While some may disparagingly refer to Social Security benefits as “entitlements,” as if you’re not entitled to them, you really are. When you work, you pay taxes into the Social Security coffers — and when you retire, you receive benefits, paid from those coffers. The more you paid in, the more you’ll collect, up to a point.
What you collect isn’t a mint, though. The average monthly retirement benefit amounts to only about $22,000 for the year, as of July — which is likely less than what you’ll need in retirement. And Social Security benefits make up about 30% of elderly folks’ retirement income. So clearly, it’s precious. And ideally, you’d want to not be taxed on that income.
Fortunately, if you live in one of 38 states (or the District of Columbia), you won’t face state taxes on your Social Security income.
Image source: Getty Images.
Here are the 38 states that leave your Social Security income alone. (You can include the District of Columbia in this bunch, too.)
Alabama
Alaska*
Arizona
Arkansas
California
Delaware
Florida*
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Mississippi
Nevada*
New Hampshire*
New Jersey
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
South Carolina
South Dakota*
Tennessee*
Texas*
Virginia
Washington*
Wisconsin
Wyoming*
*These states don’t tax your income at all, period.
If you’re not seeing your state in the list above, it will be below, in the group of states that do tax Social Security benefits.
Colorado
Connecticut
Kansas
Minnesota
Missouri
Montana
Nebraska
New Mexico
Rhode Island
Utah
Vermont
West Virginia
You may prefer your state to be in the first list, but just because your state taxes Social Security benefits doesn’t mean you’ll actually pay much, if anything, in such taxes. Each state has its own rules and tax rates, and some have quite a light touch when it comes to taxing benefits.
For example, in Colorado, it’s only those younger than 65 who face taxation of Social Security benefits. Those 65 and older can deduct that income from their taxable income. So even though Colorado is among the states that do tax Social Security, most retired Coloradans won’t be taxed.
Meanwhile, in Kansas, Social Security benefits are not taxable for those with adjusted gross income (AGI) of $75,000 or less — regardless of your filing status.
States such as Rhode Island, Utah, and Vermont provide exemptions from taxation for those with incomes below certain thresholds.
If you’re delighted to see your state among the many that don’t tax Social Security, here’s a bit of bad news: The federal government, encompassing all 50 states, does tax Social Security benefits — at least for some people. Specifically, up to 85% of your benefits may be taxed federally. That’s not an 85% tax rate, mind you — just that up to 85% of your benefits may count as taxable income, taxed at your income tax rate.
This table shows the taxation thresholds:
Filing As
Combined Income*
Percentage of Benefits Taxable
Single individual
Between $25,000 and $34,000
Up to 50%
Married, filing jointly
Between $32,000 and $44,000
Up to 50%
Single individual
More than $34,000
Up to 85%
Married, filing jointly
More than $44,000
Up to 85%
Source: Social Security Administration.
*Your “combined income” is your AGI plus non-taxable interest, plus half of your Social Security benefits.
It’s always smart to consider your taxes in a holistic manner, without focusing too much on one kind of tax you pay. Remember that every municipality, state, or federal government must generate revenue from somewhere, to keep the lights on. Tax revenue can come from multiple sources — properties, income, sales, and so on. So while your state may not tax your income at all, it might make up for that by imposing a meaningful sales tax or property tax.
As you near or enter retirement, spend a little time learning more about taxes in retirement — because you may identify some effective ways to shrink your tax bill.
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