SALT LAKE CITY — Will this be the year Utah eliminates state income taxes on Social Security?
It’s too soon to say what action the 2025 Legislature will take on Gov. Spencer Cox’s proposal to end the state’s taxing of Social Security income, but last month the legislative leaders who serve on the Executive Appropriations Committee set aside a total of $231 million for the “later consideration” of an unspecified tax cut during the upcoming session.
In recent years, the Utah Legislature has focused on lowering the individual and corporate state income tax rate. Last session, the rate was reduced from 4.65% to 4.55%, a $170 million cut. This time around, the “Tax Reduction Set-Aside” includes $66 million from funds designated for “one-time” expenditures along with $165 million in ongoing revenues.
The price tag for getting rid of the tax on Social Security benefits is $143.8 million. Cox has called eliminating the tax that directly affects some 150,000 Utahns a cornerstone of his $30.6 billion budget, saying “it’s an embarrassment that we are one of eight states that still does that.”
Support for eliminating Utah’s tax on Social Security benefits
Senate Budget Chairman Jerry Stevenson, R-Layton, said he’s hearing a lot of support for the governor’s proposal.
“If I look at what my constituents are saying, and what other legislators are when I talk to them, there’s a lot of momentum to remove the income tax on Social Security,” Stevenson said. He’s predicting that’s what will happen this session, even though the Legislature’s Republican supermajority has yet to take a formal position.
“My guess — and this is just me speaking, so I’m not speaking for leadership or Republicans or anyone else — I think there is enough momentum behind this income tax cut on Social Security that that will go through,” the longtime lawmaker said. Additional tax cuts are less certain, however.
Stevenson said another reduction in the income tax rate “would be a possibility,” but “you have to be careful, and you have cut it strategically.” He said legislative leaders set aside more money than needed to cover the elimination of the tax on Social Security benefits “so we could move that back into the budget to cover a shortfall.”
The 2025 Legislature is facing a second year of budget shortfalls, with revenue collections falling below projections. After being told in December there’s a $2.3 million deficit for fiscal year 2024 and nearly $24.5 million less in the current budget year’s general fund, the Executive Appropriations Committee also tucked away more money into the state’s “Rainy Day” funds.
Asked about the governor’s expectations for how lawmakers will use the money set aside for a tax cut, his spokesman, Robert Carroll, reiterated what was spelled out in the budget. “The governor’s proposal is to eliminate the tax on Social Security, and that will be his priority,” Carroll said.
The governor has said slicing the state income tax rate to 4.5% this session wouldn’t mean as much to seniors on a fixed income as doing away with the tax on Social Security. Eligibility for a state income tax credit for Social Security approved in 2021 has been expanded in previous years, but stops at $45,000 in income for single filers and $75,000 for joint filers.
“Now, we could do another five-basis-point increment and save you and me $15 a year, or we could save my grandma $1,000. I think it’s an easy call,” Cox said after the release of his budget in early December. “I think giving everybody a tiny cut versus giving our seniors a very big cut, I think it’s a no brainer.”
How much can Utah lawmakers cut taxes next session?
House Budget Chairman Val Peterson, R-Orem, said there’s been no discussion yet among representatives about what this year’s tax cut will look like, but made it clear the amount available for a further reduction in the rate or another type of ongoing cut is a little less than last year, $165 million.
There are limits, he said, on what could be done with the $66 million in one-time money also set aside for a tax cut.
“You couldn’t use it for an ongoing tax cut. It would have to be something that’s one time. Otherwise you create a structural imbalance in the budget and we don’t want to do that,” Peterson said, meaning lawmakers would have to come up with some type of one-time tax break.
That happened in 1988, when lawmakers agreed to mail out $80 million in rebate checks to Utah taxpayers to return a budget surplus that resulted from a tax increase. The one-time payment, which averaged $148, added up to 12.5% of the total state income taxes paid in Utah in 1987.
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