Social Security benefits are a lifeline for millions of retirees. But depending on where you live, Uncle Sam could take a bite out of your monthly checks.

Even in retirement, your benefits could still be subject to income taxes. If you live in one of these 12 states, you could receive smaller-than-expected Social Security payments.

How state taxes affect your benefits
Each state has its own unique laws and regulations surrounding Social Security. While the good news is that 38 states do not tax benefits, there are still 12 that tax benefits at the state level. These states include:

However, if you live in a state that taxes benefits, you might still be able to get out of them. Some states have income restrictions that can reduce or even eliminate state income taxes on your benefits.

For example, in West Virginia, benefits are exempt from state taxes if your adjusted gross income falls below $50,000 per year for single filers or $100,000 per year for married couples filing jointly. It may be a good idea, then, to check your state’s tax laws to see whether you’ll be able to avoid the income tax.

Other taxes that could reduce your benefits
Regardless of where you live, you could also be subject to federal taxes on your benefits.

Federal taxes depend on a figure called your provisional income, which is half of your annual benefit amount plus your adjusted gross income and any nontaxable interest. So, for example, if you’re collecting $20,000 per year from Social Security and are withdrawing $40,000 per year from your 401(k), your provisional income is $50,000 per year.

Your provisional income will determine how much of your benefit amount is subject to federal taxes:

SOURCE: SOCIAL SECURITY ADMINISTRATION.

The good news is that regardless of your income, you won’t pay federal taxes on more than 85% of your benefit amount. But to avoid federal taxes altogether, your provisional income must fall below $25,000 per year (or $32,000 per year for joint filers).

How to get out of taxes in retirement
There is a loophole that can help you get out of federal taxes: a Roth account. Withdrawals from a Roth IRA or Roth 401(k) don’t count toward your provisional income. If you have significant savings in one of these accounts, it could reduce your provisional income enough to lower or even eliminate your federal tax bill.

For example, say you’re still receiving $20,000 per year from Social Security, but rather than withdrawing $40,000 per year from a 401(k), you pull it from a Roth IRA. In that case, your provisional income would be just $10,000 per year, putting you below the income limit for federal taxes.

Taxes may be unavoidable for many retirees, but it’s still wise to know how they’ll affect your benefits. When you know what to expect in retirement, you can ensure you’re as prepared as possible.

— Katie Brockman

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