Contrary to the popular misconception, Social Security income can be taxed. Social Security beneficiaries who have substantial other sources of income can have as much as 85% of their benefits included in their taxable income calculation. In fact, tax on Social Security benefits is a major revenue source for the program.
The good news is that in most cases, Social Security is not taxable at the state level. 41 states do not tax Social Security income whatsoever. Not only that, but most of the states that do tax Social Security use far looser rules than the federal government.
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41 states that exempt Social Security income from taxes
I'll cut to the chase. Should your state be on this alphabetical list, it does not impose any taxes: Social Security benefits for the 2025 tax year:
- Alabama
- Alaska
- Arizona
- Arkansas
- California
- Delaware
- Florida
- Georgia
- Hawaii
- Idaho
- Illinois
- Indiana
- Iowa
- Kansas
- Kentucky
- Louisiana
- Maine
- Maryland
- Massachusetts
- Michigan
- Mississippi
- Missouri
- Nebraska
- Nevada
- New Hampshire
- New Jersey
- New York
- North Carolina
- North Dakota
- Ohio
- Oklahoma
- Oregon
- Pennsylvania
- South Carolina
- South Dakota
- Tennessee
- Texas
- Virginia
- Washington (state and D.C.)
- Wisconsin
- Wyoming
Should your state be listed here, your Social Security income will be exempt from state income tax irrespective of the amount of extra retirement income you possess, or whether you do so or not. still working .
Certainly, some of these states do not impose any income tax at all. However, in certain situations, the Social Security exemption might provide substantial savings. To illustrate, suppose you get $20,000 annually from Social Security and reside in my home state of South Carolina, where the highest marginal tax rate is 7%. In this scenario, you could potentially save around $1,400.
Additionally, this list may expand over time. As an illustration, West Virginia is gradually eliminating taxes on Social Security benefits with plans for them to completely disappear by 2026.
What would happen if you reside in one of the remaining nine states?
Given the information from the preceding section, we can see that nine states continue to impose taxes on Social Security benefits at varying levels. The affected states include Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, and West Virginia.
In many instances, though, the guidelines surrounding Social Security taxation tend to be more lenient compared to those enforced by the IRS. For instance, in Colorado, Social Security benefits are taxed only from recipients younger than 65 whose income exceeds specific thresholds.
Just one part of the tax equation
If you’re retired and live in one of the nine states imposing taxes on Social Security benefits, it may seem less than ideal. However, remember that taxation of Social Security is only part of what determines whether a state’s overall tax environment is more favorable or not. Often, those same states with Social Security taxes tend to have comparatively lower rates for other forms of taxation.
For instance, Montana imposes a tax on Social Security benefits for certain residents yet stands among the only five states without a state sales tax. Some other states listed feature property taxes significantly lower than the nationwide average.
The bottom line is that while tax on your Social Security benefits is certainly not ideal, it's important to consider the full picture of a state's tax situation.
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