While Social Security benefits provide critical financial support to retirees, the tax implications of these benefits can vary significantly depending on where you live. Most U.S. states do not tax Social Security benefits; however, eight states still impose taxes on these benefits.
However, the trend toward eliminating or reducing state taxes on Social Security benefits has been gaining momentum. Kansas and Nebraska are the latest to pass legislation to lessen the tax burden on retirees, reflecting a growing awareness of the financial challenges faced by older Americans.
States like Iowa and North Dakota, which once taxed Social Security benefits, have entirely phased out these taxes.
The current state taxes on Social Security benefits
In 2024, eight states levy taxes on Social Security benefits: Colorado, Connecticut, Kansas, Minnesota, Montana, Nebraska, New Mexico, Utah, and Vermont. These taxes are not universally applied but depend on a retiree’s income level, filing status, and, in some cases, age.
Colorado
Colorado imposes a flat 4.4% tax on all income, including Social Security benefits. However, there are exemptions:
- Retirees aged 65 and older can deduct all federally taxed Social Security benefits.
- Retirees aged 55–64 can deduct up to 20% of their taxable income, while those aged 55–64 can deduct $24,000 of pension or annuity income.
This exemption was enacted following advocacy by AARP and signed into law in 2021, offering significant relief to older residents.
Connecticut
In Connecticut, Social Security benefits are taxed depending on income:
- For single filers with an AGI below $75,000 and joint filers with an AGI under $100,000, Social Security benefits are tax-exempt.
- For those above these thresholds, only 25% of Social Security benefits are subject to state taxes.
This tiered approach provides relief to many retirees, with a significant portion exempt from taxation.
Minnesota
Minnesota recently expanded its tax exemptions for Social Security benefits. Under the new law:
- Retirees with an AGI under $78,000 (single) or $100,000 (joint) can subtract their Social Security benefits from taxable income.
- This exemption means that over 50% of Minnesota households receiving Social Security benefits now pay no state tax on this income.
Governor Tim Walz signed this bill into law in 2023, making Minnesota more retiree-friendly.
Montana
Montana taxes Social Security benefits based on income:
- Residents with incomes above $25,000 (single) or $32,000 (joint) are subject to state taxes on their benefits, with a maximum tax rate of 5.9%.
- Seniors 65 and older receive a $5,500 subtraction from federal taxable income, providing some relief based on income levels.
New Mexico
New Mexico has recently taken steps to reduce the tax burden on retirees:
- In 2022, the state eliminated Social Security taxes for residents with an income below $100,000 (single) or $150,000 (joint).
- For those exceeding these thresholds, tax rates range from 1.7% to 5.9%.
This legislative change was aimed at alleviating financial pressures on older residents, saving them millions of dollars annually.
Rhode Island
In Rhode Island, the taxation of Social Security benefits is determined by the taxpayer’s adjusted gross income (AGI) and filing status:
Full Exemption:
- For single filers or those who are married and filing separately, Social Security benefits are entirely exempt from state taxes if their AGI is less than $95,800.
- For joint filers, the threshold for full exemption is $119,750.
Partial Exemption:
- If your income exceeds these thresholds, you may still qualify for a partial exemption, depending on how much your AGI exceeds the limit.
Utah
Utah’s flat tax rate of 4.55% includes Social Security benefits, but credits are available:
- Credits are available for single filers with AGIs up to $37,000, married filing jointly up to $62,000, and married filing separately up to $31,000.
Despite efforts, Utah lawmakers have been unable to fully eliminate these taxes, but recent changes have slightly lowered the tax rate.
Vermont
Vermont provides partial or full exemptions depending on income:
- Married filers with AGIs up to $65,000 and single filers up to $50,000 receive full exemptions.
- Partial exemptions are available for incomes just above these thresholds, with tax rates ranging from 3.75% to 5.99%.
West Virginia
West Virginia is in the process of phasing out taxes on Social Security benefits:
- Starting with a 35% deduction in 2024, it will increase to 55% in 2025 and be fully eliminated by 2026.
This phased elimination is part of a broader budgetary strategy, although it faced resistance due to concerns about potential revenue shortfalls.
