Social Security is a key source of income for retired U.S. citizens. Nearly 40 percent of people over 65 rely strictly on it for at least half of their income. This is confirmed by the AARP, a U.S. nonprofit foundation that serves the needs of seniors, in a recent study. However, taxes on Social Security benefits can vary significantly depending on the state in which you live. This has a direct impact on the money you will be able to keep.
States that will have to pay Social Security taxes in 2025
At the federal level, up to 85 percent of benefits may be taxable. This depends strictly on the beneficiary’s income. In addition, nine states will continue to pay taxes on Social Security benefits in 2025. Here’s a list of those places that will be taxing in the coming year:
- Colorado
- Connecticut
- Minnesota
- Montana
- New Mexico
- Rhode Island
- Utah
- Vermont
- Western
However, future modifications to these levies are not ruled out. For example, West Virginia has already confirmed that it will phase out these taxes. It will also stop taxing Social Security entirely during 2026.
Recent changes in state laws
Some states have recently decided to stop taxing Social Security. Missouri and Nebraska eliminated the tax this year. And for its part, Kansas also adopted this measure, with a bill passed in the middle of this 2024. This reflects a clear trend toward reducing state taxes on retirement benefits in several states across the country.
States that will pay no taxes in 2025
In contrast to the above, 41 states and Washington, D.C., will not tax Social Security in 2025. Among them we can find: Alabama, Alaska, California, Arizona and Illinois. Also on this list are Florida, Texas, New York, Virginia, Wisconsin, among others. In these states retirees can keep more of their income. This makes them attractive destinations for seniors looking to maximize their retirement benefits.
Also, the tax savings can be considerable for retirees living in these states. According to Brian Kuhn, a financial advisor with Wealth Enhancement Group, if your effective tax rate is 5 percent and you receive $30,000 annually in Social Security benefits, you would have a savings of $1,500 in taxes alone.
At the state level, the collective savings are also significant. For example, in Missouri, people who were able to access their retirement expect to save about $309 million annually, while in Nebraska the collective annual savings will be about $15 million.
Important factors retirees should consider
While living in a state that does not pay Social Security taxes may seem like an obvious decision, there are other factors to consider when making a choice of where to live. It is also critical to consider items such as cost of living, taxes on other sources of income and specific state exemptions.
A clear example of this is the state of Colorado. Here, residents over the age of 65 can fully deduct federally taxed benefits on their state returns. This exemption will be extended in 2025 for people aged 55 to 64. However, to do so, they must have adjusted gross incomes equal to or less than $75,000 (individual) or $95,000 (couples).
