Living on Social Security benefits alone is not easy. The average monthly benefit check in September was roughly $1,921 for retired workers, or $23,052 annually, and studies show that benefits have lost purchasing power since the turn of the century.
Like wages throughout your career, Social Security benefits could be taxed depending on your total income and what state you live in. It's a good idea to understand your tax burden to better budget for your expenses whether you use Social Security as primary or supplemental income. Then you can formulate strategies to potentially lower your tax burden and maximize benefits. Let's take a look at what states tax benefits and how Social Security taxes work.
States that tax Social Security
There are nine states that tax Social Security. This is in addition to federal taxes:
- Colorado
- Connecticut
- Minnesota
- Montana
- New Mexico
- Rhode Island
- Utah
- Vermont
- West Virginia
The state tax rates can be highest in Minnesota, which can tax as much as 9.85%, and Vermont, which taxes as much as 8.75%. Minnesota uses the same rules as the federal government to determine how much of your benefits should be taxed. However, there is a partial deduction. In Vermont, single filers with an adjusted gross income (AGI) of at least $45,400 are subject to state taxes, while married couples filing jointly only pay state taxes if their AGI is at least $75,000.
Just because you live in one of these nine states, it doesn't mean you will automatically have to pay taxes on Social Security benefits. For instance, Colorado only taxes benefits for retirees below the age of 65, and this will soon change. In 2025, Colorado residents between the ages of 55 and 64 will be exempt from state Social Security taxes if they have an AGI of less than $75,000 for single filers and $95,000 for joint filers.
Image source: Getty Images.
Some states don't tax
Forget Social Security state taxes; eight states don't charge any taxes at the state level:
- Alaska
- Florida
- Nevada
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
One thing to note is that Washington does have a 7% long-term capital gains tax on profits of $250,000 or more. In 2023, the state also passed a small tax on earned income for a long-term care program.
A ninth state might soon be added to this list. New Hampshire doesn't tax any earned income but does have a 3% tax on interest and dividends. However, this tax will be eliminated next year.
Many states don't tax Social Security
33 states have state income taxes but don't tax Social Security benefits. The nation's capital, Washington, D.C., also doesn't tax benefits.
- Alabama
- Arizona
- Arkansas
- California
- Delaware
- Georgia
- Hawaii
- Idaho
- Illinois
- Indiana
- Iowa
- Kansas
- Kentucky
- Louisiana
- Maine
- Maryland
- Massachusetts
- Michigan
- Mississippi
- Missouri
- Nebraska
- New Hampshire
- New Jersey
- New York
- North Carolina
- North Dakota
- Ohio
- Oklahoma
- Oregon
- Pennsylvania
- South Carolina
- Virginia
- Wisconsin
You may have to pay federal taxes
While state taxes on Social Security may not apply, roughly 40% of people who claim Social Security benefits are subject to federal taxes, according to the Social Security Administration (SSA). Taxes can be triggered if you make other income on top of your benefits including wages, self-employment income, interest, or dividend income. Whether or not you need to pay federal taxes depends on your combined income.
Combined income equals half of your Social Security benefits plus nontaxable interest plus other earnings from wages, pensions, dividends, and capital gains. Here are the combined income thresholds that will trigger federal taxes:
Single or individual filer: If you make between $25,000 and $34,000, you may have to pay income taxes on up to 50% of benefits. If you make over $34,000, you may have to pay income taxes on up to 85% of benefits.
Married joint filer: If you make between $32,000 and $44,000, you may have to pay income taxes on up to 50% of benefits. If you make over $44,000, you may have to pay income taxes on up to 85% of benefits.
Keep in mind that the 50% and 85% numbers are the amount of your benefits taxed and not the actual tax rate, which is based on federal income tax brackets.
