The 9 Worst States for Social Security Income Taxes in Retirement
When planning your retirement, understanding how taxes will affect your Social Security income is crucial. The taxation of Social Security benefits varies significantly by state, and choosing the right location can make a big difference in your retirement budget.
While many states offer tax breaks for retirees, a few impose taxes on Social Security benefits, making them less favorable for those who rely heavily on Social Security income.
Good News: Most States Don’t Tax Social Security
Before we dive into the states that do tax Social Security benefits, here’s some positive news: 41 states do not tax Social Security benefits at all. This includes states where many retirees find financial relief, making them attractive options for those who rely primarily on Social Security.
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Bad News: 9 States That Tax Social Security Benefits
As of 2025, there are 9 states that impose some form of tax on Social Security benefits. While some of these states offer exemptions based on age or income, the taxes can still add up. Here’s a breakdown:
Colorado
Exemption: Social Security benefits are fully deductible for residents aged 65 and older.
Income thresholds: For residents aged 55-64, there is an exemption if their adjusted gross income (AGI) is below $75,000 (single) or $95,000 (joint). Above those limits, a smaller deduction applies.
Connecticut
Exemption: Benefits are exempt if the AGI is below $75,000 (single/married filing separately) or $100,000 (joint/head of household).
Taxation: Benefits are partially taxed if your AGI exceeds these limits, with up to 25% of benefits potentially taxed.
Minnesota
Exemption: Minnesota taxes federally taxable benefits but offers an exemption for many people, with phased-out eligibility based on AGI.
Income thresholds: The exemption begins to phase out above $108,320 for joint filers and $84,490 for single filers.
Recent Bill: Minnesota’s House of Representatives is working on a bill (HF5) to fully exempt Social Security benefits from state tax.
Montana
Exemption: Montana taxes federally taxable Social Security benefits but offers a small subtraction for those 65 and older.
Deductions: There’s a $5,500 subtraction for individuals aged 65+ and a $11,000 subtraction for joint filers.
Recent Bill: Montana has a bill in the legislature aiming to repeal the state tax on Social Security benefits.
New Mexico
Exemption: Social Security benefits are exempt for single filers with an AGI up to $100,000 and joint filers with an AGI up to $150,000.
Income threshold: These AGI limits are not adjusted for inflation, so they may become less favorable as time goes on.
Rhode Island
Exemption: Benefits are exempt for retirees at full retirement age whose AGI in 2024 is below $104,200 (single) or $130,250 (joint).
Utah
Exemption: Social Security benefits are not taxable if the AGI is $90,000 or less for married taxpayers filing jointly (increased from $75,000 in 2025).
Expansion: Utah has expanded its Social Security Benefits Tax Credit, with higher income thresholds for credit phaseout.
Vermont
Exemption: Social Security benefits are fully exempt for individuals with an AGI below $50,000 (single) or $65,000 (joint).
Partial Exemption: The exemption phases out above these thresholds, and benefits are partially taxed for higher earners.
West Virginia
Phasing Out: West Virginia is in the process of phasing out taxation on Social Security, with 65% of benefits deductible in 2025.
Full Elimination: The state plans to eliminate the tax completely by 2026.
Other Key Tax Considerations for Retirees
When deciding where to live in retirement, Social Security taxation is important, but it’s not the only tax factor to consider. Here are a few other taxes to keep in mind:
Property Taxes
Property taxes can be a major cost for retirees. Some states offer property tax deferral programs, reducing payments during your lifetime but collecting deferred taxes after death. It’s essential to research property tax rates and senior exemptions in different states.
Sales Taxes
States without income taxes often rely on higher sales taxes. If you live in a state with no income tax but a high sales tax rate, the cost of goods and services may increase. This is an important factor if you expect to spend more in retirement.
Retirement Income Taxation
Many states tax pensions, IRA distributions, and other forms of retirement income, even if they don’t tax Social Security. Research how your retirement income will be taxed based on the state you plan to retire in.
Estate and Inheritance Taxes
Estate, inheritance, or gift taxes can differ by state, which may impact your beneficiaries. Some states offer exemptions or reduced rates for certain assets, including retirement income.
Final Thoughts on Choosing the Best States for Retirees on Social Security
While Social Security taxation is a key consideration, it’s only one part of the retirement puzzle. Other factors—such as property taxes, sales taxes, and overall cost of living—should also play a significant role in your decision. Additionally, some states are already working on legislation to phase out or reduce taxes on Social Security benefits, so it’s worth staying updated on any changes.
Ultimately, if Social Security is your primary source of income in retirement, states that do not tax it—like Florida or Texas—may be the best choice.
However, if you’re open to living in a state that taxes benefits, make sure you understand the income thresholds and exemptions available to you, as these can significantly impact your tax burden.
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