Social Security benefits form a cornerstone of retirement income for many Americans, with 40% of individuals aged 65 and older relying on these payments for at least half their income. However, the portion of benefits you retain can significantly depend on your state of residence due to varying state tax laws. This guide provides a comprehensive overview of Social Security taxation at the state level for 2025.
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Understanding State Taxation of Social Security Benefits
While the federal government can tax up to 85% of your Social Security benefits depending on your income, state-level taxation adds another layer of complexity. Fortunately, the trend is moving towards fewer states taxing these benefits. As of 2025, only nine states will continue this practice. Recent legislative changes in Missouri, Nebraska, and Kansas have eliminated state taxes on Social Security, highlighting the dynamic nature of these regulations. Brian Kuhn, CFP, CLU, SVP and financial advisor at Wealth Enhancement Group, emphasizes the variability of state rules, advising individuals to stay updated on potential changes.
States Taxing Social Security Benefits in 2025
Nine states will continue to tax Social Security benefits in 2025:
- Colorado
- Connecticut
- Minnesota
- Montana
- New Mexico
- Rhode Island
- Utah
- Vermont
- West Virginia
While included in this list, West Virginia is on track to phase out Social Security taxation, aiming to eliminate it entirely by 2026. Each state implements unique tax provisions, often incorporating deductions based on income thresholds or age, further emphasizing the need for individualized assessment.
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States Exempting Social Security Benefits from Taxation in 2025
A significant majority of states, 41 in total, along with Washington D.C., will not tax Social Security benefits in 2025:
- Alabama
- Alaska
- Arizona
- Arkansas
- California
- Delaware
- Florida
- Georgia
- Hawaii
- Idaho
- Illinois
- Indiana
- Iowa
- Kansas
- Kentucky
- Louisiana
- Maine
- Maryland
- Massachusetts
- Michigan
- Mississippi
- Missouri
- Nebraska
- Nevada
- New Hampshire
- New Jersey
- New York
- North Carolina
- North Dakota
- Ohio
- Oklahoma
- Oregon
- Pennsylvania
- South Carolina
- South Dakota
- Tennessee
- Texas
- Virginia
- Washington
- Wisconsin
- Washington, D.C.
- Wyoming
Calculating Potential Tax Savings
For residents of states that don’t tax Social Security benefits, potential tax savings can be estimated. Brian Kuhn suggests calculating your effective state tax rate across all income sources and applying that percentage to your total Social Security benefits to determine your approximate savings. This calculation provides a personalized understanding of the financial impact of state tax policies on your retirement income.
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Conclusion
Understanding the state-specific taxation of Social Security benefits is crucial for effective retirement planning. While the majority of states offer tax exemptions, residents of the nine states still imposing taxes should carefully consider the potential impact on their income. Consulting with a financial advisor can provide personalized guidance on optimizing your retirement strategy in light of these tax implications. Staying informed about legislative changes in your state is also essential to ensure accurate financial planning.
