Social Security benefits are a vital source of income for many retired Americans. However, as with any income, the federal government is able to tax Social Security benefits–how much depends on the retiree’s income. Generally speaking, this is all that Social Security recipients in most parts of the United States will have to pay.
However, this isn’t always the case. While most states don’t tax Social Security, 12 states do. Here’s what to know.
In addition to the federal government tax on Social Security benefits, 12 states also tax it: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, and West Virginia.
Minnesota and Utah are the only states that levy an additional Social Security tax that uses the same income thresholds for taxing as the Federal government.
States without a Social Security tax aren’t inherently better places for retirees to live. Additional factors to consider include cost of living, crime rates, climate, and proximity to friends and family members.
Understanding Taxes on Social Security Benefits
Since 1983, Social Security payments have been subject to taxation by the Federal government. How much of a person’s benefits are taxed will vary, depending on their combined income (defined as the total of their adjusted gross income (AGI), nontaxable interest, and half of their Social Security benefits) and filing status. Regardless of the result of the Internal Revenue Service’s (IRS) calculation, the amount subject to taxes won’t exceed 85% of the total benefit.
Combined Income (Married Filing Jointly)
Source: Social Security Administration
Income from other retirement programs may also be subject to federal income taxes. Pension payments, for example, are either fully taxable or partially taxable, depending on how much in after-tax dollars the individual (or their employer) invested into the contract.
Spousal Social Security benefits and Social Security disability benefits follow the same basic rules as the primary Social Security program in that the amount subject to federal income taxes (up to 85%) is dependent on the retiree’s total income. Supplemental security income, however, is not taxed.
For those wondering if there’s anywhere in the U.S. where Social Security benefits won’t be taxed at all, the answer is technically no. The only way to avoid paying any taxes on Social Security income is by remaining below the minimum income threshold–for example, using tax-free Roth account withdrawals, qualified longevity annuity contracts (QLACs), etc.–and/or spending retirement on a shoestring budget. As such, most people will likely have to pay taxes on their Social Security benefits, and retirees in a dozen states will also have to pay an additional state tax on these benefits.
Social Security Benefit Taxation by State
Out of all 50 states in the U.S., 38 states and the District of Columbia do not levy a tax on Social Security benefits. Of this number, nine states–Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming–do not collect state income tax, including on Social Security income.
Out of the nine states that do not levy an income tax, New Hampshire still taxes dividend and interest income.
Below is a list of the 12 states that do levy a tax on Social Security benefits on top of the federal one, with details on each state’s tax policy.
Colorado: Social Security income received in Colorado will be taxed at the state’s flat rate of 4.55%. Retirees between the ages of 55 and 64 may deduct up to $20,000 in retirement income, which includes Social Security payments, while those 65 or older can deduct up to $24,000. For married couples, each spouse is able to take advantage of this deduction. Beginning in the 2022 tax year, as part of a tax code overhaul enacted by Colorado lawmakers in June 2021, residents will be able to deduct all federally taxable Social Security benefits.
Connecticut: Connecticut’s Social Security income tax rate ranges from 3% to 6.99%. Depending on their AGI and filing status, retirees are able to deduct most or all of their benefit income. Specifically, beneficiaries will pay no state taxes on their benefits if their AGI is less than $75,000 (single filer) or $100,000 (married filing jointly). Above these thresholds, 75% of Social Security benefit payments are still tax-exempt.
Kansas: In Kansas, Social Security benefits are taxed at the same rate as all other forms of income, with the tax rate ranging from 3.1% to 5.7%. However, retirees with an AGI of up to $75,000 are exempt from paying state taxes on their Social Security income, regardless of their filing status.
Minnesota: Minnesota uses the same thresholds as the federal government for determining how much of a retiree’s Social Security benefits should be taxed. Additionally, those who do owe taxes on their benefits can take advantage of Minnesota’s Social Security Subtraction to secure a partial deduction. In 2021, single filers and couples filing jointly can exempt up to $4,130 and $5,290, respectively, of their federally taxable benefits from their Minnesota income. This is unavailable for residents in a higher income bracket. Single filers and couples filing jointly with AGIs of at least $62,710 and $80,270, respectively, only qualify for partial exemption, while those with incomes above $83,360 and $106,720, respectively, are not eligible. Minnesota’s Social Security income tax ranges from 5.35% to 9.85%.
Missouri: Although Missouri’s Social Security income tax rate can be as high as 5.4%, the range also goes as low as 0%. Single filers and couples filing jointly who are age 62 and older with AGIs of less than $85,000 and $100,000, respectively, will be able to fully deduct their Social Security benefits. Those in higher income brackets may still qualify for a partial deduction.
Montana: In Montana, the Social Security income tax rate ranges from 1% to 6.9% for the 2021 tax year, with the top marginal tax rate being lowered to 6.75% starting in 2022. Just as with the federal tax, retirees with an AGI of less than $25,000 (single filer) or $32,000 (married filing jointly) will not be subject to a tax on their Social Security benefits. This is not the case for residents in higher income brackets. Montana uses a different method than the federal government to calculate the amount that someone owes (the state tax form provides a worksheet).
Nebraska: Nebraska’s Social Security income tax rate ranges from 2.46% to 6.84%. Single filers and couples filing jointly are exempt from having their Social Security benefits taxed if their AGIs are less than $44,460 and $59,960, respectively. Additionally, Nebraska is phasing out taxation of benefits under a new state law, which began in the 2021 tax year, with beneficiaries getting a 5% cut in taxes on their Social Security. The reduction will grow in steps to 50% by 2025, at which point state lawmakers will vote on whether to eliminate the tax on benefits altogether by 2030.
