Are your Social Security benefits about to get taxed?
When you are a retiree and you are planning your financial future, the tax treatment of Social Security benefits is an important factor to consider. The number of states that tax social security benefits gets lower each year, but there are still some states out there that do that, and we believe that it’s important to know about them.
The good part? Last year there were eleven such states, so we are moving towards a better future.
There are many states where low-income retirees find their benefits entirely exempt from state taxes, but the states we want to discuss today have some stricter guidelines and still tax the benefits. Why is it important to be aware of all of this? This is the perfect guide for those retirees who want to optimize their finances and minimize tax burdens.
This article discusses how each of these states will tax Social Security benefits in 2025. From income-based exemptions to flat taxation schemes, we’ll explain how to navigate these restrictions.
Minnesota
This is one of the states that is still taxing social security benefits, but it’s essential to know that this happens because the whole procedure is closely tied to federal tax rules. How? If your Social Security income is considered taxable at the federal level, it will also be taxable in Minnesota.
Hopefully, you can get some relief through a Social Security income subtraction that applies to those who qualify, which means you might be eligible to get your tax burden reduced. This subtraction is based on adjusted gross income (AGI), and it works like this: For every $4,000 of income above the threshold, the subtraction is reduced by 10% (or by 10% for every $2,000 of AGI for those married filing separately).
You are eligible if you meet the following conditions. In case you are married and filing jointly, you get fully tax-exempt if AGI is $105,380 or less. Married Filing Separately? Fully tax-exempt if AGI is $52,960 or less. And if you are single or the head of a household, you are fully tax-exempt if AGI is $82,190 or less.
Rhode Island
If you are living here and you meet certain age and income requirements, congratulations, because the state of Rhode Island offers some significant tax benefits for qualifying retirees.
For example, if you have reached full retirement age, as defined by the Social Security Administration, and your retirement income falls below some thresholds, you will get your tax burden reduced following the next set of rules.
Married Filing Jointly: The Social Security benefits are fully exempt for couples with an adjusted gross income (AGI) of less than $126,250. In case you are single or fall under other filing statuses, the exemption applies to retirees with a federal AGI of less than $101,000.
Vermont
Yes, this is one of the states that still tax Social Security benefits, but this doesn’t apply to everyone. Again, if you meet some specific criteria, you can get more out of your benefit. This is designed in a way that gives an advantage to those with lower or moderate incomes, and higher earners will still need to pay taxes on some of their Social Security income.
Here are the income thresholds for 2025: If you are married and file jointly with your partner, you get full tax exemption if the adjusted gross income (AGI) is $65,000 or less. If you are single or married but you file separately, the AGI needs to be $50,000 or less. You can also get a partial exemption if you are single filing and have an AGI of up to $59,999, while joint filers qualify with an AGI of up to $74,999.
Connecticut
The Nutmeg State tries its best to help retirees with lower incomes, and in the same fashion as the above-presented states, it has some clear guidelines about your adjusted gross income (AGI) and filing status that will determine if you get a tax reduction or not.
What is even better about Connecticut is that it will never tax more than 25% of your Social Security benefits, and this applies to those who have a higher adjusted gross income than the thresholds. This restriction gives a little relief as compared to full taxes, lowering the financial burden on higher-income seniors.
But let’s see what the thresholds are. For those married and filing jointly or for those who are the head of the house, Social Security benefits will not be taxed if AGI is below $100,000. If you are single or married and filing separately, Social Security benefits are fully exempt from state taxes if AGI is under $75,000.
New Mexico
One amazing thing is that New Mexico updated its tax policy on Social Security benefits, and now even if they tax them, it is more favorable for retirees. New legislation has introduced higher income thresholds, exempting many retirees from paying state taxes on their benefits.
If you are one of the single filers, Social Security benefits are fully exempt from state taxation if your annual income is $100,000 or less. If you are married and you are filing jointly with your spouse, Social Security benefits are not taxed for couples earning up to $150,000 annually.
These thresholds are an amazing solution, but higher earners will still need to pay taxes on a part of their benefits.
Colorado
Colorado still taxes Social Security benefits, but some retirees may qualify for substantial deductions to reduce or eliminate their tax liability. Colorful Colorado has a smart way to do things, and there are different levels of tax breaks based on age. In the end, older retirees benefit the most, and this is an amazing thing.
For retirees age 65 and older, Colorado allows a deduction of up to $24,000 of federally taxed Social Security benefits from taxable income. These deductions allow many seniors to dramatically lower the amount of Social Security income due to the state’s flat tax on income rate, which is 4.25% for the 2025 tax year.
The good news is that for the 2025 tax season, a new bill has passed, and legislation will allow retirees aged 55 to 64 to deduct up to $75,000 of Social Security benefits from taxable income, a significant increase from the former $20,000 limit.
West Virginia
This is one of the states that is slowly but surely phasing out its state taxes on Social Security benefits, which makes it one of the states that will implement full exemption in the near future.
In 2024, West Virginia permits retirees to deduct 35% of their Social Security payments from their adjusted gross income (AGI). In 2025, this deduction will be increased to 65%, considerably lowering the taxable amount of Social Security income. By 2026, seniors will be allowed to deduct 100% of their Social Security income from their AGI, thus exempting them from state taxes.
This is a good approach that gradually lifts the financial burden retirees have to face. The goal is to eventually eliminate state taxes on Social Security benefits altogether, and as you can see, this will happen in the near future.
Want to learn more about Social Security? Try this book: Social Security For Dummies
You should also read: 8 Flexible Jobs for Seniors Looking to Stay Active
