Social Security makes up 40% of the monthly income for millions of Americans aged 65 and above, making the program a crucial aspect of retirement security. While your Social Security income levels depend on when you claim, earnings during working years, and service duration, the net amount you pocket every month also depends on where you live. While President-elect Donald Trump has vowed to eliminate taxes on Social Security benefits, the current law states that the Federal government could tax up to 85% of your Social Security checks. That’s not all.
Your Social Security income might also be subjected to state income taxes as each state has its own rules, which continue to change over time. Fortunately for Social Security beneficiaries, the number of states that tax Social Security is declining to only nine in 2025: Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, and West Virginia.
Three States Halt Imposing Taxes On Social Security This Year
Missouri and Nebraska stopped taxing Social Security benefits in 2024 alongside Kansas, which joined them in mid-2024 and won’t tax benefits henceforth. Meanwhile, West Virginia plans to eliminate state taxes on Social Security in 2026. However, income taxes on Social Security checks are unique to each state as they have different tax provisions for deductions that people can avail of if they meet certain income or age thresholds.
For instance, Colorado residents 65 and above can entirely deduct federally taxed Social Security income on their state income tax returns beginning in 2022. Meanwhile, people between ages 55 and 64 with an adjusted gross income of or below $75,000 can completely subtract their federally taxed Social Security income from state tax returns starting in 2025. Overall, it becomes crucial to understand the specific rules enforced by your state to ensure you save the most from your Social Security checks.
Savings Estimate For Retirees In States That Won’t Tax Benefits Next Year
A total of 41 US states and Washington DC won’t tax Social Security benefits in 2025. Wealth Enhancement Group’s financial adviser, Brian Kuhn, explained that individuals in these states can estimate their tax savings on Social Security benefits by checking the effective tax rate at which they paid their respective states for all taxed income sources. Once they know the effective tax rate, the beneficiaries can apply that to their total Social Security income.
“So, for example, if your effective rate in your state was 5%, and you received $30,000 in Social Security benefits, that would be a savings of $1,500,” Kuhn said. Overall, retirees whose benefits aren’t taxed can save considerable money. “In Missouri, for instance, retirees are looking at a collective annual saving of around $309 million,” said Jeff Rose, CFP, founder of Good Financial Cents. “Over in Nebraska, it’s about $17 million. That’s a lot of money that retirees get to keep in their pockets instead of it being drained away by state taxes.”
As US states work to eliminate benefits taxes, concerns loom around the Social Security program’s insolvency projections. The Social Security Board of Trustees estimate that by 2035, Social Security trust funds will be depleted to the level where they will cover only 76% of scheduled benefits unless current payables are lowered by 13% or payroll tax rates are increased to 14.4%.
