Social Security benefits are an important source of retirement income for millions of Americans, providing financial support in their later years.
As retirees leave the workforce and begin drawing from their Social Security accounts, understanding how these benefits are taxed at the state level can have a significant impact on their financial stability. This awareness is especially important because states differ in how they tax Social Security benefits.
Many states have recently reconsidered their taxation policies for Social Security, with a trend toward providing relief by lowering or eliminating state taxes on these benefits.
The movement is part of a larger effort to reduce the financial burden on retirees, particularly those living on fixed incomes. Some states have made significant changes to how they tax these benefits, providing much-needed financial relief for many seniors.
States That Don’t Tax Social Security benefits
As of 2024, 41 states, including Washington, D.C., do not impose state taxes on Social Security benefits. Alabama, Alaska, Arizona, Arkansas, California, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, Missouri, Nevada, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Virginia, Washington, and Wisconsin
Even better for retirees, several states have recently updated their policies. Missouri and Nebraska, for example, have eliminated taxes on Social Security benefits beginning in 2024. This move came in response to mounting pressure from advocacy groups and constituents to reduce the financial burden on senior citizens.
Meanwhile, Kansas passed legislation midway through 2024 that eliminated its Social Security tax. While West Virginia continues to tax Social Security, it is gradually phasing it out and plans to completely eliminate it by 2026.
States That Still Tax Social Security benefits
Despite the widespread trend of lowering or eliminating Social Security taxes, as of 2024, nine states continue to tax these benefits. Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, and West Virginia (until it is phased out in 2026).
However, many of these states do not tax all Social Security recipients. These states frequently have income thresholds or other criteria in place to determine whether or not someone will be required to pay taxes on their benefits.
For example, in Colorado, people over the age of 65 can deduct their federally taxed Social Security benefits. Furthermore, beginning in 2025, this exemption will be extended to residents aged 55 to 64, provided they meet specific income requirements.
In Connecticut, Social Security benefits are not taxed for single filers with an adjusted gross income (AGI) of less than $75,000 or joint filers with AGIs less than $100,000.
Similarly, in Rhode Island, only retirees with a federal AGI greater than $95,800 for single filers or $119,750 for joint filers are subject to state taxes. Vermont provides a full exemption for single filers earning $50,000 or less and joint filers earning less than $65,000.
Although state Social Security taxes are important, they are not the only considerations retirees should make when deciding where to live.
Other important considerations include the overall cost of living, the availability and quality of healthcare services, proximity to family and friends, climate preferences, and other state and local taxes like property or sales tax.
When planning for retirement, it is critical to consider not only taxation, but also the overall picture of financial planning. Diversifying income sources is an effective strategy for retirees because it allows them to manage their tax liability across multiple accounts and income streams.
Roth conversions, which involve converting traditional IRA funds into Roth IRAs, can provide tax-free income during retirement while also lowering taxable income over time. Managing required minimum distributions (RMDs) is another important strategy. Properly planning when and how to receive these distributions can reduce the impact on Social Security taxes.
