There are millions of Americans who rely on Social Security and many think that they will receive benefits without those benefits being taxed. However, for retirees living in nine specific U.S. states, part of those benefits will be taxed at state level.
Why Only 9 States Tax Social Security
In America, there are 41 states that do not tax Social Security benefits at all. There are only nine states that do so and even in these states, the rules are not straightforward.
There are some states in the U.S. that only tax Social Security above a certain income, whereas others offer deductions or credits etc. More often than not, low- or middle-income retirees pay very little or no tax. However, higher income earners may see a portion of their Social Security benefits being taxed.
State-By-State Guide to Social Security Tax Rules
- Colorado
Social Security is taxed in Colorado however, retirees do get tax breaks.
By the end of 2025, Colorado taxpayers who are 65 years of age or older may deduct the whole amount of their federally taxed Social Security payments from their taxable income. The whole amount of benefits is also deductible for recipients between the ages of 55 and 64 with an AGI of $75,000 or less ($95,000 or less for married filing jointly).
- Connecticut
In Connecticut, if your income is under $75,000 (single) or $100,000 (married), your Social Security benefits are fully exempt from state tax.
- Minnesota
Recipients in Minnesota get a full exemption if their income below $82,190 (single) or $105,380 (married).
- Montana
In Montana, if you are single and your income is under $25,000 or if you are married and your income is under $32,000, your benefits are fully exempt from taxes.
- New Mexico
In New Mexico, if you are single and earn under $100,000 or if you are married and earn under $150,000, your benefits are fully exempt.
- Rhode Island
If you meet these two requirements in Rhode Island, you are exempt from taxes:
- They must be at or above full retirement age, and
- They must have income under $88,950 (single) or $111,200 (married).
- Vermont
Vermont offers a full exemption for low-income retirees:
- You pay no tax on Social Security if you earn under $50,000 (single) or $65,000 (married).
- Utah
Although many retirees are eligible for a nonrefundable Social Security Benefits Credit that drastically lowers or eliminates their tax burden, benefits are subject to Utah’s 4.5% flat state income tax.
- West Virginia
West Virginia is moving toward eliminating Social Security taxes altogether.
What Retirees Can Do to Reduce Their Tax Burden
Here are a few simple steps to help you protect more of your benefit:
- Be sure to check Your Adjusted Gross Income (AGI)
There are many states that write their rules based on AGI. It is therefore important to seek assistance from a financial advisor to ensure that your income stays within limits.
- Use Available Credits and Deductions
Some states offer credits or age-based deductions that can dramatically reduce or eliminate taxes.
- Relook at the state that you live in
Yes indeed, moving is a major decision, however for those retirees living on fixed incomes, moving to a state that does not tax Social Security benefits can make a major difference to your monthly income.
- Work With a Tax Professional
A tax advisor can help you with the finer details and make sure you’re not paying more than you should.
Final Thoughts
Majority of states in America allow for tax-free Social Security, however there are some few states that may tax benefits. it’s important for beneficiaries to be aware and knowledgeable about so that they can make wise decisions to maximize their benefits.