New Mexico: New Mexico taxes Social Security income at a rate of 1.7% to 5.9%. Like Montana, New Mexico uses the same thresholds as the federal government for exempting lower-income residents. For higher income brackets, Social Security benefits are considered the same as other forms of income for tax purposes. However, single filers and couples filing jointly age 65 and older with AGIs of up to $28,500 and $51,000, respectively, may deduct up to $8,000 in income, which includes Social Security payments.
Rhode Island: Rhode Island taxes Social Security income at a rate of 3.75% to 5.99%. However, the state won’t tax benefits of retirees who are of full retirement age (i.e., 66 to 67 years old, depending on the year born) and earn an AGI of less than $86,350 (single filer) or $107,950 (married filing jointly).
Utah: With a tax rate of 4.95%, Utah follows Minnesota as the only other state to utilize the same formula as the federal government for determining how much of a retiree’s Social Security benefits ought to be taxed. However, as of 2021, Utah offers a partial or full credit on taxable benefits. Single filers and couples filing jointly with AGIs of less than $30,000 and $50,000, respectively, are eligible for a full tax credit on their benefit income. Those in a higher income bracket can still get a partial tax break, with the credit decreasing by 2.5 cents for each dollar above the aforementioned income limits.
Vermont: In Vermont, single filers with an AGI of up to $45,000 are eligible for a full exemption from state taxation of their Social Security benefits, while those who make $45,001 to $54,999 still qualify for a partial exemption. For couples filing jointly, the full exemption applies for those with an AGI of up to $60,000 and is phased out for those with incomes ranging from $60,001 to $69,999. For single filers and couples filing jointly earning at least $55,000 and $70,000, respectively, benefits are fully taxed at the state rate of 3.35% to 8.75%.
West Virginia: West Virginia’s tax rates on Social Security income range from 3% to 6.5%. However, West Virginia is slowly phasing out state income taxes on Social Security benefits for lower-income residents. For the 2021 tax year, single filers and couples filing jointly earning up to $50,000 and $100,000, respectively, may deduct 65% of their Social Security benefits from their state income. This rose to 100% in 2022. Retirees with AGIs above those thresholds will still have their benefits taxed based on the federal model.
The Roughrider State previously levied a tax on Social Security income; however, North Dakota amended its tax code on Nov. 12, 2021, so that Social Security payments are no longer a source of taxable income.
Are States That Tax Social Security Benefits Worse for Retirees?
Including Social Security benefits in taxable income doesn’t make a state a more expensive place to retire. According to the Missouri Economic Research and Information Center, as of Q3 2021, while four of the states that tax Social Security benefits have notably high cost-of-living index scores, the remaining eight fell within the two lowest-scoring groups. Kansas, in particular, had the second-lowest score in the U.S., after Mississippi.
The inverse is also true, as states that don’t levy a Social Security tax aren’t inherently tax-friendlier places to live. When a state government doesn’t garner income from one potentially taxable source, it typically makes up for it with other forms of taxation.
For instance, while Texas doesn’t levy a state income tax at all (thereby precluding a Social Security income tax), it relies heavily on taxes from a variety of other sources, including insurance taxes; sin taxes on mixed beverages, tobacco products, and “coin-operated machines” (i.e., slot machines); and motor fuel taxes.
Other states that don’t earn revenue from Social Security income–such as New York, California, Louisiana, and Arkansas–have some of the highest income and/or sales tax rates in the U.S.
Living in a state that levies fewer taxes may be good for your budget, but it can limit the local government’s ability to invest in social services that you or your loved ones may rely on, such as healthcare, infrastructure, and public transportation.
Additional factors to consider when selecting a state for retirement: cost of living is an important one, but the overall score doesn’t paint the clearest picture of which states are actually the most affordable. For example, while Connecticut is the most expensive state without a Social Security tax to live in and has the 43rd highest cost-of-living score in the U.S., the cost of housing is notably pricier in the 42nd overall most expensive state, New Jersey.
What might be an affordable place to live for one person may not be so for someone with different financial circumstances. Other important factors to keep in mind include crime rates, climate, and proximity to friends and family members.
Which States Don’t Tax Social Security Benefits?
Out of all 50 states and the District of Columbia, only 12 states levy taxes on Social Security income: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, and West Virginia.
Which State Is the Most Tax Friendly for Retirees?
Although there’s no official measure of tax friendliness, Delaware is a strong contender for the best state for retirees when it comes to taxes. The First State levies neither state or local sales tax, nor an estate or inheritance tax. Delaware’s median property tax rate is also one of the lowest in the U.S. Its income tax rate of 6.6% is on the higher side, but it’s still lower than the rates imposed by 16 other states and the District of Columbia.
At What Age Is Social Security No Longer Taxable?
Whether or not a person’s Social Security benefits are taxable is not determined by their age, but rather by their income–the amount that’s subject to taxation is referred to as “combined income” by the Social Security Administration.
The Bottom Line
Although low taxes shouldn’t be the sole motivating factor when deciding on a long-term residence, you should still be aware of which taxes the local government levies so as not to be caught unprepared when your next tax bill rolls in. State taxes on Social Security income can take a not-insignificant bite out of your retirement income. Plan your budget accordingly if you intend to retire in one of the 12 states that impose them. That said, be sure to also research what other costs and taxes you’ll be paying in each place you’re considering to ensure you’re getting the best fit for your financial circumstances.