For many retirees, Social Security benefits are an important source of income, but state taxes can reduce these hard-earned dollars. The good news is that in 2025, 41 states and the District of Columbia will not tax Social Security benefits, allowing retirees to keep more of their earnings.
Retirees can maximise their retirement income by understanding which states provide this tax-free benefit. In this article, we will look at which states provide tax-free benefits, practical relocation tips, and strategies for lowering federal Social Security taxes.
Say Goodbye to Social Security Taxes Forever
| States Taxing Social Security Benefits | 9 states (e.g., Colorado, Connecticut, Minnesota) |
| States NOT Taxing Social Security Benefits | 41 states and Washington D.C. (full list below) |
| Phasing Out Taxes | West Virginia (complete phase-out by 2026) |
| Federal Tax Impact | Up to 85% of benefits could be taxable, depending on income level (source) |
| Key Resources | Social Security Administration for federal tax information |
| Ideal for Retirees Seeking Tax-Free Income | Tax-friendly states allow retirees to keep more Social Security income without state-level deductions |
Understanding which states tax Social Security benefits is critical for successful retirement planning. In 2025, 41 states and the District of Columbia will provide tax-free retirement, exempting Social Security from state taxes.
This decision has the potential to save retirees thousands of dollars each year, significantly improving their standard of living. Planning carefully, considering relocation, and looking into ways to reduce federal taxes are all important steps towards a financially secure and fulfilling retirement.
Whether you’re already retired or planning for the future, understanding Social Security taxation at both the state and federal levels is critical. You can maximise your retirement income by making strategic decisions and understanding tax policies.
What is Social Security Taxation?
Social Security benefits are paid to retired workers, disabled people, and their families. These benefits are critical for millions of Americans, with over 64 million receiving payments by 2023. Taxes on Social Security benefits vary, with the federal government taxing a portion based on income, while some states levy additional state-level taxes.
Federal vs. State Taxes on Social Security Benefits
The federal tax rate on Social Security is based on the retiree’s total income (adjusted gross income, nontaxable interest, and half of Social Security benefits). This federal tax obligation may imply that up to 85% of benefits are taxable. However, some states levy additional state-level taxes on Social Security, whereas others completely exempt these benefits.
States That Won’t Tax Social Security Benefits in 2025
If tax-free Social Security income is critical, here’s a breakdown of which states allow retirees to keep more of their benefits without state deductions.
Fully Exempt States
In 2025, 41 states and the District of Columbia will completely exempt Social Security benefits from state taxes:
- Alabama, Alaska, Arizona, Arkansas, California, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, Missouri, Nevada, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Virginia, Washington, Washington D.C., Wisconsin, and Wyoming
States That Still Tax Social Security Benefits
Despite the trend of exemption, nine states will continue to tax Social Security benefits in 2025:
- Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, and West Virginia (West Virginia is gradually phasing out taxes and plans to eliminate them by 2026).
Practical Advice: Moving to a Tax-Friendly State
For retirees considering relocation, living in a tax-friendly state can significantly affect income preservation. Here are practical relocation tips:
- Review State Tax Policies – Consider not just Social Security taxes but overall income, property, and sales tax rates. States like Florida, Texas, and Nevada have no income tax, making them particularly attractive for retirees.
- Compare Cost of Living – Taxes are just one aspect; housing costs, healthcare, and daily expenses should factor into decisions. States like Tennessee and Texas have low overall costs, while areas like New York and California have higher living expenses.
- Evaluate Healthcare Access – Access to quality healthcare is essential in retirement. Evaluate healthcare facilities and services in prospective areas.
- Assess Climate and Lifestyle – Quality of life in retirement is crucial. Consider the climate, recreational opportunities, and overall culture and lifestyle.
Federal Taxation on Social Security Benefits
Regardless of your state, federal taxes on Social Security benefits can still apply. Here’s what you need to know:
- Combined Income Calculation: Federal tax rates are based on combined income (adjusted gross income, nontaxable interest, and half of Social Security benefits). Depending on income, up to 85% of benefits may be taxable.
- Income Thresholds: If combined income is between $25,000 and $34,000 (single filers) or $32,000 and $44,000 (joint filers), up to 50% of benefits may be taxable. Above these thresholds, up to 85% may be taxable.
For more details, visit the Social Security Administration’s Tax Guide.
Strategies for Minimizing Federal Taxes on Social Security
- Consider Roth Conversions – Converting a traditional IRA to a Roth IRA can reduce required minimum distributions, lowering taxable income.
- Delay Social Security Benefits – Waiting to claim benefits until after retirement may reduce combined income, potentially lowering your tax rate.
- Withdraw from Tax-Free Accounts – Consider drawing from a Roth IRA or other tax-free sources before tapping into Social Security.
- Monitor Combined Income – Plan annual withdrawals to stay under federal income thresholds for Social Security taxation.
State-by-State Comparison of Tax Policies
Each state handles Social Security taxes differently. Here’s a closer look at some examples:
- Colorado: Offers partial exemptions for taxpayers over 55, exempting up to $20,000 for those aged 55–64, and $24,000 for those 65 and older.
- Connecticut: Provides income-based exemptions, with couples filing jointly exempted up to $100,000 of combined income.
- Utah: Offers a tax credit that reduces Social Security taxes for residents over 65, but lower-income residents benefit more.
Each state has nuanced rules and income thresholds, so reviewing specific tax guidelines can help retirees make informed decisions about residency and taxes.
Also See:- IRS advice on getting your Tax Refund as quickly as possible: Don’t forget to do this
