Additional Coverage:
Retirees with higher incomes may face federal taxes on their Social Security benefits, but state taxes can also come into play depending on where they live. Understanding which states tax Social Security income is crucial for effective retirement planning.
Here’s a breakdown of states that impose state income taxes on Social Security benefits, along with key details:
1. Colorado
Colorado taxes a portion of Social Security income but offers partial exemptions. Residents aged 55 to 64 can exclude up to $20,000 of Social Security income from state taxable income.
Once 65 or older, taxpayers can deduct up to $24,000 of qualifying pension and annuity income. The state applies a flat income tax rate of 4.4%.
2. Connecticut
In Connecticut, individual taxpayers with an adjusted gross income (AGI) of $75,000 or less can fully deduct their Social Security benefits from taxable income. For married couples filing jointly, this threshold is $100,000.
Those with higher incomes receive a partial exemption, with taxation capped at 25% of benefits. State income tax rates range from 2% to 6.99%.
3. Minnesota
Minnesota offers full exemption of Social Security benefits for single filers with income up to $84,490 and married couples filing jointly up to $108,320. Income above these limits may be subject to state tax.
Minnesota’s income tax rates vary from 5.35% to 9.85%.
4. Montana
Montana taxes income above $95,000 for joint filers and $47,500 for single filers at 5.65%. Seniors 65 and older can subtract $5,500 from their federal taxable income, though some previous deductions for older residents have been eliminated.
5. New Mexico
Most retirees in New Mexico are exempt from state taxes on Social Security benefits. Since 2022, singles earning less than $100,000 and married couples with income below $150,000 have not been taxed on these benefits.
Above these thresholds, Social Security income is subject to state tax, with rates ranging from 1.7% to 5.9%.
6. Rhode Island
Married couples filing jointly pay state tax on Social Security benefits only if their AGI exceeds $133,750. For other filing statuses, taxation generally applies when AGI reaches $107,000 or more.
Rhode Island’s tax rates range from 3.75% to 5.99%.
7. Utah
Utah offers a $450 retirement tax credit but excludes taxpayers who claim Social Security or military retirement credits. The state’s flat income tax rate is 4.5%.
8. Vermont
Vermont exempts Social Security benefits from state taxes for retirees below certain income levels. For 2026, married couples filing jointly with AGI up to $70,000 and single filers with AGI up to $55,000 qualify for full exemption.
Partial exemptions are available for incomes slightly above these thresholds.
Planning Ahead
Both federal and state taxes on Social Security can significantly affect your retirement budget. To ease financial pressure, consider supplementing Social Security income through part-time work or side ventures.
Financial Strategies for Retirees
- Increase your income: Explore side jobs or other income streams that fit your lifestyle.
- Grow your savings: Take advantage of compound interest and create a clear financial plan. Professional advice can help you retire sooner.
- Maximize savings: Use all available discounts and credits, and shop smartly for essentials like car insurance to avoid unnecessary expenses.
Understanding your tax obligations and financial options can help you make the most of your retirement years.