Nearly 70 million Americans rely on Social Security as a cornerstone of their retirement income. While most states have eliminated taxes on these benefits, nine holdouts continue to take a slice of retirees’ monthly checks in 2025. “The landscape of Social Security taxation at the state level has shifted dramatically in recent years,” notes financial planner Rebecca Walser. “What was once a patchwork of policies across a dozen states has consolidated, with several states eliminating these taxes entirely.” Understanding whether your benefits face state taxation—and how much—could mean thousands of dollars difference in your annual retirement budget. I’ve analyzed the latest tax codes and legislative developments to help you navigate this complex terrain.
The Nine States Still Taxing Social Security in 2025
Colorado’s Tiered Exemption System
Colorado maintains a 4.4% flat tax rate on Social Security benefits, though significant exemptions exist based on age. Residents 65 and older can deduct all Social Security benefits from their state taxable income, effectively eliminating taxation on these benefits. For those between ages 55-64, partial deductions are available, providing some relief while transitioning to retirement. The state has expanded retirement income deductions in recent years, further reducing the tax burden on retirees.
Connecticut’s Income-Based Taxation Model
Connecticut only taxes Social Security benefits when adjusted gross income (AGI) exceeds specific thresholds: $75,000 for single filers or $100,000 for married couples filing jointly. Even when income surpasses these levels, 75% of benefits remain exempt from taxation. The state applies graduated income tax rates ranging from 3% to 6.99% on the taxable portion. Recent state budget surpluses have initiated discussions about potential further tax reforms that could benefit retirees.
Minnesota’s Progressive Approach
Minnesota offers full exemption of Social Security benefits for married couples filing jointly with AGI under $108,320, while single filers receive full exemption if their AGI falls below $84,490. For those with higher incomes, partial taxation applies on a sliding scale. The state’s tax rates range from 5.35% to 9.85%, among the highest in the nation. Currently, the state legislature is considering proposals to raise exemption thresholds, which would benefit more retirees.
Montana’s Federal-Based System
Montana follows federal taxation rules to determine the taxable portion of Social Security benefits. Joint filers with AGI exceeding $32,000 (or single filers over $25,000) must pay state taxes on a portion of their benefits. The state employs a progressive tax system with rates from 1% to 6.75%. A legislative effort to eliminate these taxes failed to pass in 2023, though the issue remains on legislative agendas. Lower-income seniors may qualify for an additional tax credit that offsets some of this burden.
New Mexico’s Substantial Deduction Framework
New Mexico allows Social Security to be fully deductible up to $100,000 for individuals and $150,000 for joint filers. Any earnings above these thresholds are taxed at the state’s normal tax brackets, which range from 1.7% to 5.9%. The state implemented significant tax reform in 2022 that drastically reduced taxation on Social Security recipients. Seniors over 65 can access additional deductions, and discussions continue in the state legislature regarding further tax reforms.
Rhode Island’s Age and Income Requirements
Rhode Island exempts Social Security benefits for retirees who have reached full retirement age and have AGI under $104,200 for single filers or $130,250 for married couples. Benefits that exceed these thresholds face tax rates between 3.75% and 5.99%. Importantly, these exemption thresholds adjust annually with inflation, providing automatic relief as cost of living increases. Rhode Island residents may also qualify for property tax credits that could further offset any Social Security taxation.
Utah’s Credit-Based Relief System
Utah applies a flat 4.55% tax rate to taxable Social Security benefits but offers a tax credit system that effectively eliminates this tax for many moderate-income retirees. This credit gradually phases out as income increases, creating a progressive effect despite the flat rate structure. Recent legislative proposals seek to expand credit eligibility, potentially removing this tax burden for more retirees. Utah residents can claim this retirement tax credit in addition to other benefits related to retirement income.
Vermont’s Multi-Tiered Exemption Structure
Vermont provides full exemption from Social Security taxation for single filers with AGI below $50,000 and married couples with AGI below $65,000. Partial exemptions extend to incomes up to $59,999 for single filers and $74,999 for married couples. Beyond these thresholds, benefits become subject to Vermont’s progressive tax system with rates reaching up to 6.6%. Unlike some other states, Vermont has not indexed these exemption thresholds to inflation, meaning that over time, more retirees may become subject to taxation.
West Virginia’s Phased Elimination Approach
West Virginia is methodically phasing out Social Security taxation with complete elimination expected by 2026. Currently, benefits are exempt for single filers earning up to $50,000 and joint filers earning up to $100,000. Benefits exceeding these thresholds remain subject to the state’s graduated income tax rates. Unlike some states, West Virginia places no age restrictions on these exemptions, making them available to all Social Security recipients regardless of age.
How State Taxation of Social Security Works
Calculation Differences from Federal Taxation
States that tax Social Security typically use calculation methods that differ from federal government approaches. While the federal system may tax up to 85% of benefits based on combined income, states often modify these calculations or create their own formulas. Some states begin with the federally taxed amount and then apply their own adjustments, while others develop entirely separate methodologies.
Exemptions and Deductions
Most states that tax Social Security benefits offer partial exemptions or deductions that reduce the taxable amount. These exemptions may be based on total income, age, filing status, or a combination of factors. These exemptions significantly reduce the effective tax rate on Social Security income compared to other income types in the same state.
