Social Security benefits provide crucial income for millions of retirees and disabled Americans, but taxation rules can vary widely depending on where you live. While the federal government may tax benefits once income crosses certain thresholds, only a handful of states continue to tax Social Security income at the state level.
Understanding these rules can help retirees plan their finances and avoid unexpected deductions.
According to USA Today, most states do not tax Social Security benefits, but nine states will continue to tax them for the 2025 tax year. Changes are already underway: Nebraska eliminated the tax in 2025, and West Virginia is phasing it out, with full elimination set for 2026.
Also Read: Want to live like a millionaire after retirement? Check out these 10 affordable US towns
Where Social Security benefits are taxed
Colorado
Residents younger than 65 can exclude the first $20,000 in benefits, while those 65 and older are fully exempt. Beginning in 2025, residents aged 55-64 can deduct up to $24,000.
Connecticut
Benefits are exempt for single filers earning under $75,000 and joint filers under $100,000. Above those levels, up to 25% of benefits may be taxed.
Minnesota
Benefits may be partially or fully exempt, with exemptions gradually phasing out at higher income levels.
Montana
The taxable amount depends on adjusted gross income.
New Mexico
Most recipients avoid taxation. Single filers earning under $100,000 and joint filers under $150,000 qualify for exemptions.
Rhode Island
Exemptions disappear if income exceeds $107,000 for single filers or $133,750 for joint filers, or if the filer has not reached full retirement age.
Utah
Benefits may be taxed above specific income thresholds, though a nonrefundable credit may offset some liability.
Vermont
Full exemptions apply below certain income limits; taxation increases as income rises.
West Virginia
For 2025, taxpayers may subtract 65% of Social Security benefits from taxable income, with broader exemptions planned before the tax is eliminated in 2026.
Federal taxes may still apply
Even if your state does not tax Social Security, federal taxes may apply if your combined income exceeds set limits. This applies to retirement, survivor, and disability benefits.
Also Read: What happens when you claim Social Security at 67? Maximum benefits explained
How retirees can minimize taxes
Experts advise reviewing state income thresholds and planning withdrawals carefully.
Some retirees delay claiming benefits to increase payments and potentially reduce taxation. Each January, beneficiaries receive Form SSA-1099 from the Social Security Administration, which lists total benefits and helps determine tax obligations.
Understanding whether your state taxes Social Security benefits can help you anticipate deductions and make informed retirement planning decisions.