2025 Social Security Tax Adjustments: Which States Will Be Affected?

Social Security beneficiaries in 2025 have some exciting news, but some changes could affect your finances. Staying up-to-date with the latest changes can help you make informed decisions about your Social Security benefits, especially as some states will now tax them differently.

States Taxing Social Security Benefits in 2025: What to Expect

The good news is that Kansas and Missouri have decided to stop taxing Social Security benefits in 2024. As a result, beneficiaries in these states won’t have to worry about taxes during tax season in 2025. Currently, 41 states do not tax Social Security benefits, but there are still nine states where taxes will apply. Here are the states where you may have to pay taxes on your Social Security benefits in 2025:

1. Colorado
   Almost six million people live in Colorado, and Social Security benefits will still be taxed in 2025. However, there is some relief for people aged 55 to 64. If your gross income is $75,000 or less (or $95,000 for couples filing jointly), you can deduct the federal taxes from your benefits.
2. Connecticut
   Like Colorado, Connecticut taxes Social Security benefits. However, the exemption limit for couples is higher here, at $100,000 in gross income before you are taxed.
3. Minnesota
   For couples in Minnesota, you’ll start paying tax on your Social Security benefits when your adjusted gross income reaches $105,380. Individuals with an income up to $82,190 are exempt.
4. Montana
   Montana has low-income thresholds for tax exemptions: $25,000 for individuals and $32,000 for couples.
5. New Mexico
   New Mexico offers some relief. To avoid paying taxes on their Social Security benefits, individuals must have an income of $100,000 or less, while couples must have an income of $150,000 or less.
6. Rhode Island
   In Rhode Island, taxes are applicable when your income exceeds $88,950 (individuals) or $111,200 (couples).
7. Utah
   Utah’s limits are lower compared to other states. Single filers earning more than $30,000 or couples earning more than $50,000 will pay taxes on their benefits.
8. Vermont
   Vermont is another state with low-income thresholds. To avoid tax, individuals must have earnings under $50,000, and couples must have earnings under $65,000.
9. West Virginia
   Although West Virginia plans to stop taxing Social Security benefits in the future, taxes will still apply for 2025. The income threshold is $50,000 for individual filers and $100,000 for joint filers.

How to Prepare for the 2025 Changes

If you live in a state that will continue taxing your Social Security benefits in 2025, it’s important to plan accordingly. Taking advantage of tax-free savings strategies can help protect you from potential tax increases or inflation.

Understanding Social Security Benefits

As of 2024, around 68.4 million Americans receive benefits from the Social Security Administration (SSA). Established in 1935, the SSA administers several key programs, including:

• Retirement Benefits
• Disability Benefits (SSDI)
• Survivor Benefits
• Supplemental Security Income (SSI)
• Medicare

The Role of Cost-of-Living Adjustments (COLA)

Social Security benefits change each year based on the Cost-of-Living Adjustment (COLA). For 2025, the COLA increase will be 2.5%. While this means recipients will see a slight increase in their monthly payments, some feel it doesn’t reflect the full impact of inflation, especially for vulnerable groups like the elderly.

What Does This Mean for You?

Social Security policies are changing, and understanding these adjustments will help you manage your finances effectively. Keep an eye on tax laws, consider tax-saving strategies, and plan for 2025.

Whether you’re expecting a bump in benefits or facing higher taxes, knowing how these changes affect you is crucial for making the best decisions for your financial future.

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