Most U.S. states exempt Social Security income from state taxes, but a select few still impose taxes on retirees’ Social Security benefits. For the 2023 and 2024 tax years, 11 states continue to tax Social Security payments, although several of these states offer deductions, exemptions, or income thresholds to alleviate the tax burden for retirees.
States that tax Social Security
11 states impose taxes on Social Security benefits: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, and Vermont. Most of these states, however, provide some form of exemption or credit to soften the tax blow for retirees, especially those with lower incomes.
- Colorado
Colorado applies a flat tax rate of 4.40% on Social Security benefits. However, retirees aged 65 or older can subtract up to $24,000 of their Social Security and other retirement income from their taxable income. This deduction is aimed at lessening the impact on retirees’ federal taxable income, ensuring that lower-income seniors are less affected.
- Connecticut
In Connecticut, Social Security benefits are subject to federal tax and state tax. The state’s income tax ranges from 2% to 6.99%, depending on the taxpayer’s income level. However, Connecticut limits the tax on Social Security benefits to 50% of the taxable amount, providing some relief. Furthermore, retirees with lower incomes may qualify for an exemption if their adjusted gross income (AGI) falls below $75,000 (single filers) or $100,000 (joint filers).
- Kansas
Kansas imposes income tax rates ranging from 3.1% to 5.7%. The good news for retirees in Kansas is that Social Security benefits are entirely exempt from state income tax if their federal adjusted gross income is $75,000 or less, regardless of filing status. This exemption makes it easier for many retirees to avoid paying state taxes on their Social Security income.
- Minnesota
Minnesota is among the states with higher income tax rates, ranging from 5.35% to 9.85%. Minnesota taxpayers can reduce their taxable income by subtracting a portion of their Social Security payments if they meet certain income thresholds. A new law, effective for tax year 2023 and later, allows more retirees to subtract all taxable Social Security benefits if their AGI is below $100,000 for married joint returns or $78,000 for single or head-of-household filers.
- Missouri
Missouri recently changed its approach to taxing Social Security benefits. Previously, retirees could deduct Social Security income if they were 62 or older and met certain income requirements. However, a new law signed in July 2023 eliminates taxes on Social Security benefits, making Missouri a more tax-friendly state for retirees starting in 2024.
- Montana
Montana’s tax rates range from 1% to 6.75%. The state taxes Social Security benefits in line with federal tax guidelines. However, only a portion of Social Security payments may be subject to state tax, depending on the retiree’s income level. This means some retirees may not face a heavy tax burden on their benefits.
- Nebraska
Nebraska has been gradually phasing out its tax on Social Security income. For the 2022 tax year, retirees could deduct 40% of their Social Security benefits from their adjusted gross income. The state will eliminate this tax starting in 2024, making it more attractive for retirees looking to keep more of their benefits.
- New Mexico
New Mexico’s income tax rates range from 1.70% to 5.90%. Recent changes to the state’s tax laws mean that most seniors no longer have to pay taxes on their Social Security benefits. Retirees with incomes below $100,000 (for single filers) or $150,000 (for joint filers) are exempt from paying state taxes on their benefits. This change, which took effect in the 2022 tax year, has significantly lightened the tax burden for many retirees.
- Rhode Island
Rhode Island offers some tax relief for retirees, with income tax rates ranging from 3.75% to 5.99%. Retirees who have reached full retirement age and whose AGI falls below $95,800 (single filers) or $119,750 (joint filers) qualify for a full exemption on their Social Security benefits. This exemption helps to ensure that middle- and low-income retirees are not overly taxed on their retirement income.
- Utah
Utah imposes a flat income tax of 4.65%, but it offers a tax credit for Social Security income. The credit phases out for higher-income earners, with thresholds set at $37,000 for single filers, $31,000 for married filing separately, and $62,000 for married joint filers. This credit helps protect lower-income retirees from paying significant state taxes on their Social Security benefits.
- Vermont
Vermont’s income tax rates range from 3.35% to 8.75%, but the state offers an exemption for retirees with low to middle incomes. Single filers with an AGI of up to $50,000 and joint filers with an AGI of up to $65,000 qualify for a full exemption. Above these income thresholds, the exemption begins to phase out, meaning higher-income retirees may still face state taxes on their Social Security payments.
States phasing out Social Security taxes
Several states that used to tax Social Security benefits have recently implemented changes to eliminate or phase out these taxes. For instance:
- Nebraska began phasing out its Social Security tax in 2022 and will fully exempt Social Security income by 2024.
Missouri passed legislation that will eliminate taxes on Social Security income starting in 2024, saving retirees millions annually.
