For many retirees, Social Security provides a critical source of income. It’s estimated that 40% of Americans aged 65 and older depend on Social Security for at least half of their total income, according to AARP. However, how much of your Social Security you actually keep can vary significantly depending on where you live, as certain states impose taxes on these benefits.
As of 2025, nine states will continue to tax Social Security benefits, but most states provide full exemptions, easing retirees’ financial burden.
Understanding Federal and State Taxes on Social Security
This Article Includes
- 1 Understanding Federal and State Taxes on Social Security
- 2 States That Will Tax Social Security in 2025
- 3 States That Do Not Tax Social Security Benefits
- 4 Calculating Tax Savings on Social Security Income
- 5 State-Specific Exemptions for Social Security Tax
- 6 How These Changes Affect Retirement Planning
- 7 Final Thoughts: State Taxes and Financial Security in Retirement
Social Security benefits may be subject to federal taxation, with up to 85% of benefits taxable based on your income level. In addition to federal taxes, some states also tax Social Security benefits, though this trend is decreasing as more states eliminate this tax to support retirees.
For instance, recent changes in Missouri, Nebraska, and Kansas illustrate a move towards reducing this tax. In 2024, Missouri and Nebraska decided to end their taxation of Social Security benefits, with Kansas following suit. These changes mean that retirees in these states can keep more of their Social Security benefits.
States That Will Tax Social Security in 2025
In 2025, only nine states will continue to tax Social Security benefits. These states are:
- Colorado
- Connecticut
- Minnesota
- Montana
- New Mexico
- Rhode Island
- Utah
- Vermont
- West Virginia
It’s worth noting that even in these states, provisions often allow retirees to deduct or partially exempt Social Security income based on factors like age and income. West Virginia, for example, is set to fully eliminate Social Security taxation by 2026.
States That Do Not Tax Social Security Benefits
As of 2025, 41 states plus Washington, D.C., will not tax Social Security income, providing significant tax relief for retirees. This list includes popular retirement destinations like:
- 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
- Wisconsin
- Washington, D.C.
- Wyoming
Each state has unique tax rules that can impact retirees differently, so understanding the specific regulations in your state is crucial.
Calculating Tax Savings on Social Security Income
The impact of avoiding Social Security tax varies by state, but the savings can be substantial. For example, if your state has a 5% tax rate and you receive $30,000 in Social Security benefits annually, you could save $1,500 by living in a state that doesn’t tax this income.
In states with high Social Security-dependent populations, these savings add up. Missouri retirees are projected to save around $309 million annually due to the elimination of Social Security taxes, while Nebraska residents are expected to save roughly $17 million each year.
State-Specific Exemptions for Social Security Tax
Even in states that tax Social Security, specific exemptions and deductions can significantly reduce the tax burden. For instance, in Colorado, residents aged 65 and older can fully deduct federally taxed Social Security benefits from their state returns. Starting in 2025, this exemption will extend to residents aged 55 and above who meet certain income criteria.
These exemptions underscore the importance of checking individual state tax rules, as retirees’ actual tax situations can vary widely based on age, income, and specific state provisions.
How These Changes Affect Retirement Planning
With Social Security taxes diminishing in more states, retirees may want to consider how state tax policies can impact their retirement plans. Choosing to retire in a state that does not tax Social Security may offer long-term savings, particularly for those heavily reliant on Social Security benefits.
While Social Security tax savings are only part of the equation, they play a valuable role in stretching retirement income. As more states consider removing this tax, retirees may find more options to maximize their income in their chosen retirement destinations.
Final Thoughts: State Taxes and Financial Security in Retirement
For those planning for retirement, understanding Social Security taxes is essential. As states like Missouri, Nebraska, and Kansas demonstrate, local tax policy shifts can substantially improve retirees’ financial security. Staying informed about state-specific tax provisions and planning accordingly can help ensure a smoother, more financially secure retirement.
For further information on state taxes or retirement planning strategies, consulting with a financial advisor who specializes in retirement can be a valuable step in optimizing Social Security benefits.