Starting in 2025, retirees across the United States may face a financial strain as nine states continue to tax Social Security benefits. While the majority of states have eliminated these taxes, certain states still require residents to pay taxes on benefits they worked hard to earn. For retirees, disabled workers, and families depending on this federal support, the financial impact could be significant.
States That Tax Social Security Benefits in 2025
Although Missouri and Kansas are set to stop taxing Social Security benefits in 2024, nine states still plan to continue this practice in 2025. Below is the list of these states and their specific tax conditions.
1. Colorado
- Tax Policy: Colorado taxes Social Security benefits for residents earning over a certain amount.
- Exemptions:
- Individuals with an adjusted gross income (AGI) of $75,000 or less.
- Couples filing jointly with an AGI of $95,000 or less.
- Note: Residents within the exemption limit can deduct federal taxes from their state filings.
2. Connecticut
- Tax Policy: Similar to Colorado but slightly more lenient.
- Exemptions:
- Couples filing jointly with an AGI of $100,000 or less.
3. Minnesota
- Tax Policy: Minnesota provides a higher exemption threshold than Colorado and Connecticut.
- Exemptions:
- Married couples with an AGI up to $105,380.
- Individuals with an AGI up to $82,190.
4. Montana
- Tax Policy: Montana applies taxes on Social Security benefits for residents earning above modest thresholds.
- Exemptions:
- Individuals with an AGI of $25,000 or less.
- Married couples filing jointly with an AGI of $32,000 or less.
5. New Mexico
- Tax Policy: New Mexico’s tax policy is one of the most flexible in this group.
- Exemptions:
- Individuals earning less than $100,000 in AGI.
- Married couples filing jointly with an AGI of $150,000 or less.
6. Rhode Island
- Tax Policy: Rhode Island offers tax exemptions for most middle-income families.
- Exemptions:
- Individuals with an AGI below $88,950.
- Married couples filing jointly with an AGI under $111,200.
7. Utah
- Tax Policy: Utah enforces stricter income limits for tax exemptions.
- Exemptions:
- Single filers earning $30,000 or less annually.
- Married couples filing jointly with an income of $50,000 or less.
8. Vermont
- Tax Policy: Vermont, a Democrat-leaning state, maintains a progressive structure for exemptions.
- Exemptions:
- Individuals earning $50,000 or less.
- Married couples filing jointly with an AGI of $65,000 or less.
9. West Virginia
- Tax Policy: West Virginia plans to reduce Social Security taxes by 65% compared to 2023. However, some taxes will still apply.
- Exemptions:
- Individuals earning less than $50,000.
- Married couples filing jointly with an AGI of $100,000 or less.
The Financial Impact
The taxation of Social Security benefits can strain retirees and other vulnerable groups who rely on this income for daily living expenses. With inflation and the cost of living rising, state taxes on benefits could mean tough financial decisions for many.
For those living in these nine states, understanding the tax rules and planning accordingly can make a significant difference. Residents are encouraged to explore exemptions and consult financial advisors to reduce their tax burden.
Conclusion
While the number of states taxing Social Security benefits is shrinking, the impact remains significant for residents of Colorado, Connecticut, and others listed above. With varying exemptions and conditions, staying informed is crucial for retirees and their families to navigate these financial challenges in 2025.
