidelines:

  • If you are under full retirement age for the entire year, Social Security deducts $1 from your benefit payments for every $2 you earn above the annual limit. For 2022, that limit is $19,560.
  • In the year you reach full retirement age, Social Security deducts $1 in benefits for every $3 you earn above $51,960 for 2022.

However, you will get those lost benefits back because your Social Security payments will be increased when you reach your full retirement age. (This is to take into account those months in which benefits were withheld.)

And, after you reach full retirement age, you will no longer pay a work penalty. The month you reach full retirement age, you receive your full benefit whether you work or not. (However, as stated above, up to 85% of your benefits may be taxed by the Federal government and state governments if you earn more than the limits.)


To put it simply, if you work before your full retirement age, your monthly benefit is cut by a dollar for every two dollars you make above the $19,560 limit. For example, if your monthly benefit is $800 ($9,600 per year), and you earn $29,560 ($10,000 over the $19,560 limit) from work, your benefit will be cut by $5,000 to $4,600 for the year.

But that also means that your potential tax burden will be less.

If you work after full retirement age, you will receive your full monthly benefit no matter what, but depending on how much money you make, up to 85% of your Social Security benefits will be taxable at whatever your marginal tax rate is.

How to Reduce Your Social Security (and All Retirement) Taxes

Taxes are a significant cost and can eat away at your retirement savings and income potential. Tax planning should be a critical component of creating a reliable retirement plan.

One of the easiest ways to reduce tax expenditures is to (legally) reduce your annual income levels to stay in the lowest possible tax bracket. Remember, the less you earn, the less you are likely to pay in taxes.

Should you be in the midst of a divorce or contemplating divorce, contact the Law Offices of Renee Lazar at 978-844-4095 to schedule a FREE one hour no obligation consultation.

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