As retirement approaches, managing your income becomes even more important. Did you know that most states in the U.S. don’t tax Social Security benefits? By 2025, 41 states, including Washington, D.C., will join this trend, helping retirees keep more of their money. However, some states still tax these benefits. Let’s dive into which states do, which don’t, and what this means for retirees.
Which States Tax Social Security Benefits?
Nine states will continue to tax Social Security benefits in 2025. While some offer exemptions or deductions, taxes can still take a bite out of retirees’ income. Here’s a breakdown of their policies:
1. Colorado
- Retirees over 65 can fully deduct Social Security benefits from taxable income.
- Younger beneficiaries may still pay taxes on a portion of their benefits.
2. Connecticut
- Benefits are taxed if incomes exceed $75,000 for individuals or $100,000 for couples.
- Benefits below these limits are exempt.
3. Minnesota
- Social Security benefits are taxed, but income-based deductions are available.
4. Montana
- Follows federal tax guidelines:
- Taxes apply if combined income exceeds $25,000 (individuals) or $32,000 (couples).
5. New Mexico
- Taxes apply to benefits, but deductions depend on age and income.
6. Rhode Island
- Exempts benefits if annual income is under $86,350 (individuals) or $107,200 (couples).
- Taxes apply above these limits.
7. Utah
- Benefits are taxed, but retirees with low incomes may qualify for tax credits.
8. Vermont
- Taxes Social Security benefits but offers partial exemptions for lower-income retirees.
9. West Virginia
- Plans to phase out Social Security taxes entirely by 2025.
Why Do Some States Skip These Taxes?
States that don’t tax Social Security benefits attract more retirees. Many of these states also lack state income taxes, making living there more affordable.
- Retirees typically live on fixed incomes, so any extra tax can make basic needs like housing and healthcare harder to afford.
- Eliminating Social Security taxes creates a favorable environment, helping retirees stretch their money further.
What About Federal Taxes?
Even if your state doesn’t tax Social Security, federal taxes might apply.
- Individuals earning over $25,000 or couples earning over $32,000 may owe taxes on some benefits.
- Always review your total income to understand your federal tax obligations.
Things to Consider Beyond Taxes
Choosing where to retire involves more than tax policies. Here are other factors to keep in mind:
- Cost of living: States with no income tax might have higher property taxes or healthcare costs.
- Healthcare access: Look for states with good medical facilities.
- Quality of life: Consider the climate, local amenities, and safety.
FAQs
1. Which states tax Social Security benefits in 2025?
Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, and West Virginia.
2. Why don’t most states tax these benefits?
Retirees often live on fixed incomes, and states want to ease financial burdens to attract them.
3. What if I live in a state that taxes benefits?
Check if you qualify for deductions or exemptions based on income or age.
4. Can federal taxes still apply to Social Security?
Yes. Federal taxes may apply if your total income exceeds certain limits.
5. Should I choose a state based only on tax policies?
No. Also consider cost of living, healthcare access, and overall quality of life.
