Which States Tax Your Social Security Benefits?

When you start receiving Social Security benefits, it’s important to be aware that you may owe federal taxes on a portion of those payments, depending on your income. In addition to federal taxes, some states also impose their own taxes on Social Security benefits.

If you live in one of these states, your retirement income could be subject to additional taxation. For the 2024 tax year, nine states tax Social Security benefits, but the good news is that some of these states are phasing out or considering eliminating these taxes in the near future.

If you’re planning to retire soon or have already, knowing which states tax Social Security benefits and how much you might owe can help you better plan your finances and retirement strategy. Let’s take a closer look at which states tax Social Security benefits and what exemptions or deductions might be available to you.

States That Tax Social Security Benefits

As of 2024, nine states impose taxes on Social Security benefits: Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, and West Virginia. All other states and the District of Columbia do not tax Social Security benefits.

While the tax rates in these nine states vary, several of them offer exemptions or deductions for certain income levels, which can reduce or even eliminate the tax on your Social Security benefits. It’s important to note that some states, like West Virginia, are in the process of phasing out these taxes altogether. By 2026, West Virginia will have completely eliminated the tax on Social Security benefits, which could serve as a model for other states.

Let’s Break Down the Tax Rates and Exemptions in Each of These Nine States:

1. Colorado

• Tax Rate: Colorado’s state tax rate for the 2024 tax year is 4.40%.
• Exemptions: Colorado taxpayers aged 65 and older can fully subtract their Social Security benefits from their state tax return. For taxpayers aged 55-64, they can deduct up to $20,000 of retirement income, but any income above that amount will be taxed. Starting in 2025, taxpayers aged 55-64 will be able to deduct all Social Security benefits if their adjusted gross income (AGI) is $75,000 or less for individuals or $95,000 for joint filers.

2. Connecticut

• Tax Rate: Connecticut has a state income tax rate ranging from 2% to 6.99%.
• Exemptions: Connecticut taxpayers with an AGI of $75,000 or less (individuals and married filing separately) or $100,000 or less (joint filers and heads of household) can deduct 100% of their federally taxable Social Security income. If your income exceeds these limits, you will receive a partial exemption, and up to 25% of your benefits may be taxed.

3. Minnesota

• Tax Rate: Minnesota’s state income tax rates range from 5.35% to 9.85%.
• Exemptions: Minnesota allows taxpayers to subtract a portion of their Social Security benefits from their AGI if their income is below certain thresholds. For 2024, married joint filers with an AGI below $105,380 and single or head of household filers with an AGI below $82,190 can subtract all taxable Social Security benefits. The subtraction is phased out by 10% for each $4,000 of income above the thresholds.

4. Montana

• Tax Rate: Montana’s state income tax rates range from 4.7% to 5.9%.
• Exemptions: In Montana, you can deduct a portion of your Social Security benefits if your income is below certain thresholds. If you are a single filer with an income below $25,000 or a joint filer with an income below $32,000, your Social Security benefits will not be taxed.

5. New Mexico

• Tax Rate: New Mexico’s state income tax rates range from 1.70% to 5.90%.
• Exemptions: New Mexico exempts most seniors from Social Security taxes, thanks to changes in the law. Seniors with incomes below the following levels will not be taxed on Social Security:
  • Single taxpayers: $100,000
  • Married filing jointly, surviving spouses, and heads of household: $150,000
  • Married filing separately: $75,000

6. Rhode Island

• Tax Rate: Rhode Island’s state income tax rates range from 3.75% to 5.99%.
• Exemptions: If you have reached full retirement age and received Social Security benefits during the year, Rhode Island offers an exemption on Social Security taxes as long as your income is below certain thresholds.

7. Utah

• Tax Rate: Utah has a flat state income tax rate of 4.55%.
• Exemptions: Utah allows a tax credit for Social Security benefits based on AGI thresholds. The threshold for single filers is $45,000; for married filers, it’s $75,000; and for married filing separately, it’s $37,500.

8. Vermont

• Tax Rate: Vermont’s state income tax rates range from 3.35% to 8.75%.
• Exemptions: Vermont offers an exemption for taxpayers with low to middle income levels. For married filing jointly or civil union filing jointly, the exemption applies if the AGI is up to $65,000. For all other filers, the income threshold for the full exemption is $50,000.

9. West Virginia

• Tax Rate: West Virginia’s state income tax rates range from 2.36% to 5.12%.
• Exemptions: West Virginia is phasing out taxes on Social Security benefits. For the 2024 tax year, 35% of Social Security benefits can be subtracted from your AGI. This number will increase to 65% in 2025 and reach 100% by 2026.

What You Should Know Before You Retire

Understanding how your Social Security benefits will be taxed is essential to retirement planning. While most states do not tax Social Security payments, those that do often have rules in place to reduce or eliminate this tax for certain income levels. Additionally, many retirees look to relocate to states that do not tax Social Security in order to maximize their benefits.

However, it’s important to keep in mind that Social Security taxes are only one part of the equation. Other factors, such as state income tax rates, property taxes, sales taxes, and the overall cost of living, should also play a role in deciding where to live during retirement. States that don’t tax Social Security benefits may still have higher overall tax rates or higher living costs, so it’s important to take a well-rounded approach when considering your retirement destination.

Conclusion

For most retirees, Social Security is a vital part of their income. Understanding how Social Security benefits are taxed at the state level will help you better plan your financial future. While nine states currently tax these benefits, several of them offer exemptions and deductions, and some, like West Virginia, are phasing out these taxes entirely. Make sure to take into account both your state’s tax laws and the overall cost of living when making decisions about where to retire.

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