Social Security benefits provide critical financial support for retirees, but depending on where you live, they may be taxed at the state level. While 41 states have chosen to stop taxing Social Security benefits, 2025 will see nine states continuing to impose taxes on these payments. If you’re planning to retire soon or are already in retirement, it’s important to understand how these state taxes might affect your benefits. Here’s a closer look at those states and the rules surrounding Social Security taxation in 2025.
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1. Colorado: Partial Exemption for Lower-Income Retirees
Colorado will continue to tax Social Security benefits in 2025, but with an important exception. If you’re between the ages of 55 and 64 and have an adjusted gross income (AGI) of $75,000 or less as an individual ($95,000 or less for joint filers), you can fully deduct your federally taxed benefits when filing your state taxes.
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2. Connecticut: Income-Based Exemptions
Connecticut offers a similar policy to Colorado. If you’re a single filer (or married filing separately) with an AGI below $75,000, your Social Security benefits won’t be taxed. The same exemption applies to married couples filing jointly with an AGI of less than $100,000.
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3. Minnesota: Higher Income Exemptions
Minnesota provides a larger income threshold before taxing Social Security benefits. Married filers with an AGI under $105,380 and individuals with an AGI below $82,190 are exempt from state taxes on their benefits. This means that many retirees can enjoy their benefits without worrying about state taxation.
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4. Montana: Low Income, Full Deduction
In Montana, the state taxes Social Security benefits unless you fall into the low-income bracket. If you’re a single filer with an AGI below $25,000 or a joint filer with an AGI under $32,000, you can deduct all of your Social Security benefits from taxation, making this a favorable state for low-income retirees.
5. New Mexico: Nixed Taxes for Lower Earners
New Mexico has completely eliminated taxes on Social Security benefits for individuals earning less than $100,000 and married couples earning less than $150,000. This generous policy ensures that many retirees are not burdened by state taxes on their benefits.
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6. Rhode Island: Exemption for Middle-Income Retirees
Rhode Island offers an exemption for individuals with an AGI below $88,950 and married couples with an AGI below $111,200. Retirees within these income limits won’t face state taxes on their Social Security benefits.
7. Utah: Exemption for Low-Income Individuals and Couples
In Utah, Social Security benefits are exempt from state taxation for individuals with an AGI under $30,000 and married couples with an AGI below $50,000. This makes Utah one of the more tax-friendly states for retirees with modest incomes.
8. Vermont: Lower Income Exemption
Vermont taxes Social Security benefits, but if you’re a single filer with an income below $50,000 or a married couple with an income below $65,000, you won’t have to pay state taxes on your Social Security benefits. This policy helps lower-income retirees keep more of their benefits.
9. West Virginia: A Phased-Out Tax by 2026
West Virginia is in the process of phasing out its tax on Social Security benefits. For now, individuals earning under $50,000 and joint filers earning under $100,000 are exempt from paying state taxes on their benefits. However, due to a new law passed in 2024, West Virginia will gradually reduce the state income tax on Social Security benefits, with the tax completely eliminated by 2026.
Why It Matters: Taxation and Your Retirement Plans
As you plan your retirement, it’s essential to consider how state taxes may affect your Social Security benefits. While many states have opted to eliminate these taxes, others continue to impose them based on income thresholds. Knowing whether your state taxes Social Security benefits can help you make informed decisions about where to retire or adjust your income strategy to minimize taxes.
In some states, such as Colorado and Connecticut, exemptions are available for lower-income retirees, which can significantly reduce the financial burden. However, in states like Vermont and Montana, you may still face taxes unless you meet specific income limits.
If you’re planning to retire in 2025, understanding how your state taxes Social Security benefits is crucial. These nine states represent the places where retirees will still face taxes on their Social Security payments, but with varying degrees of exemptions based on income. Whether you’re considering relocating to a new state or planning your retirement finances, staying informed about these state-specific rules will help you maximize your benefits and plan for a comfortable retirement.
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