As retirement approaches, many Americans carefully consider how Social Security benefits will fit into their financial plans. While Social Security is tax-free at the federal level for many recipients, some states impose taxes on these benefits. In 2025, nine states will tax Social Security income, potentially affecting your overall retirement budget. Here’s what you need to know about these states and their taxation policies.
Which States Tax Social Security Benefits?
The nine states that tax Social Security benefits are:
- Colorado
- Connecticut
- Kansas
- Minnesota
- Missouri
- Montana
- Nebraska
- New Mexico
- Utah
How Much Do These States Tax Social Security?
1. Colorado
Colorado taxes Social Security income, but retirees 55 and older can deduct up to $20,000 (up to $24,000 for those over 65) from their taxable income.
2. Connecticut
Social Security benefits are tax-exempt for single filers earning less than $75,000 and joint filers earning under $100,000. Above these thresholds, benefits may be taxed.
3. Kansas
In Kansas, Social Security is exempt for individuals earning less than $75,000 annually. Beyond this limit, benefits are taxed at the state’s regular income tax rates.
4. Minnesota
Minnesota partially taxes Social Security benefits, with an income-based exemption. Lower-income retirees may pay no tax, while higher earners face a marginal rate.
5. Missouri
Missouri exempts Social Security benefits for individuals earning less than $85,000 (or $100,000 for couples). Above these levels, benefits are subject to state taxes.
6. Montana
Montana taxes Social Security based on federal rules, meaning up to 85% of benefits can be taxed depending on total income.
7. Nebraska
Starting in 2025, Nebraska is phasing out Social Security taxes entirely. However, some benefits may still be taxed based on income until full implementation.
8. New Mexico
New Mexico partially exempts Social Security benefits, with lower-income retirees receiving more significant tax breaks. Higher earners may still face taxation.
9. Utah
Utah offers a tax credit to offset Social Security taxes for those earning below certain income thresholds, reducing the overall burden for many retirees.
Why Do These States Tax Social Security?
States tax Social Security benefits as a way to generate revenue. However, many offer exemptions or credits to ease the burden on retirees with lower incomes. Understanding how these rules apply can help you plan better for retirement.
How to Minimize Taxes on Social Security
- Relocate to a Tax-Friendly State: States like Florida, Texas, and Nevada do not tax Social Security benefits.
- Plan Your Income Streams: Keep your income below state thresholds to qualify for exemptions or credits.
- Consult a Tax Professional: A financial advisor can help you navigate state-specific tax laws and optimize your retirement income.
Conclusion
Retirees living in these nine states may need to account for Social Security taxes in their financial planning. While some states offer exemptions or credits based on income, others apply partial or full taxation. Understanding the tax rules in your state can help you make informed decisions and potentially reduce your tax burden.
For detailed information on Social Security and taxes, visit the Social Security Administration’s website.
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