As GOBankingRates reported recently, 41 states across the United States will eventually eliminate the tax on Social Security benefits in 2025, with an exception for Missouri and Kansas, which cut off this tax as of 2024. That means by 2025, only nine states will be left taxing their citizens’ benefits.
It is vital for retirees and future recipients of Social Security to understand the state tax policies for financial planning. Whether you are contemplating your state or looking at others, you should know how these nine states would treat Social Security benefits.
Colorado: Limited tax exemptions based on income
In Colorado, Social Security benefits will still be subject to state taxes in 2025. However, the state offers relief for middle-income earners. Recipients aged 55 to 64 can fully deduct their federally taxed Social Security benefits if their adjusted gross income (AGI) is $75,000 or less for individual filers or $95,000 or less for couples filing jointly.
This income-based exemption can significantly lower the tax burden for retirees who fall within the eligible income brackets. However, those with higher AGIs should prepare for their benefits to remain taxable under state law.
Connecticut: Income thresholds offer tax breaks
Like Colorado, Connecticut has set income ceilings for the state to allow many Social Security recipients to avoid paying state taxes. For single or married individuals filing separately, benefits are exempt from state taxation when their AGI amounts to less than the threshold of $75,000 AGI. Those filing jointly as married couples, however, get to enjoy an even higher threshold: benefits are untaxed if the AGI earned is below $100,000.
These income-related policies offer retirees in Connecticut some measure of economic forecasting. However, for the public and private individuals who can earn over these limits, state taxes must be included in their budgets for Social Security benefits.
Minnesota
Tax Status: Social Security benefits are taxable.
Exemptions: Married filers with an AGI under $105,380, and individuals with an AGI below $82,190, pay no state taxes on Social Security benefits.
Montana
Tax Status: Social Security benefits are taxable.
Exemptions: Single filers with an AGI less than $25,000, and joint filers with an AGI less than $32,000, can deduct all their Social Security benefits from state taxes.
New Mexico
Tax Status: Social Security benefits are taxable.
Exemptions: Individual recipients earning less than $100,000 annually, and married couples earning less than $150,000, are exempt from state taxes on their benefits.
Rhode Island
Tax Status: Social Security benefits are taxable.
Exemptions: Individuals with an AGI below $88,950, and married couples with an AGI below $111,200, are exempt from state taxes on their benefits.
Utah
Tax Status: Social Security benefits are taxable.
Exemptions: Single filers earning less than $30,000 annually, and married couples earning less than $50,000, are exempt from state taxes on their benefits.
Vermont
Tax Status: Social Security benefits are taxable.
Exemptions: Married couples with an AGI below $65,000, and individuals earning less than $50,000 per year, are exempt from state taxes on their benefits.
West Virginia
Tax Status: Social Security benefits are currently taxable.
Phase-Out Plan: West Virginia is phasing out state taxes on Social Security benefits. For the 2024 tax year, benefits will be reduced by 35%. In 2025, the reduction increases to 65%, and by 2026, no Social Security benefits will be taxed.
Understanding how states tax Social Security is an apt way of aiding the retiree in deciding where to place residency and managing finances.
