Forty-one U.S. states, including populous states like California, Texas and Florida, do not tax Social Security benefits.
However, nine states still do—each with varying rules based on the income levels of the recipients.
Why It Matters
Retirement finances are becoming increasingly unstable due to inflation and the rising cost of living, which diminish the value of fixed incomes.
Taxation on Social Security benefits can significantly affect retirees’ net income, influencing their choice of residence and overall financial planning.
What To Know
Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont and West Virginia currently still impose taxes on Social Security benefits, with varying tax rates.
Social Security Tax Exemptions By State
While several states continue to tax Social Security benefits, they offer exemptions and credits to reduce the tax burden for retirees:
Colorado, Connecticut and Vermont: These states provide full exemptions from Social Security tax for lower-income retirees, with exemption thresholds up to $100,000.
Minnesota and Rhode Island: These states offer exemptions that range from partial to full, depending on income levels, with defined income caps for full exemption eligibility.
Montana and New Mexico: Both states grant complete exemptions for Social Security income if individual earnings are below $32,000 and $150,000 respectively.
Utah: Instead of a full exemption, Utah offers a retirement tax credit, which reduces tax liability based on income, aimed at benefiting lower to middle-income retirees.
West Virginia: The state is phasing out its Social Security tax, planning for total elimination by 2026.
Recent Developments on Federal Social Security Tax
President Donald Trump’s proposed plan to eliminate federal taxes on Social Security benefits aims to simplify tax obligations for about 40 percent of Social Security recipients.
However, critics argue doing so could drastically reduce federal revenue and accelerate the depletion of Social Security and Medicare trust funds—putting future generations at risk and affecting the economy’s overall health.
Additional political response includes a recently reintroduced bill by Representative Thomas Massie, inspired by Trump’s earlier proposals on the campaign trail. If passed, this bill would eliminate federal income taxes on Social Security benefits.
Further, Senators Roger Marshall and Marsha Blackburn recently introduced the RETIREES FIRST Act, which aims to reduce the tax burden on Social Security benefits at the federal level by increasing income thresholds.
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What People Are Saying
Shannon Benton, executive director of The Senior Citizens League, said in a press release: “Eliminating taxes on Social Security benefits would be an excellent step to provide financial relief to American seniors, many of whom are struggling with a cost of living that is growing much faster than their incomes. It would also reduce double taxation, which is inherently unjust.”
Meghna Chakrabarti, host of “On Point” on WBUR, Boston’s NPR news organization, said in a November episode: “Only about 40% of Social Security recipients pay this tax because they also have other substantial sources of retirement income. The 60% of recipients who rely much more on social security for monthly survival do not pay this federal tax. So getting rid of the tax would increase the overall income of many seniors, but it could also cost the program its future, because those taxes go into the Social Security Trust Fund.”
Representative Thomas Massie, a Kentucky Republican, said in a news release: “Although seniors have already paid tax on their Social Security contributions via the payroll tax, they are still required to list these benefits as taxable income on their tax returns. This is simply a way for Congress to obtain more revenue for the federal government at the expense of seniors who have already paid into Social Security.”
What Happens Next
As states consider the taxing of Social Security benefits, the differences between those that tax and those that don’t highlight a broader debate on supporting retirees amid rising living costs.
