According to the National Academy of Social Insurance (NASI), Social Security makes up more than half the income for 61% of retirees, and it is the only source of income for about one in five Americans aged 65 and older. This shows that it is a financial lifeline for millions of retirees. For this reason, many retirees want to protect their Social Security checks dearly.
Unfortunately, depending on where you live, you are at risk of losing part of your Social Security benefits to state taxes. Although most states are not touching Social Security income, a few still do. This is a factor to consider if you are planning your retirement or already receiving your benefits.
41 States (and D.C.) Don’t Tax Social Security Benefits
The following 41 states plus – Washington D.C. do not tax Social Security benefits at all, and this is good news for those living there. Here are the states:
- Alabama
- Alaska
- Arizona
- Arkansas
- California
- Delaware
- Florida
- Georgia
- Hawaii
- Idaho
- Illinois
- Indiana
- Iowa
- Kansas
- Kentucky
- Louisiana
- Maine
- Maryland
- Massachusetts
- Michigan
- Mississippi
- Missouri
- Nebraska
- Nevada
- New Hampshire
- New Jersey
- New York
- North Carolina
- North Dakota
- Ohio
- Oklahoma
- Oregon
- Pennsylvania
- South Carolina
- South Dakota
- Tennessee
- Texas
- Virginia
- Washington
- Wisconsin
- Washington, D.C.
- Wyoming
These are the tax-friendly states that can allow you to stretch your retirement income, especially if it’s your main or only source of income.
Retiring Here? These 9 States Could Tax Your Social Security Income
Here is the bad news for people living in these nine states: If you live in these states, you will have to part with some portion of your Social Security benefits. The states are:
- Colorado
- Connecticut
- Minnesota
- Montana
- New Mexico
- Rhode Island
- Utah
- Vermont
- West Virginia
However, it is essential to note that many of these states have income thresholds or age-based exemptions, and therefore, if you are a lower-income retiree, you might be free from tax.
For example, West Virginia exempts all individuals earning a federal adjusted gross income of $50,000 or less and $100,000 or less for married couples. Utah is also planning to phase out taxes on Social Security for individuals earning up to $90,000.
Planning for Retirement? Here’s Why Social Security Tax Rules Matter
Knowing your state’s tax policy could make a substantial difference in your monthly check. However, you should not rely solely on Social Security benefits because every state requires revenue. States that don’t tax Social Security benefits are highly likely to have higher sales, property, or other taxes instead.
Most importantly, you should assess your financial situation in retirement and here are a few steps you can take to prepare well:
- Estimate your benefits using the SSA’s “my Social Security” portal.
- Understand how your benefits could be taxed—both federally and at the state level.
- Build additional income sources, like retirement accounts, part-time work, or investments.
- Consider delaying benefits to increase your monthly check. Many retirees boost their benefits by waiting until age 70 to claim.
- Stay updated on Social Security changes, especially with ongoing discussions about long-term funding.
Conclusion
If you are a resident of the nine states that tax Social Security income, you may see some portion of your income go to state coffers. However, the impact is minimal or avoidable in most cases, depending on your income.
Whether retired or still planning, you should take your time to understand how taxes could affect your benefits and explore ways you can protect and grow your income because every dollar counts in retirement, and more so if Social Security is your main source of income.