Social Security benefits are taxed in these US states

(NewsNation) — Retirees in most U.S. states only pay federal taxes on their Social Security benefits, but in nine states, residents still pay a percentage during retirement depending on how much income they earn and where they live.

Still, in places where benefits are still being taxed, not everyone is being forced to pay as the number of those eligible for exemptions has continued to grow across the nation.

Data from the Social Security Administration shows most people claim benefits before their full retirement age, but experts say that decision depends on several factors like a person’s health, financial situation, and marital status.

A growing number of states have eliminated taxes on Social Security for most of their residents. Two states — Kansas and Nebraska — passed measures this year that added them to the number of states where taxes are paid on benefits.

Meanwhile, in West Virginia, taxes will eventually cease, although that won't happen overnight.

While the number of states requiring taxes on Social Security continues to drop from even the start of 2024, here’s a look at what is happening in the states where those taxes still exist.

Colorado

The Centennial State taxes all income at a 4.4% rate, which includes Social Security benefits.

However, some retirees won’t have to pay the tax as Colorado now allows taxpayers who are 65 and older to deduct all of their federally taxed Social Security benefits.

Those who retire before age 65 receive a smaller tax break and those retirees between the ages of 55 and 64 can deduct up to 20% from their taxable income.

The exemption for retirees 65 and older came after AARP pushed for a 2021 law that Gov. Jared Polis signed into law in June. The new law also allows covers other forms of pensions or annuity income up to $24,000.

Connecticut

Connecticut residents are technically taxed for Social Security benefits although many will not be taxed because of their level of income. For those who file their taxes either as married filing separately or single, Social Security taxes are not taxed if the resident’s adjusted gross income is less than $75,000 per year.

For those filing jointly or as the head of the household, benefits are not taxed if the adjusted gross income is under $100,000 per year. However, if the AGI is higher than Connecticut’s income threshold, no more than 25% of Social Security benefits are taxed.

Minnesota

In 2023, Minnesota Gov. Tim Walz, who this week was tabbed as Vice President Kamala Harris’ running mate, signed a bill into state law expanding Minnesota’s state tax cuts for Social Security benefits, which eliminates a levy for most senior citizens.

Under the new law, taxpayers who earn less than $78,000 adjusted gross income or $100,000 as a married couple filing jointly, can subtract their Social Security benefits from their income. According to the Associated Press, more than 50% of Minnesota households that receive Social Security benefits pay no tax on that income.

Minnesota uses the same tax thresholds as the federal government for determining how much of a retiree's benefits should be taxed. But depending on income, Social Security income tax ranges between 5.35% and 9.85%

Montana

Like in most states, how much money retirees earn in The Treasure State creates the bottom line with how residents are taxed on their retirement benefits.

Montana residents earning more than $41,000 while filing jointly or $20,500 for those filing as single are taxed $5.9%.

Taxpayers who are age 65 and older only receive a $5,500 subtraction from federal taxable income depending on income level.

Like the federal government, Montana does not tax Social Security benefits for residents who have overall incomes of less than $25,000 for a single filer or $32,000 for those who are married and file jointly.

New Mexico

In 2022, the New Mexico Legislature and Gov. Michelle Lujan Grisham passed a bill eliminating taxes on Social Security benefits for residents earning less than $100,000 or couples who earn less than $150,000 each year. For married couples filing separately, the income threshold sits at $75,000 per year.

According to the governor’s office, the new legislation will save older residents living in New Mexico more than $84 million in 2023 and will jump to $99.5 million by 2025.

Income tax rates for the state range between 1.70% and 5.9%.

Rhode Island

Rhode Island does not tax Social Security benefits for residents who have reached full retirement age with adjusted gross incomes of less than $95,800 for those filing as single or $119,750 for residents filing jointly.

For those who have not reached full retirement age or for those whose income exceeds those thresholds, tax rates are between 3.75% and 5.99%.

Utah

Like Colorado, Utah has a flat tax rate of 4.55% for all levels of income.

However, the Beehive State does allow for tax credits on Social Security benefits if residents meet certain income requirements.

For single filers, Social Security tax credits may be obtained for single filers with adjusted gross incomes of $37,000, for married residents filing separately, the threshold is $31,000, and for those filing married and jointly, the threshold is $62,000.

Utah lawmakers have attempted to create a bipartisan plan to eliminate taxes on Social Security benefits but have been unable to craft such legislation.

Utah Gov. Spencer Cox signed a bill into law in 2024 that lowers the state’s income tax rate from 4.65% to 4.55%.

Vermont

Vermont allows for an exemption of taxes for Social Security benefits for residents who meet income requirements.

For residents who are married and filed jointly, Social Security benefits are tax-exempt if their adjusted gross income is $65,000 or less.

For those who are single or married filing separately, full exemptions are granted if the adjusted gross income is $50,000 or less.

Single filers receive a partial exemption for an AGI up to $59,999 or $64,999 for joint filers.

West Virginia

West Virginians still pay taxes on Social Security benefits, but those will be gradually eliminated over the next three years.

The West Virginia House of Delegates unanimously passed legislation that will phase out taxes on Social Security benefits until they are eliminated.

The tax cuts will be implemented between now and 2026 with a 35% deduction beginning this year, 55% in 2025 and 100% in 2026.

The elimination of Social Security taxes is all part of Gov. Jim Justice’s proposed $5.26 billion budget for fiscal year 2025. