Social Security benefits serve as a financial lifeline for retirees, disabled individuals, and others in need across the United States. While federal taxes may apply to these benefits based on income, a handful of states also impose their own taxes on Social Security payouts.
This article outlines the states that tax Social Security benefits in 2024, their tax policies, and considerations for retirees.
Federal Taxation of Social Security Benefits
Since 1983, the federal government has taxed Social Security benefits based on a beneficiary’s combined income, which includes:
- Adjusted Gross Income (AGI)
- Nontaxable interest
- 50% of Social Security benefits
Federal tax rates apply as follows:
- Individuals earning over $25,000 annually or couples earning over $32,000 must pay taxes on up to 85% of their benefits.
States That Tax Social Security Benefits
Out of the 50 U.S. states, nine states tax Social Security benefits. However, the tax impact varies depending on income thresholds and state-specific exemptions.
| State | Tax Policy |
|---|---|
| Colorado | Social Security benefits taxable for those under 65. Exemptions: Up to $20,000 (ages 55-64) and $24,000 (65+). Flat tax rate: 4.4%. Exempt for incomes under $75,000 (single) or $95,000 (joint) starting 2025. |
| Connecticut | Tax rates range from 3% to 6.99%. Exempt for incomes under $75,000 (single) or $100,000 (joint). 75% exempt above these thresholds. |
| Minnesota | Follows federal income thresholds. Partial deductions via Social Security Subtraction. Tax rates: 5.35%-9.85%. |
| Montana | Graduated tax rates: 4.7%-5.9%. Applies to incomes exceeding federal thresholds. |
| New Mexico | Personal income tax: 1.7%-5.9%. Exempt for incomes below $100,000 (single) or $150,000 (joint) from 2024 onward. |
| Rhode Island | Tax rates: 3.75%-5.99%. Exempt for AGI under $101,000 (single) or $126,250 (joint). Partial exemptions above these limits. |
| Utah | Flat tax rate: 4.55%. Full tax credit for incomes below $45,000 (single) or $75,000 (joint). Partial credits above these levels. |
| Vermont | Tax rates: 3.35%-8.75%. Full exemption for incomes under $50,000 (single) or $65,000 (joint). Partial exemptions up to $59,999 (single) and $74,999 (joint). |
| West Virginia | Implements specific tax regulations for Social Security recipients. |
States Without Social Security Taxes
The remaining 41 states and the District of Columbia do not impose taxes on Social Security benefits. This includes states like Texas, Florida, and Nevada, which do not have state income taxes at all.
Factors to Consider for Retirees
While avoiding states that tax Social Security may seem appealing, it’s essential to consider other factors:
- Cost of Living: States with no Social Security taxes may have higher living expenses, such as housing and healthcare.
- Overall Tax Burden: States without Social Security taxes may impose higher property or sales taxes. For instance, Texas relies heavily on property and consumption taxes.
- Access to Services: States with higher tax revenue might offer better public services, including healthcare and senior programs.
Avoiding Social Security Taxes
To minimize or avoid paying taxes on Social Security benefits:
- Keep total income below $25,000 (individual) or $32,000 (couples).
- Strategically withdraw funds from retirement accounts to reduce taxable income.
- Consider relocating to a state without Social Security taxes if it aligns with your overall financial and personal goals.
Nine states tax Social Security benefits in 2024, but exemptions and thresholds mean not all residents in these states are affected equally. When planning retirement, consider the overall tax environment, cost of living, and proximity to family and healthcare services—not just Social Security taxation.
