Does your state tax Social Security?

-Source-USA-Today-

Retirees in these states could potentially keep more of their Social Security benefits.

Nearly three-fourths of U.S. states don't tax Social Security benefits at all, although your Social Security benefits can be taxed by the IRS regardless of where you live. Here's a quick guide to the 37 states that don't tax Social Security benefits, how Social Security is taxed on the federal level, and what you need to know if your state isn't on the tax-free Social Security list.

Most states don't tax Social Security benefits

Here's the easy answer: If you live in one of these 37 states (or Washington, D.C.), your Social Security benefits aren't taxed on the state level: Alabama, Alaska, Arizona, Arkansas, California, Delaware, 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 (state), Washington (D.C.), Wisconsin, Wyoming.

These states may, however, be subject to federal income tax, which we'll get to in a minute.

How much federal income tax could you pay on Social Security benefits?

It also is important to point out that just because you live in a state that doesn't tax Social Security benefits, you still may have to pay federal income tax on them, regardless of where you live.

Specifically, the IRS uses an income test to determine if a portion of your Social Security benefits are taxable for federal income tax purposes. The IRS defines your "combined income" as one-half of your Social Security benefits and all of your other sources of income -- even non-taxable bond interest is included in this figure. Read more