38 States That Don't Tax Social Security Benefits

Retirement is a time of life enjoyed by millions -- with little or no work to do for income and much more time available to spend on our interests, such as family, hobbies, and traveling. It's not all rainbows and roses, though -- it's also a time when we have to survive on whatever income streams we've managed to build while working and on Social Security. And every year, Uncle Sam has his palm outstretched, collecting taxes.

Thus, as you plan for, enter, and live in retirement, it's smart to have a handle on how much your Social Security income may be taxed. The good news is that fully 38 states -- plus the District of Columbia -- do not tax Social Security income. But 12 states do. Even then, though, the news isn't all bad.

Image source: Getty Images.

The 12 taxing states

These are the 12 states that tax Social Security benefits: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, and West Virginia.

If your state is among them, it's worth checking now and then to see your state's latest status, as the list changes from time to time.

Colorado, for example, is on the list, but it recently passed a law eliminating Social Security taxation for those 65 and older. Thus, it almost belongs on the list of states that do not tax Social Security. Those 55 to 64 get to deduct $20,000 in retirement income, including Social Security income, from taxable income. But if you're in that age group and have more retirement income than that, then you could still be on the hook for state income taxes.

These 38 states don't tax your Social Security benefits

By now, you can probably guess which states don't tax Social Security benefits. They are, at the time of this writing:

• 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

Plus, the District of Columbia.

Details matter

Don't get too happy or too sad when you see which list your state is on because you really need to consider the bigger -- and smaller -- picture.

For the big picture, understand that each state needs to generate revenue to keep it running. So it will tax its residents. If your state doesn't tax your Social Security income, it might instead be levying a hefty sales tax on everyone. Or it might heavily tax properties or non-Social-Security income.

For the small picture, if your state does tax Social Security benefits, find out just what the taxation details are. Some states have a very light touch while others don't. (You will likely find that information on your state's tax commission's web page or at its department of revenue or taxation.)

As an example, Kansas says, "If your federal adjusted gross income is $75,000 or less, regardless of your filing status, your Social Security benefits are exempt from Kansas income tax. The exemption for Social Security benefits applies only to the extent the benefits are included in your federal adjusted gross income."

Meanwhile, the state of New Mexico has stopped taxing many residents' Social Security income, with its website announcing:

Beginning with tax year 2022, most seniors will be exempt from paying taxes on their Social Security benefits when they file their New Mexico Personal Income Tax returns... The exemption is available to single taxpayers with less than $100,000 in income, to married couples filing jointly, surviving spouses, heads of household with under $150,000 in income, and to married couples filing separately with under $75,000 in income.

Don't forget the federal government!

Whether your state does or doesn't tax your Social Security benefits, know that they may still be vulnerable to taxation by the federal government. Indeed, up to 85% of your benefits may be taxed.

The table below shows the taxation thresholds. Note that your "combined income" is your adjusted gross income (AGI) plus non-taxable interest plus half of your Social Security benefits:

Source: Social Security Administration. 

Don't misunderstand those numbers -- they don't mean that you'll face a tax rate of up to 85% -- just that up to 85% of your benefits may be taxed. Any portion taxed will be taxed at your income tax rate, which might be, say, 22% or 24%.

Whether your Social Security benefits will be taxed shouldn't be a major concern for most of us. Still, it's worth learning more about Social Security, as the more you know, the better decisions you'll likely make regarding it -- which could help you get much more out of the program.