Friday, May 03, 2019

Social Security Taxation Changes

As has happened in many other states around the country, some West Virginians will be able to benefit from tax-free Social Security benefits in the future.

The 2019 legislative session passed a law that allows 35% of a person’s 2020 Social Security benefits to avoid income taxes. For this tax reduction to apply, the person’s federal adjusted gross income must be $50,000 or less (or a maximum of $100,000 for a married couple).

In 2021, the tax-free amount increases to 65% of the Social Security benefits, again with the top limit of $50,000 federal AGI per person.

In 2022, 100% of the benefits will avoid West Virginia income taxes as long as the person’s income is at the appropriate level or lower.

These new rules apply to Social Security Old Age, Survivors and Disability benefits and to Supplemental Security Income for the Aged, Blind and Disabled (SSI).

For example, if Anna, who is single, receives $25,000 in Social Security benefits during 2020 that are reportable on her federal tax return and has no other income, the 35% “income discount” will apply, and only $16,250 will be reported as taxable on her West Virginia return.

What is reported on the federal return is not affected by the new state rules.

However, if Anna’s 2020 total federal adjusted gross income, because of the combination of her Social Security and some investment income, was $65,000 instead, she would not be able to use the 35% reduction, and all of her Social Security would be reported in the same way as in earlier years.

Because of the income cap, some receiving these government benefits will have tax-free amounts for some years and none in other years, depending on their total income.

Remember also that this change in taxation for Social Security recipients does not apply to 2019 income.

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