Social Security benefits are a crucial part of retirement income for millions of Americans, but how much of that income you keep depends significantly on where you live.
While most states don’t tax Social Security benefits, nine states do—and the impact can vary widely based on income and state-specific rules.
Here’s a breakdown of which states tax Social Security in 2025, the income thresholds that might exempt you, and how to minimize your tax burden.
States Taxing Social Security Benefits
| State | Exemption Threshold | Key Details |
|---|---|---|
| Colorado | Full exemption for retirees 65+ with AGI <$75,000 | Expands to ages 55-64 in 2025 |
| Connecticut | Single <$75,000, Joint <$100,000 | Partial taxation above thresholds |
| Minnesota | Single <$82,190, Joint <$105,380 | Tiered taxation for higher-income retirees |
| Montana | Single <$25,000, Joint <$32,000 | Full exemption for lower-income retirees |
| New Mexico | Single <$100,000, Joint <$150,000 | Considering broader tax exemptions |
| Rhode Island | Single <$88,950, Joint <$111,200 | Most retirees exempt |
| Utah | Single <$30,000, Joint <$50,000 | Full exemption below thresholds |
| Vermont | Single <$50,000, Joint <$65,000 | Higher-income retirees face significant taxes |
| West Virginia | Phasing out Social Security taxes by 2026 | Retiree-friendly reforms underway |
Why Do Some States Tax Benefits?
States that tax Social Security benefits typically rely on income taxes to fund essential services like education, healthcare, and infrastructure.
These states often design their tax policies to target higher-income retirees while exempting lower-income individuals who rely more heavily on Social Security for daily expenses.
For example, Vermont has stricter thresholds but uses the revenue to support its robust healthcare system. Conversely, Colorado and Connecticut offer exemptions for middle-income retirees, reducing the overall tax burden.
Federal Taxes on Social Security
In addition to state taxes, Social Security benefits may be subject to federal taxes:
- Single Filers: Up to 50% of benefits taxed if combined income is $25,000–$34,000; up to 85% taxed above $34,000.
- Joint Filers: Up to 50% taxed if combined income is $32,000–$44,000; up to 85% taxed above $44,000.
What Counts as Combined Income?
Your combined income includes:
- Adjusted Gross Income (AGI)
- Nontaxable interest
- Half of your Social Security benefits
Strategies to Reduce Taxes
1. Optimize Income Streams
Consider strategies like drawing income from Roth IRAs or tax-free municipal bonds to lower your AGI and stay below federal and state tax thresholds.
2. Relocate to Tax-Friendly States
States like Florida, Texas, and Nevada don’t tax Social Security benefits, making them attractive options for retirees seeking to maximize income.
3. Use Tax-Efficient Withdrawals
Work with a financial advisor to develop a withdrawal strategy that minimizes taxes. For example, withdrawing from traditional IRAs early can reduce taxable income later in retirement.
4. Monitor Legislative Changes
Stay informed about changes in state tax laws. For example, Missouri and Kansas will no longer tax Social Security starting in 2024, and West Virginia will fully phase out taxes by 2026.
5. Leverage Deductions and Credits
Some states offer additional deductions or credits for seniors. Check your state’s tax rules to ensure you’re taking full advantage of these benefits.
States Phasing Out Taxes
Missouri and Kansas
Both states will eliminate Social Security taxes starting in 2024, reflecting a growing trend to attract retirees.
West Virginia
This state is gradually phasing out taxes on Social Security and plans to eliminate them entirely by 2026, making it a more retiree-friendly destination.
Practical Advice
Know Your State’s Rules
Understanding your state’s specific tax policies is essential for accurate financial planning.
Consider Relocation
If state taxes significantly impact your income, relocating to a tax-friendly state might be a cost-effective solution.
Work with a Financial Advisor
Professional advice can help optimize your retirement plan, ensuring you pay the least amount of taxes while maximizing benefits.
Plan Early
The earlier you address potential tax liabilities, the more flexibility you’ll have to implement strategies like Roth conversions or adjusting withdrawal schedules.
