More and more U.S. states are choosing not to tax Social Security benefits. By 2025, 41 states, along with Washington D.C., have joined this trend. The measure aims to ease the financial pressure on retirees, who already face high expenses for healthcare, medications, and other essential services.
However, not all states have taken this path. Nine states still impose taxes on these benefits, arguing that the revenue generated is vital for funding public services and balancing budgets. On the other hand, critics believe this practice places an unnecessary burden on seniors, many of whom rely exclusively on these incomes.
Which states will continue taxing Social Security in 2025?
Although most states do not tax Social Security benefits, these nine still do. Policies vary by state, and some offer deductions or partial exemptions to reduce the tax impact.
Colorado
In Colorado, those over 65 can fully deduct their Social Security benefits from taxable income. However, younger beneficiaries might pay taxes on part of their benefits.
Connecticut
Connecticut applies taxes if household income exceeds $75,000 for individuals or $100,000 for couples. Below these limits, benefits are exempt.
Minnesota
Here, benefits are taxed, but deductions based on income levels are offered to ease the tax burden.
Montana
Montana uses the same criteria as the federal government. If combined income exceeds $25,000 for individuals or $32,000 for couples, part of the benefits will be taxed.
New Mexico
In New Mexico, benefits are taxed, although deductions depend on the beneficiary’s age and annual income.
Rhode Island
In this state, benefits are exempt if annual income does not exceed $86,350 for individuals or $107,200 for couples. Above these limits, taxes apply.
Utah
Utah taxes benefits but offers tax credits for retirees with low incomes, significantly reducing the impact.
Vermont
Vermont follows the federal model, taxing benefits but allowing partial exemptions based on the beneficiary’s income.
West Virginia
West Virginia plans to eliminate taxes on Social Security benefits in the next two years in an effort to ease the tax burden on retirees.
Why do some states not tax benefits?
States that have eliminated these taxes are often attractive to retirees. Additionally, many of them also have no state income tax, making the cost of living more manageable.
The reasoning is simple: retirees generally have fixed incomes. Any additional tax can complicate their ability to cover basic needs like housing or healthcare. By avoiding these taxes, states aim to offer a more favorable environment and attract seniors seeking economic stability.
Federal taxes: what you need to know
Although most states do not tax Social Security benefits, at the federal level these incomes may be taxed. If an individual earns more than $25,000 a year or a couple exceeds $32,000, part of their benefits could be taxed.
This means that even if you live in a state without state taxes, you might still owe federal taxes depending on your total income.
By 2025, retirees in the United States will have more options than ever to choose states where they can maximize their Social Security income without worrying about taxes. However, those living in the nine states that still tax these benefits should research available exemptions and deductions to reduce their tax burden.
If you’re thinking about moving after retirement, don’t just focus on tax policies. Other factors like the cost of living, access to healthcare services, and overall quality of life are also fundamental. Each state has its pros and cons, and the final decision will depend on your personal priorities and needs.