Retirees in nine U.S. states are seeing reduced Social Security benefits due to state income taxes. This change could significantly impact monthly budgets and long-term retirement plans.
Where are Social Security benefits taxed?
Although the federal government taxes some Social Security income, these nine states also apply their own state-level taxes:
- Colorado: Residents under 65 can deduct up to $20,000 of federally taxable Social Security income. If income exceeds that amount, it is taxed at 4.4%.
- Connecticut: Individuals earning under $75,000, or joint filers under $100,000, are exempt. Higher earners may be taxed on up to 25% of their benefits at rates between 4.5% and 6.99%.
- Minnesota: If your income is below $84,490 (single) or $108,320 (joint), you’re exempt. For every $4,000 above the limit, 10% more of your benefits is taxed. State rates range from 6.8% to 9.85%.
- Montana: Any part of your benefits included in federal income is taxable. Seniors over 65 receive a $5,660 deduction. Tax rates range from 4.7% to 5.9%.
- New Mexico: Residents under $100,000 (single) or $150,000 (joint) are exempt. Others pay between 4.9% and 5.9% on federally taxable Social Security.
- Rhode Island: Individuals under $104,200 or couples under $130,250 don’t pay state tax. Otherwise, benefits are taxed between 4.75% and 5.99%.
- Utah: Social Security income taxed federally is also taxed by Utah. If your income is under $45,000 (single) or $75,000 (joint), you qualify for a credit. The rate is 4.55%.
- Vermont: If your income is under $50,000 (single) or $65,000 (joint), your benefits aren’t taxed. Partial exemptions apply slightly above those limits. Rates vary from 3.35% to 8.75%.
- West Virginia: Individuals with income under $50,000, or couples under $100,000, are exempt. Others are taxed on 35% of their benefits. Rates range from 4.44% to 4.82%. Notably, West Virginia will eliminate this tax in 2026.
Why it matters
Social Security remains the main source of income for 60% of retirees, according to Gallup. Because of this, reductions can disrupt financial stability. Planning for retirement becomes even more essential when living in a state that taxes Social Security.
To avoid surprises, retirees should review state tax rules carefully. Additionally, speaking with a tax advisor may help clarify how these deductions affect your overall income.