Social Security plays a crucial role in the financial stability of many retirees in the United States. As of 2025, only nine states will impose taxes on these benefits, while the majority will not. This article explores the implications of these tax policies and highlights the states where retirees can maximize their Social Security income.
The Importance of Social Security for Retirees
This Article Includes
Social Security is a vital source of income for many Americans, particularly those aged 65 and older. According to AARP, around 40% of older adults rely on Social Security for at least half of their income. However, the amount that retirees can keep from their Social Security checks can vary significantly based on state tax policies.
The Tax Landscape for Social Security Benefits
While up to 85% of Social Security benefits may be subject to federal taxation depending on an individual’s income, state taxes add another layer of complexity. Fortunately, the list of states that tax Social Security benefits is shrinking. In 2025, only nine states will continue to do so:
States That Will Tax Social Security Benefits in 2025
- Colorado
- Connecticut
- Minnesota
- Montana
- New Mexico
- Rhode Island
- Utah
- Vermont
- West Virginia
Notably, West Virginia is gradually phasing out its tax on Social Security, with plans for complete exemption by 2026.
States That Don’t Tax Social Security Benefits
In contrast, 41 states and Washington, D.C., will not tax Social Security benefits in 2025, making them more appealing for retirees. These states include:
- 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
- Wyoming
Financial Implications for Retirees
Retirees living in states that do not tax Social Security can save significantly on their taxes. For instance, a retiree receiving $30,000 in Social Security benefits in a state with a 5% tax rate could save $1,500 annually.
However, each state has its own tax provisions. For example, in Colorado, residents aged 65 and older can fully deduct federally taxed Social Security benefits on their state tax returns. Starting in 2025, this exemption will extend to individuals aged 55 to 64 with an adjusted gross income of up to $75,000, or $95,000 for couples filing jointly.
The Impact of Recent Changes
Recent developments in states like Missouri and Nebraska, which have opted to stop taxing Social Security benefits, illustrate a trend towards more favorable tax policies for retirees. For instance, retirees in Missouri are projected to save approximately $309 million collectively due to the tax exemption, while Nebraska residents expect to save around $17 million.
Conclusion
As the landscape of state taxation on Social Security benefits evolves, it becomes increasingly important for retirees to understand the implications of these policies. By choosing to live in states that do not tax Social Security, retirees can keep more of their hard-earned income, enhancing their financial security in retirement. Understanding specific state rules and making informed decisions can lead to significant savings for retirees across the country.
