Social Security benefits provide crucial income for seniors across the country. But not all retirees are subject to the same rules when it comes to how much of their benefit checks are available to spend. That's because different tax rules apply, and retirees in some locations will find their state takes a cut of their retirement checks.
The good news, however, is that older Americans who live in the majority of the U.S. don't need to worry about losing retirement income to their local governments. In fact, there are 38 states where there's no tax on benefits at all. Here's where they are.
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These are the 38 states that don't tax Social Security benefits
If you live in one of these 38 states, you will not pay taxes on Social Security income on the state level. This is true even if you have a very high annual income.
- Alabama
- Alaska
- Arizona
- Arkansas
- California
- Delaware
- Florida
- Georgia
- Hawaii
- Idaho
- Illinois
- Indiana
- Iowa
- Kentucky
- Louisiana
- Maine
- Maryland
- Massachusetts
- Michigan
- Mississippi
- Nevada
- New Hampshire
- New Jersey
- New York
- North Carolina
- North Dakota
- Ohio
- Oklahoma
- Oregon
- Pennsylvania
- South Carolina
- South Dakota
- Tennessee
- Texas
- Virginia
- Washington
- Wisconsin
- Wyoming
The good news is, this represents the majority of states in the U.S. And the number of places where benefits aren't taxed has been growing. In fact, North Dakota was added to the list in 2021.
If you live in one of the other 12 states, however, this information may be disappointing since you'll be subject to different -- and less favorable -- rules. However, not everyone who resides in one of the 12 places that taxes benefits will actually find themselves losing some of their Social Security income. In many states, there are exemptions for lower and middle income Americans so it is likely that only higher earners would have to worry about owing taxes on this source of retirement income.
Does this mean you don't need to worry about taxes if you live in one?
If you live in one of the 38 states where your Social Security benefits are free from taxation, that still doesn't mean you get to keep all your money free and clear. You could have federal taxes to worry about.
The IRS imposes taxes once provisional income exceeds $25,000 for single filers and $32,000 for married joint filers. Provisional income is taxable income, some non-taxable income, and half of Social Security benefits. These income thresholds are quite low, even with this narrow definition of what's considered countable income. And they aren't adjusted for inflation. So, since wages and retirement benefits naturally increase over time, a growing number of retirees ends up having to pay Social Security taxes.
Since these taxes are imposed at the federal level, they can't be avoided by moving. But if you are making plans for a future retirement, you may have options to try to escape an IRS bill such as investing in a Roth IRA. That technique can work because distributions from it won't be counted as part of your relevant provisional income. It's worth looking into these options, since paying taxes on Social Security benefits isn't ideal when benefits don't stretch very far to begin with.
