9 States Still Tax Your Social Security Benefits — Here’s How Much You Could Lose

For millions of Americans, Social Security is more than a government program — it’s the foundation of retirement income. According to a recent Gallup poll, 60% of retirees say Social Security is a major source of income, while another 28% rely on it as a minor source. For those living on a fixed budget, every dollar counts, which makes it even more important to protect those hard-earned benefits.

Unfortunately, not all retirees get to keep their Social Security checks in full. While the federal government already taxes a portion of benefits for higher-income retirees, nine states go a step further by taxing Social Security at the state level — cutting into monthly income by as much as 10% in some cases.

How Social Security Benefits Get Taxed

To understand which states could affect your retirement income, it’s important to first know how Social Security taxation works at the federal level.

The IRS determines how much of your benefit is taxable using a formula called combined income. This figure includes your adjusted gross income (AGI), half of your Social Security benefits, and any untaxed interest. Depending on where your combined income falls, anywhere from 0% to 85% of your benefits could become taxable.

Overview Table: Federal Taxation of Social Security Benefits

Source: Internal Revenue Service

Because Congress has not adjusted these thresholds for inflation since the 1980s, more retirees are now crossing the taxable income line. Even modest savings withdrawals, part-time jobs, or investment income can push a retiree into a higher tax bracket.

States That Still Tax Social Security Benefits

While most U.S. states exempt Social Security from income tax, nine still include these benefits — at least partially — in their tax calculations. Depending on where you live and how much you earn, this could reduce your take-home benefit amount.

Below are the states where Social Security income may still be taxable:

1. Colorado – Exempts up to $24,000 of retirement income for taxpayers aged 65 and older.
2. Connecticut – Offers partial exemptions for retirees with lower adjusted gross incomes.
3. Kansas – Retirees with federal AGI below $75,000 are exempt; others pay tax on benefits.
4. Minnesota – Allows a subtraction for part of benefits but still taxes higher-income earners.
5. Montana – Taxes benefits similarly to federal rules, based on income thresholds.
6. New Mexico – Recently increased exemptions, but higher earners may still face partial taxation.
7. Rhode Island – Exempts benefits for retirees meeting income and age requirements.
8. Utah – Offers a tax credit that phases out for higher-income retirees.
9. Vermont – Partially exempts Social Security for retirees below certain income limits.

While these states often offer deductions or credits to soften the blow, retirees in higher income brackets can still lose hundreds — or even thousands — of dollars annually to state taxes.

Why Haven’t These States Stopped Taxing Social Security?

Some states rely heavily on income tax revenue to fund essential programs like healthcare, infrastructure, and education. For them, removing taxes on Social Security benefits could create large budget gaps.

However, pressure is building as more states recognize that taxing retirees often drives them to relocate. In fact, several states — including Nebraska and West Virginia — have recently phased out their Social Security taxes entirely, citing fairness and competitiveness for retirees.

Experts suggest it’s only a matter of time before others follow, especially as aging populations and cost-of-living challenges intensify across the country.

How Retirees Can Protect Their Benefits

Even if you live in a state that taxes Social Security, you can take proactive steps to reduce your taxable income and keep more of your benefits:

1. Manage Your Withdrawals

Strategically planning how and when you withdraw from retirement accounts like traditional IRAs or 401(k)s can help you stay below taxable thresholds. Consider spreading withdrawals across multiple years or converting some savings to a Roth IRA, which provides tax-free income in retirement.

2. Take Advantage of Deductions and Credits

Many states offer deductions for seniors, such as exemptions for pension income, property tax relief, or healthcare credits. Reviewing your state’s specific rules can help you minimize your liability.

3. Relocate Strategically

If you’re planning to move in retirement, consider the tax landscape as part of your decision. States like Florida, Texas, and Tennessee don’t tax Social Security income at all — and they have no state income tax, offering retirees more breathing room.

4. Track All Income Sources

Even small amounts of investment or freelance income can push you into a higher tax bracket. Regularly review your adjusted gross income and adjust accordingly.

The Inflation Trap

One of the most overlooked reasons retirees face unexpected taxes is inflation. Since income thresholds haven’t been updated in decades, retirees are increasingly finding themselves taxed on income that would have once been exempt.

For example, a retiree earning $30,000 in combined income in the early 1990s may have been considered middle-income. Today, that same figure — adjusted for inflation — would represent far less buying power, yet it still triggers federal taxation on benefits.

Unless Congress revises these limits, more retirees will face a “stealth tax” on Social Security in the years ahead, even if their standard of living doesn’t actually improve.

Planning Ahead for 2026 and Beyond

With several changes to Social Security rules expected by 2026, retirees should stay informed. Tax reform, benefit adjustments, and potential inflation-related cost-of-living increases could alter how much seniors pay in taxes.

Consulting a tax advisor or financial planner can make a major difference. They can help tailor strategies that reduce taxable income and identify deductions that protect your retirement savings.

The Bottom Line

Social Security remains one of the most vital income sources for retirees, but state and federal taxes can quietly reduce its value. For those living in the nine states that still tax benefits, understanding local tax laws and income thresholds is key to maximizing what you keep.

While reforms may continue, the best defense is strategic financial planning — controlling withdrawals, minimizing taxable income, and staying aware of evolving rules. By taking proactive steps, retirees can ensure they get the most from the benefits they’ve worked a lifetime to earn.

About the Author

Elias Vennor is a professional writer and editor at EPfortal.com, specializing in Finance and Trending Topics. With a strong background in content research and journalism, Elias Vennor is dedicated to delivering accurate, well-sourced, and timely information to help needy peoples. Their articles follow strict editorial standards, relying on official sources and verified data to ensure credibility. Covering the latest Finance and more related Topics, Elias Vennor aims to make Updated information accessible and easy to understand for all readers.