For many retirees, Social Security benefits form a significant part of their income. However, state taxes on these benefits can reduce the amount they actually receive. The good news for 2025 is that 41 states, along with Washington D.C., will no longer tax Social Security benefits, providing retirees the opportunity to keep more of their hard-earned income. This article explores which states offer tax-free benefits, strategies for maximizing retirement income, and how to navigate both federal and state taxes on Social Security.
The Tax Landscape: States that Tax vs. States that Don’t
As of 2025, most states have opted not to tax Social Security benefits. Here’s a quick overview:
- States That Do Not Tax Social Security Benefits: 41 states, plus Washington D.C., will fully exempt Social Security income from state taxes, including tax-friendly states like Florida, Texas, and Nevada.
- States That Tax Social Security Benefits: Nine states, including Colorado, Connecticut, Minnesota, and others, continue to tax Social Security benefits. However, West Virginia is phasing out its tax on Social Security, with plans to eliminate it entirely by 2026.
States That Won’t Tax Social Security Benefits in 2025
Here’s a list of the 41 states and Washington D.C. that will fully exempt Social Security benefits from state taxes in 2025:
- 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
- Wyoming
States That Continue to Tax Social Security Benefits
These states will still tax Social Security benefits in 2025:
- Colorado
- Connecticut
- Minnesota
- Montana
- New Mexico
- Rhode Island
- Utah
- Vermont
- West Virginia (phasing out by 2026)
Relocating to a Tax-Friendly State: Tips for Retirees
If minimizing state taxes is a priority, relocating to a tax-friendly state can be an excellent way to preserve retirement income. Here are some tips to consider when thinking about relocating:
- Review State Tax Policies: Look beyond Social Security tax exemptions. Some states have low income, property, or sales taxes, which can significantly reduce your overall tax burden.
- Compare Living Costs: Taxes are just one factor. Housing, healthcare, and daily expenses should also be considered. States like Texas and Tennessee offer a lower cost of living, whereas states like New York and California are generally more expensive.
- Healthcare Access: Ensuring good access to healthcare is crucial during retirement. Research the quality and availability of healthcare services in prospective states.
- Evaluate Lifestyle and Climate: Retirement is about more than finances. Consider climate, recreational activities, and the overall quality of life when choosing a new home.
Understanding Federal Taxes on Social Security Benefits
Regardless of your state’s policies, federal taxes on Social Security benefits may still apply. Federal tax rates are based on your combined income, which includes your adjusted gross income, nontaxable interest, and half of your Social Security benefits. Depending on your income, up to 85% of your Social Security benefits could be taxable at the federal level.
- Income Thresholds: If your combined income falls between $25,000 and $34,000 (single filers) or $32,000 and $44,000 (married joint filers), up to 50% of your benefits may be taxable. If your income exceeds these ranges, up to 85% of your benefits could be subject to federal taxation.
Strategies to Minimize Federal Taxes on Social Security
There are ways to reduce your federal tax burden on Social Security benefits:
- Roth IRA Conversions: Converting a traditional IRA to a Roth IRA can lower your taxable income, reducing required minimum distributions (RMDs) and potentially minimizing taxes on Social Security.
- Delay Social Security Benefits: Waiting until age 70 to start receiving Social Security can reduce your combined income, which might lower the percentage of your benefits subject to federal taxes.
- Withdraw from Tax-Free Accounts: Tapping into a Roth IRA or other tax-free sources before drawing from Social Security can help keep your income below taxable thresholds.
- Monitor Your Combined Income: Strategic planning of your withdrawals can help keep your combined income below the thresholds where Social Security becomes taxable.
State-Specific Tax Policies: Examples
Here’s a look at how some states handle Social Security taxation:
- Colorado: Provides partial exemptions for residents over 55, with up to $20,000 exempted for those aged 55–64, and up to $24,000 for those 65 and older.
- Connecticut: Offers income-based exemptions, with up to $100,000 of combined income exempt for couples filing jointly.
- Utah: Provides a tax credit for residents over 65, though lower-income residents receive more benefit.
Each state has its own unique tax policies, so it’s important for retirees to research specific details to determine which state offers the best financial advantage.
Frequently Asked Questions (FAQs)
Q1: Which states do not tax Social Security benefits in 2025?
A1: In 2025, 41 states, along with Washington D.C., will fully exempt Social Security benefits from state taxes. States like Florida, Texas, and Nevada are part of this group.
Q2: Are any states phasing out Social Security taxes?
A2: Yes, West Virginia is gradually phasing out its tax on Social Security benefits and plans to eliminate it entirely by 2026.
Q3: Will I still owe federal taxes on Social Security benefits if I live in a tax-free state?
A3: Yes, federal taxes are separate from state taxes. Depending on your combined income, up to 85% of your Social Security benefits could still be subject to federal tax.
Q4: How can I minimize my taxes in retirement?
A4: Consider relocating to a tax-friendly state, reducing taxable income, and utilizing Roth IRAs to reduce future income tax liabilities.
Q5: Which states are the best for retirees seeking tax advantages?
A5: States like Florida, Texas, Nevada, and South Dakota are ideal due to no state income tax, while Tennessee and New Hampshire only tax interest and dividends, making them attractive options as well.
