Social Security benefits are an important source of income for retirees, and chances are good you'll need your Social Security checks to help sustain you as a senior. Since you'll probably rely on Social Security -- and since you pay into Social Security all your life -- you rightly want to get all the money you can from this important government program. 

The bad news is, in some states, you'll be taxed on your benefits and will have to give some of your hard-earned money to your state. But the good news is, you don't have to pay state tax on benefits if you live in one of 37 states that don't tax Social Security.

So are you lucky enough to live in a state where your local government lets you keep all the retirement funds Uncle Sam doles out to you? 

Money sitting on top of Social Security card.

Image source: Getty Images.

These are the 37 states that don't tax Social Security benefits

The states that don't tax Social Security benefits are 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, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Virginia, Washington, Washington D.C., Wisconsin, and Wyoming.

That means the 13 states that do tax your Social Security benefits are Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia. Of these 13 states, four of them -- Minnesota, North Dakota, Vermont, and West Virginia -- use the same rules as the IRS to determine if you'll be taxed on Social Security. The other states have their own individual policies. 

And here's when you'll be taxed by the IRS

If you're lucky enough to live in one of the 37 states that won't tax your Social Security benefits, this sadly doesn't mean you'll always get off scot free. You may end up owing money to the IRS on your benefits, if your income reaches a certain threshold. 

There's more good news, though: The IRS doesn't count all of your income when determining if you'll be taxed on benefits. It calculates your countable income by adding up half your Social Security benefits, all your taxable income from other sources, and some tax-free income such as interest from muni bonds. Tax-free distributions from a Roth IRA aren't factored in. 

If your income is above $32,000 for married joint filers or above $25,000 for other filing statuses, you could be taxed on up to 50% of your Social Security benefits. If your income exceeds $44,000 for married joint filers or $34,000 for other filing statuses, you could be taxed on up to 85% of your Social Security income. 

If your income is below these thresholds, you don't need to worry about paying the IRS -- so you'll just need to find out the rules for taxing benefits in your state. 

Low taxes on Social Security benefits can give you more financial freedom

If you live in one of the 37 states that don't tax Social Security benefits, you're lucky -- you get to keep your hard-earned retirement benefits so your money will stretch a little further. If you're not quite so lucky and you're taking a big tax hit, you may want to look into relocating to a state that's more tax friendly for retirees

The less of a hit you take due to taxes, the more cash you'll have to enjoy your life as a senior. But only if you can decide if the tax benefits of a move are worth the upheaval. 

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