For millions of retirees in the United States, Social Security benefits make up a large portion of their income. However, what some retirees may not realize is that the amount they receive may be less depending on where they live. While the federal government applies its own rules to tax Social Security benefits based on income levels, a handful of states also impose taxes that can reduce monthly payments even further.

This article provides a detailed breakdown of how state taxes affect Social Security retirees, which states are involved, and the specific tax rules in place. It also highlights recent policy changes and offers expert advice on how retirees can better prepare for these financial impacts.

Overview Table

Details	Information
Who is affected	Social Security retirees in nine U.S. states
States taxing benefits	Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, West Virginia
Federal tax thresholds	Income over $25,000 (50% taxed), over $34,000 (85% taxed)
States recently removing taxes	Missouri, Nebraska, Kansas
Main concern	Reduced Social Security payments due to combined taxes
Important considerations	Income level, retirement age, state tax policies

Millions of Social Security Retirees Lose Money Overview

Social Security benefits serve as a financial safety net for retirees, but taxes at both federal and state levels can chip away at this income. While the majority of states do not tax Social Security payments, nine states continue to impose their own taxes, adding extra financial pressure on retirees living there. This taxation varies based on income thresholds, retirement age, and other specific criteria, making it essential for retirees to be aware of how these rules may affect their income.

How State Taxes Affect Social Security Benefits

The amount retirees receive from Social Security each month largely depends on two things: how much they contributed during their working years and the age at which they retire. However, where they live also matters. Nine states currently have laws that apply state income taxes to Social Security benefits.

This added layer of taxation can lead to noticeable reductions in the income retirees rely on to cover daily expenses, making certain states less appealing for those seeking to maximize their benefits.

Federal Tax Rules on Social Security Payments

In addition to state-level taxes, Social Security retirees are subject to federal taxes based on their income. The Internal Revenue Service (IRS) applies taxes to Social Security benefits using specific income brackets:

• Individuals earning over $25,000 annually may have up to 50% of their benefits taxed.
• For incomes exceeding $34,000, up to 85% of Social Security benefits could be taxed.

These federal tax rules apply across all states, but when combined with certain state taxes, retirees in some areas could see a significant portion of their benefits reduced.

States That Tax Social Security Benefits

Only a minority of U.S. states tax Social Security income, but their policies vary widely. The following nine states currently apply taxes on these benefits:

• Colorado
• Connecticut
• Minnesota
• Montana
• New Mexico
• Rhode Island
• Utah
• Vermont
• West Virginia

Each state has its own approach, using different income thresholds, age-based exemptions, or percentage rates. Understanding these differences is crucial for retirees planning to live in or move to any of these states.

State-Specific Rules and Tax Thresholds

Each of the nine states has unique rules governing how and when Social Security benefits are taxed:

Colorado taxes Social Security income for residents under age 65 if their taxable benefits exceed $20,000. Retirees aged 65 and older are not subject to state taxes on their benefits.

Connecticut applies taxes if a retiree’s federal taxable income surpasses $75,000. However, only up to 25% of Social Security benefits can be taxed, with rates between 2% and 4.5%.

Minnesota allows lower-income retirees to deduct up to $4,560 in Social Security income. But for those earning above $78,000, no deductions apply, and full taxation is possible.

Montana imposes taxes ranging from 4.7% to 5.9%, depending on income levels.

In New Mexico, retirees with adjusted gross incomes of $100,000 or higher face taxation on Social Security benefits.

Rhode Island targets retirees who claim benefits before reaching their full retirement age, taxing those early claims.

Utah has one of the lowest income thresholds, taxing Social Security income once a retiree’s income exceeds $45,000.

Vermont’s tax rates range between 3.35% and 8.75%, depending on income.

West Virginia applies taxes based on specific income brackets, though some recent changes have slightly eased tax burdens for certain retirees.

Recent Changes in States Removing Social Security Taxes

While nine states continue to tax Social Security benefits, some states have moved in the opposite direction. In the past two years, Missouri, Nebraska, and Kansas have eliminated state taxes on Social Security income. These policy changes reflect efforts to make their states more attractive destinations for retirees and to ease the financial burden on older residents.

Retirees considering relocation should be aware of these updates, as moving to a state without Social Security taxes could improve their financial outlook.

Financial Planning Considerations for Retirees

Deciding where to live in retirement involves more than just climate and lifestyle preferences. Financial factors, particularly how Social Security income is taxed, play a key role in retirement planning. For those living on a fixed income, additional state taxes could significantly reduce the money available for essential living expenses.

It is equally important to consider how a state’s overall tax structure—whether it be sales tax, property tax, or income tax—might offset or compound these costs. Consulting a financial advisor familiar with state-specific tax laws can help retirees make informed decisions that best protect their retirement income.

Expert Insight on Social Security Taxes and Retirement

Financial experts often stress that while these state taxes can seem daunting, they don’t apply to everyone. Alex Beene, a financial literacy instructor at the University of Tennessee at Martin, explains that taxation in many of these states only begins once a retiree’s income surpasses certain thresholds. Additionally, as retirees age and their income declines, their exposure to these taxes may lessen.

However, Beene also points out that taxes are just one piece of the puzzle. States with no income tax may compensate with higher sales or property taxes. The key is understanding the complete financial landscape, not just Social Security taxation alone, when making retirement plans.

Conclusion

The reality for millions of Social Security retirees is that where they live affects how much of their benefits they get to keep. Nine states currently impose state-level taxes on Social Security benefits, which, combined with federal taxes, can result in reduced monthly income. At the same time, some states have recently removed these taxes, offering a more favorable financial environment for retirees.

By staying informed and carefully considering both state and federal tax policies, retirees can make smarter decisions about where to settle and how to protect their retirement income.

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