Attention Missouri residents! The upcoming tax year 2024 brings significant changes to how your public pensions and social security benefits are taxed. This easy-to-understand guide will walk you through these adjustments, whether you're already enjoying your retirement benefits or planning for the future.
Say Goodbye to Income Limits for Public Pensions and Social Security Deductions
Starting January 1, 2024, Missouri is removing the adjusted gross income limitation for those calculating public pension or social security/social security disability deductions (as seen in Sections 143.124 and 143.125 RSMo). This means many will see a beneficial adjustment in how their public pension benefits are taxed.
What This Means for Your Public Pension Exemption
Eligible taxpayers can subtract their public retirement benefits up to the maximum social security benefit amount, provided it was included in their federal adjusted gross income. However, remember, this does not make all public pension benefits tax-exempt. If you're taking both the public pension exemption and the social security/social security disability deduction, your pension exemption will be reduced by the amount of your social security deductions.
Enhanced Social Security and Social Security Disability Deductions
For those 62 years or older receiving social security benefits—or any age if receiving social security disability benefits—Missouri's new rule change means 100% of these benefits will be exempt from state taxes, as long as they are included in federal adjusted gross income under Internal Revenue Code § 86.
Effective Date and Who's Affected
These changes come into play for all tax years beginning on or after January 1, 2024. If you're receiving social security benefits (and are 62 years or older) or social security disability benefits at any age, or if you're benefiting from public retirement pensions, this change affects you.
Public vs. Private Pension Benefits
It's crucial to note that the upcoming changes strictly affect public pension benefits and do not apply to private pension calculations. The adjustments are aimed at Missouri adjusted gross income limits for public pension exemptions and social security/social security disability deductions only.
Clarification on the 100% Subtraction of Public Pension Benefits
Will you be able to subtract 100% of your public pension benefits under the new rules? Not exactly. You're allowed a subtraction up to the maximum social security benefit amount for the tax year in question, but this exemption will diminish if you're also taking the social security/social security disability deduction.
Maximum Social Security Benefits by Year
To give you an idea of the exemption caps, here's a glimpse at the maximum social security benefit amounts over recent years, leading up to 2024:
2019: $38,437
2020: $39,014
2021: $39,365
2022: $41,373
2023: $44,683
2024: $46,381
Conclusion
The 2024 tax year marks a significant shift for Missouri residents with public pensions and social security benefits. These changes aim to reduce the tax burden for many, making retirement planning a bit more breathable. To ensure you're fully benefitting from these adjustments, be sure to understand how these exemptions and deductions apply to your specific situation.
Remember, this post aims to simplify these tax changes for easy understanding. For personalized advice, consider consulting with us. Happy planning!