As retirement planning becomes a crucial aspect of financial stability, understanding how Social Security benefits are taxed at the state level is vital. While the federal government may tax a portion of these benefits based on income, state taxation policies vary significantly.
By 2025, only nine states will continue to tax Social Security benefits. Each of these states has unique provisions and exemptions to consider.
This guide breaks down these states and their specific policies, helping you determine if your benefits will be affected.
States Taxing Social Security Benefits in 2025
The following nine states will tax Social Security benefits in 2025:
- Colorado
- Connecticut
- Minnesota
- Montana
- New Mexico
- Rhode Island
- Utah
- Vermont
- West Virginia
State-Specific Tax Policies
Each of these states has unique thresholds and exemptions based on income levels and filing status. Here’s a detailed overview:
| State | Exemption Policy |
|---|---|
| Colorado | Residents aged 65+ can fully deduct federally taxed benefits. From 2025, those aged 55–64 with an AGI of $75,000 (individual) or $95,000 (couples) or less qualify for deductions. |
| Connecticut | Single filers with an AGI below $75,000 and joint filers below $100,000 are exempt from Social Security taxes. |
| Minnesota | Offers partial exemptions based on filing status and AGI. Married filers with an AGI below $105,380 and individuals below $82,190 are exempt. |
| Montana | Social Security benefits are taxed per federal guidelines but are exempt for single filers with an AGI below $25,000 and joint filers below $32,000. |
| New Mexico | Exempts benefits for individuals with an AGI under $100,000 and married couples earning less than $150,000. |
| Rhode Island | Single filers with an AGI below $88,950 and joint filers under $111,200 are exempt from taxation. |
| Utah | Offers a nonrefundable tax credit for Social Security benefits. Single filers with an AGI below $30,000 and joint filers under $50,000 qualify. |
| Vermont | Exempts benefits for single filers with an AGI under $50,000 and joint filers earning less than $65,000. |
| West Virginia | Phases out taxes on Social Security by 2026. In 2025, benefits will be 65% exempt for all taxpayers. |
Planning Your Retirement: Key Considerations
- Income Thresholds
State-specific exemptions largely depend on your adjusted gross income (AGI). Retirees should monitor their AGI to determine whether their Social Security benefits will be taxed. Managing other income sources can help stay within exemption limits. - Cost of Living
While states with no Social Security taxes may seem appealing, they may compensate with higher property or sales taxes. Evaluating the overall cost of living in your state is crucial for effective retirement planning. - Future Projections
States like West Virginia are phasing out Social Security taxes entirely by 2026. Understanding upcoming legislative changes can influence long-term decisions.
Impact on Retirees
For retirees, the impact of state taxation on Social Security benefits can be significant. Choosing to live in a state that exempts Social Security benefits can save thousands of dollars annually. For example:
- In Colorado, retirees aged 65+ already enjoy complete exemptions.
- New Mexico’s generous thresholds provide significant relief to middle-income retirees.
These policies highlight the importance of state tax considerations when planning for retirement.
Three Truths About the Future of Social Security
- Taxation Policies Are Evolving
States like Missouri and Kansas have recently eliminated taxes on Social Security benefits. This trend may continue as other states reassess their policies. - Federal Taxation Remains
Up to 85% of your Social Security benefits can still be subject to federal taxation based on your income. - Maximizing Benefits Requires Strategic Planning
With varying thresholds and exemptions, financial planning is critical. Properly managing your AGI and other sources of income can help minimize the tax burden.
By 2025, nine states will continue to tax Social Security benefits, each with specific thresholds and exemptions. Understanding these policies is crucial for retirees aiming to maximize their income.
Whether you’re deciding to stay in your current state or considering relocating, evaluating the tax implications on Social Security is a key step in retirement planning. With ongoing legislative changes, staying informed will ensure financial stability in your golden years.
Which states will tax Social Security benefits in 2025?
Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, and West Virginia will tax Social Security benefits.
What are the income thresholds for exemptions?
Income thresholds vary by state. For example, in Colorado, single filers earning $75,000 or less and joint filers earning $95,000 or less are exempt. Vermont exempts single filers under $50,000.
How can retirees minimize Social Security taxes?
Retirees can manage their AGI by controlling other income sources and utilizing state-specific exemptions. Consulting a tax professional is also recommended.
