Increasingly, states in the US are opting out of taxing social security benefits. By 2025, 41 states, including Washington, D.C., will have joined this trend. The measure is intended to relieve the financial burden on retirees, who already face high costs for healthcare, medications, and other essential services.
However, not every state has followed this path. Nine states continue to tax these benefits, citing the need to fund public services and balance budgets. On the other hand, critics argue that this practice places an undue burden on seniors, many of whom rely solely on these incomes.
Which states will continue taxing Social Security in 2025?
While most states do not tax Social Security benefits, these nine do. Policies differ by state, with some offering deductions or partial exemptions to reduce the tax burden.
Colorado
In Colorado, individuals over the age of 65 can fully deduct their Social Security benefits from their taxable income. However, younger beneficiaries may have to pay taxes on a portion of their benefits.
Connecticut
Connecticut levies taxes on households with incomes exceeding $75,000 for individuals or $100,000 for couples. Benefits are exempt for amounts less than these limits.
Minnesota
Benefits are taxed here, but income-based deductions are available to help with the tax burden.
Montana
Montana follows the same criteria as the federal government. If an individual’s combined income exceeds $25,000 or $32,000 for couples, a portion of the benefits will be taxed.
New Mexico
In New Mexico, benefits are taxed, but deductions are based on the beneficiary’s age and annual income.
Rhode Island
In this state, benefits are exempt if an individual’s annual income does not exceed $86,350 or $107,200 for a couple. Above these thresholds, taxes apply.
Utah
Utah taxes benefits but provides tax credits to retirees with low incomes, significantly mitigating the impact.
Vermont
Vermont follows the federal model, taxing benefits while allowing for partial exemptions based on the beneficiary’s income.
West Virginia
West Virginia intends to eliminate taxes on Social Security benefits over the next two years in an effort to reduce the tax burden on retirees.
Why do some states not tax benefits?
States that have eliminated these taxes are frequently appealing to retirees. Furthermore, many of them do not have a state income tax, making living expenses more affordable.
The reasoning is straightforward: most retirees have fixed incomes. Any additional tax can impede their ability to meet basic needs such as housing and healthcare. By avoiding these taxes, states hope to create a more favorable environment and attract seniors looking for economic stability.
Federal taxes: what you need to know
While most states do not tax Social Security benefits, they may be subject to federal taxation. If an individual earns more than $25,000 per year or a couple earns more than $32,000, some of their benefits may 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 while avoiding taxes. However, those who live in the nine states that continue to tax these benefits should look into available exemptions and deductions to reduce their tax burden.
If you’re thinking about moving after retirement, don’t just consider tax policies. Other important considerations include cost of living, access to healthcare, and overall quality of life. Each state has advantages and disadvantages, and the final decision will be based on your individual priorities and needs.
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