Retirees In These States Could Lose Some Social Security Benefits To State Taxes In 2025

Start Your Mornings Smarter! Wake up with Breakfast news in your inbox every market day. Sign Up For Free »

Since Social Security retirement benefits became available in 1935, they have been a much-needed financial relief for countless Americans.

For some retirees, Social Security is their only source of income and keeps them financially afloat. For others, It may be a nice supplement or "nice-to-have" income. Whatever the case, some Social Security recipients have it better than others when it comes to shelling out some of their benefits to taxes.

Luckily, it won't apply to everyone, but if you reside in one of the states where it does, there's a chance you could pay some of your Social Security benefits to state income taxes in 2025.

Which states currently tax Social Security benefits?

The good news is that 41 states and Washington, D.C. -- which represents well over 90% of the U.S. population older than 65 -- don't tax Social Security benefits. The not-so-encouraging news is that that leaves nine states with some sort of Social Security tax on benefits.

Here are the nine states:

• Colorado
• Connecticut
• Minnesota
• Montana
• New Mexico
• Rhode Island
• Utah
• Vermont
• West Virginia

Before we dive into more detail, here's some encouraging news: In 2020, 13 states taxed Social Security benefits. Several states have done away with the tax, including Nebraska, Missouri, and Kansas, which just got rid of its tax in 2024.

Each state has its own Social Security tax rules

States have the freedom to choose how they tax Social Security benefits, and it varies widely.

For example, in Colorado, retirees 65 and older can deduct all their Social Security benefits from their state income tax. However, starting in 2025, single filers making $75,000 or less and couples filing jointly making $95,000 or less will be able to do the same.

In Minnesota, only the following are subject to Social Security taxes: couples filing jointly making over $105,380; single filers making over $82,190; and couples filing separately making over $52,960.

In Utah, Social Security recipients pay the state's flat 4.55% income tax rate.

State Social Security rules have proven to be fluid, changing with relatively short notice. If you're currently in one of the states that tax Social Security, keep an eye on your state's rules because they could change at any moment.

Make sure you don't forget about federal taxes

States may have their own individual Social Security tax rules, but that doesn't exempt recipients from dealing with Uncle Sam. Federal taxes on Social Security income come down to one key number: your combined income.

Your combined income is made up of the following:

• Adjusted gross income (AGI): Your total annual income, excluding Social Security.
• Nontaxable interest: Interest income not subject to federal tax, such as municipal and U.S. Treasury bonds.
• Half of your Social Security benefits: 50% of your total Social Security benefits for the year.

As an example, let's assume someone's AGI is $18,000, they receive $1,000 in nontaxable interest, and they have $24,000 in Social Security benefits for the year. In this case, their combined income would be $31,000 ($18,000 + $1,000 + $12,000).

How the IRS determines how much you owe on benefits

Once your combined income is calculated, the IRS uses the following rules to determine how much of your benefits are taxable:

Data source: IRS.

Continuing our previous example, let's assume that someone single has a combined income of $31,000. That means up to 50% of their income is eligible to be taxed, not that 50% of their benefits will be taxed.

Instead, the IRS can take up to 50% of your combined income ($15,500), add it to your other income, and then tax it at your regular income tax rate. For someone in the 12% tax bracket, this could be the difference between paying $15,500 in taxes versus $3,720 ($31,000 * 12%).

Most Social Security recipients will pay very little, if any, taxes on their benefits. But staying current on state and federal guidelines is essential so you're not caught off-guard.

The $22,924 Social Security bonus most retirees completely overlook

If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $22,924 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how to learn more about these strategies.

View the "Social Security secrets" »

The Motley Fool has a disclosure policy.