Millions of Americans rely heavily on their monthly Social Security checks — but if you live in one of nine U.S. states, your benefits could be reduced due to state-level taxes, adding another challenge to retirement planning.
While federal taxes can already eat into Social Security income for many, residents of these states may face additional state taxes on their benefits, depending on income levels. With nearly 60% of retirees depending on Social Security as a main source of income, according to a Gallup poll, these added costs can have a major impact.
Here’s a breakdown of how each of the nine states handles Social Security taxation — and how much of your benefit could be on the line.
📍 Colorado
- Exemption: Full exemption for those 65+ with AGI below $75,000 ($95,000 for couples).
- Partial deduction: Under 65s can deduct up to $20,000.
- Tax rate: Any taxable amount above deductions is taxed at 4.4%.
📍 Connecticut
- Exemption: Full exemption for individuals with AGI under $75,000 ($100,000 for joint filers).
- Partial tax: Higher earners may be taxed on up to 25% of benefits.
- Tax rate: 4.5% – 6.99%, depending on income.
📍 Minnesota
- Exemption: AGI under $84,490 ($108,320 for joint filers) qualifies for full exemption.
- Tax phase-in: 10% more of benefits become taxable for every $4,000 above AGI limits.
- Tax rate: 6.8% – 9.85%, based on total income.
📍 Montana
- Taxable amount: Social Security benefits included in federal income are also taxed by the state.
- Additional deduction: $5,660 for residents over 65.
- Tax rate: 4.7% – 5.9%.
📍 New Mexico
- Exemption: No state tax on Social Security for individuals with AGI under $100,000 ($150,000 for couples).
- Tax rate: 4.9% – 5.9% on federally taxed benefits for higher earners.
📍 Rhode Island
- Exemption: Individuals with AGI under $104,200 ($130,250 for joint filers) pay no state tax.
- Tax rate: 4.75% – 5.99% for others.
📍 Utah
- Taxable amount: Benefits taxed if included in federal return.
- Tax credit: Full or partial credit available for AGI under $45,000 (individuals) or $75,000 (couples).
- Tax rate: Flat 4.55%.
📍 Vermont
- Exemption: No state tax for AGI under $50,000 ($65,000 joint).
- Partial relief: Some relief up to $60,000/$75,000.
- Tax rate: 3.35% – 8.75%, depending on income.
📍 West Virginia
- Exemption: Full for AGI under $50,000 ($100,000 joint).
- Partial tax: 35% of federally taxed benefits are taxed for higher incomes.
- Tax rate: 4.44% – 4.82%.
- ⚠️ Note: Full state tax on Social Security will be eliminated in 2026.
💡 Understanding AGI (Adjusted Gross Income)
Your AGI is your total gross income (from wages, investments, etc.) minus specific deductions. It’s a key number that determines your tax liability and eligibility for credits or exemptions.
🧾 Why This Matters for Retirement
If you’re planning to retire in — or are already living in — one of these nine states, understanding how your benefits may be taxed is critical. State taxes can reduce your monthly income and may require adjustments to your retirement budget.
Meanwhile, other tax changes are also hitting Americans this July — including a 2% sales tax hike in one state and a $3,000 IRS refund expected for some taxpayers. Stay informed to ensure your financial plans stay on track.
