Retiring Soon? These 9 States Tax Social Security—Plan Ahead!

Planning for retirement involves many decisions, and understanding how your Social Security benefits are taxed is one of the most important. While most U.S. states do not tax Social Security benefits, nine states currently do, each with its own rules and exemptions. Here’s what you need to know to prepare for these taxes in 2025.

The Nine States That Tax Social Security

1. Colorado: Social Security benefits are taxable, but there are deductions for those with adjusted gross incomes (AGI) below $75,000 for single filers and $95,000 for joint filers.
2. Connecticut: Benefits are exempt for single filers earning less than $75,000 and joint filers under $100,000.
3. Minnesota: Married couples earning less than $105,380 and individuals earning under $82,190 are exempt from state taxes on benefits.
4. Montana: Social Security benefits are taxed, but single filers with AGIs under $25,000 and joint filers below $32,000 can deduct all taxed benefits.
5. New Mexico: Individuals earning under $100,000 and couples earning under $150,000 are exempt from state taxes on Social Security benefits.
6. Rhode Island: Exemptions apply for those earning less than $88,950 as single filers and $111,200 as joint filers.
7. Utah: Benefits are exempt for single filers earning less than $30,000 and couples earning less than $50,000.
8. Vermont: Exemptions exist for married couples earning less than $65,000 and individuals earning below $50,000.
9. West Virginia: The state is phasing out Social Security taxes, with a 65% reduction in 2025 and full elimination planned for 2026.

What This Means for Retirees

For retirees on fixed incomes, state taxes on Social Security benefits can make a big difference in their monthly budgets. States like New Mexico and Minnesota offer more relief with higher exemption thresholds, while others, such as Montana and Utah, have stricter limits.

Tips for Managing Social Security Taxes

• Know Your State’s Rules: Tax laws vary widely, and keeping up with changes is crucial.
• Seek Professional Advice: A tax advisor can help you navigate complex rules and find ways to minimize taxes.
• Consider Relocating: If taxes significantly impact your finances, moving to a state without Social Security taxes might be an option.

Understanding how state taxes apply to Social Security benefits can help retirees better manage their finances and enjoy a more secure retirement.