Income Threshold Determinations
Income thresholds typically determine whether your benefits are taxable at the state level. These thresholds vary significantly from state to state, with some being quite generous (like New Mexico’s $100,000/$150,000 limits) while others are more restrictive. Many states have designed these thresholds specifically to protect lower and middle-income retirees while still collecting revenue from higher-income beneficiaries.
Age-Based Qualifications
Some states incorporate age-based qualifications into their Social Security taxation policies. For example, Colorado offers different treatment based on whether the recipient is between 55-64 or 65 and older. These age-based distinctions reflect policy goals of providing greater tax relief to older retirees who may have fewer opportunities to generate additional income.
Combined Income Considerations
Many states consider a version of “combined income” when determining Social Security taxation. This typically includes adjusted gross income, nontaxable interest, and half of Social Security benefits. This calculation method aims to create a more comprehensive picture of a retiree’s financial situation rather than looking solely at Social Security benefits in isolation.
Tax Rate Variations
State tax rates applied to taxable Social Security benefits range from approximately 3% to 6% depending on location, though some states like Minnesota have higher maximum rates. Most states with progressive tax systems apply Social Security taxation at multiple rates based on income brackets, creating different effective tax rates for different income levels.
Recent Changes and Pending Legislation
Kansas Elimination of Social Security Taxes
Kansas completely eliminated taxation of Social Security benefits in 2023, removing itself from the list of states that tax these benefits. This change came after years of advocacy by retiree groups and represents a significant tax savings for seniors in the state. The elimination was part of a broader tax reform package aimed at making the state more attractive to retirees.
Missouri’s Completed Phase-Out
Missouri finalized its phase-out of Social Security taxes in 2024, culminating a multi-year process to gradually reduce and ultimately eliminate this tax burden. The state now joins the majority of states that do not tax Social Security benefits at all, regardless of income level. This policy change particularly benefits moderate-income retirees who previously did not qualify for existing exemptions.
Nebraska’s Accelerated Timeline
Nebraska accelerated its previously established tax elimination timeline, with full implementation now complete. The state legislature responded to economic conditions and competitive pressures from neighboring states by speeding up the transition to tax-free status for Social Security benefits. This acceleration provided earlier relief than originally planned for Nebraska’s retirees.
West Virginia’s Ongoing Phase-Out
West Virginia continues its gradual phase-out of Social Security taxation, with complete elimination expected in 2026. The state has implemented a structured approach with incremental increases in income thresholds before taxes apply. This method allows the state to adjust its budget gradually while providing increasingly significant relief to Social Security recipients.
Utah’s Potential Credit Expansions
Utah lawmakers are actively considering expanding tax credits that would effectively eliminate taxation of Social Security benefits for most retirees. Rather than removing the tax entirely, Utah’s approach leverages the credit system to create targeted relief while maintaining the tax structure. This allows for more nuanced policy adjustments based on income levels and other factors.
Minnesota’s Proposed Threshold Increases
Minnesota’s legislature has proposed bills to increase exemption thresholds for Social Security taxation. These proposals would expand the number of retirees who qualify for full exemption from state taxes on their benefits. The debate continues over how generous these thresholds should be and how to balance retiree tax relief with state revenue needs.
Montana’s Ongoing Reform Efforts
Montana’s 2023 attempt to repeal Social Security taxation failed but remains on legislative agendas for future sessions. Proponents continue to advocate for either complete elimination or significant reform of how the state taxes these benefits. The debate centers on fiscal impacts versus retirement security for the state’s aging population.
Inflation Indexing Mechanisms
Several states have indexed their Social Security exemption thresholds to inflation, automatically increasing yearly. This approach protects retirees from “bracket creep,” where inflation would otherwise push more Social Security recipients into taxable categories without any real increase in purchasing power. This indexing represents a significant policy advancement in states like Rhode Island.
Strategic Planning for Social Security Recipients
Residence Selection Considerations
State taxation policies merit serious consideration when choosing a retirement location. The difference between living in a state that fully taxes Social Security versus one that doesn’t can translate to thousands of dollars annually for some retirees. This financial impact increases with higher benefit amounts and overall income.
The nine states still taxing Social Security have varying approaches that affect different income levels differently. Understanding these nuances helps retirees evaluate whether their specific financial situation would result in significant taxation in a particular state.
Relocation Financial Analysis
Calculating potential tax savings from relocating to a non-taxing state requires comprehensive financial analysis. For some retirees, the tax savings may justify relocation costs; for others, family ties, healthcare access, or quality of life factors may outweigh tax considerations.
This analysis
The Bottom Line on Social Security State Taxation
The landscape of Social Security taxation continues to evolve, with fewer states collecting these taxes each year. For retirees living in the nine states still taxing benefits in 2025, understanding your specific state’s rules and exemptions is crucial for maximizing retirement income. The trend toward eliminating these taxes reflects growing recognition that taxing Social Security disproportionately affects middle-income retirees who rely heavily on these benefits. Whether you’re planning for future retirement or currently receiving benefits, staying informed about your state’s tax policies—and potential changes on the horizon—can help you make more strategic financial decisions and potentially keep more of your hard-earned benefits in your pocket.
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