For millions of retirees in the U.S., Social Security benefits serve as a crucial source of income. However, many are caught off guard when they realize that in some states, these benefits are subject to state taxation. As we move into 2025, knowing which states tax Social Security and how it may impact your retirement savings is essential.
Navigating Social Security Taxes: A Breakdown
Managing your retirement finances can be overwhelming, especially when it comes to taxes. This guide simplifies the topic and provides clear insights into which states impose taxes, available exemptions, and strategies to minimize tax burdens.
States That Tax Social Security Benefits
While the majority of states do not tax Social Security benefits, nine states will continue to do so in 2025. Some states offer exemptions based on income levels, helping retirees with lower incomes avoid taxation.
| State | Tax Policy |
|---|---|
| Colorado | Social Security is taxed, but full exemptions apply for those 65+ and, starting in 2025, for retirees aged 55-64 with AGI below $75,000 (single) or $95,000 (joint). |
| Connecticut | Social Security is exempt for single filers earning below $75,000 and joint filers below $100,000. Those above these thresholds may owe taxes on a portion of their benefits. |
| Minnesota | Uses a tiered system. Married filers with AGI under $105,380 and single filers under $82,190 are exempt; above these thresholds, partial taxation applies. |
| Montana | Retirees with AGI below $25,000 (single) or $32,000 (joint) can fully deduct Social Security benefits; those above these limits may owe taxes. |
| New Mexico | Benefits are taxed unless income is below $100,000 (single) or $150,000 (joint). The state is considering further exemptions. |
| Rhode Island | Exempts benefits for individuals earning below $88,950 and couples below $111,200. |
| Utah | Full exemption for single filers earning under $30,000 and joint filers under $50,000. |
| Vermont | Benefits exempt for single earners below $50,000 and joint filers below $65,000. |
| West Virginia | Currently taxes benefits, but a phase-out is underway, eliminating these taxes completely by 2026. |
Federal Taxation on Social Security
In addition to state taxes, Social Security benefits may also be taxed at the federal level, depending on your income.
- Single Filers: If your combined income is between $25,000 and $34,000, up to 50% of your benefits may be taxed. Above $34,000, up to 85% of benefits may be taxable.
- Joint Filers: Couples earning between $32,000 and $44,000 may see up to 50% of their benefits taxed. Above $44,000, up to 85% of benefits may be taxable.
Calculation Tip: Combined income = Adjusted Gross Income (AGI) + Nontaxable Interest + 50% of Social Security benefits.
Why Do Some States Tax Social Security?
Unlike federal taxation, which applies uniformly, states determine their own tax laws. The states that tax Social Security often rely on income tax revenue to support essential services like healthcare, education, and infrastructure. However, most states offer exemptions for lower-income retirees to reduce their financial burden.
Strategies to Minimize Social Security Taxes
To keep more of your retirement income, consider these tax-saving strategies:
- Understand Your State’s Tax Laws: Each state has different tax rules, so knowing your eligibility for exemptions can help reduce tax liability.
- Consider Moving to a Tax-Friendly State: Florida, Texas, and Nevada do not tax Social Security benefits, making them attractive options for retirees looking to maximize their savings.
- Optimize Your Retirement Income: Strategies such as Roth IRA conversions or drawing income from tax-free municipal bonds can help keep your AGI below taxable thresholds.
- Stay Informed About Changing Tax Policies: States like Missouri and Kansas eliminated Social Security taxes in 2024, and West Virginia is phasing them out by 2026. Keeping up with these changes can help you make better financial decisions.
- Plan Early: Proactively managing your income sources in your 50s and 60s can help reduce future tax burdens. Consider consulting a financial advisor to explore tax-efficient withdrawal strategies.
FAQs About Social Security Taxes in 2025
1. Which states tax Social Security benefits?
Currently, nine states impose taxes: Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, and West Virginia.
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2. How can I avoid paying taxes on my Social Security benefits?
Lower your taxable income by leveraging tax-efficient retirement accounts, choosing tax-friendly states, and managing withdrawals strategically.
3. Are Social Security benefits taxed at the federal level?
Yes, depending on your combined income. Up to 85% of benefits may be taxable for higher-income individuals.
4. What are the best states for retirees in terms of taxes?
Florida, Texas, Nevada, and Tennessee do not tax Social Security benefits and have no state income tax, making them ideal for retirees.
5. Is West Virginia eliminating Social Security taxes?
Yes, West Virginia is gradually phasing out taxes on Social Security benefits, with full exemption by 2026.
6. Are there tools to help calculate Social Security taxes?
Yes, the IRS and state tax agencies offer online calculators to estimate your tax liability based on income and filing status.
Final Thoughts
Navigating Social Security taxation can be complex, but staying informed can help you protect your retirement savings. By understanding state and federal tax policies, exploring tax-saving strategies, and planning ahead, you can maximize your Social Security benefits and enjoy a financially secure retirement.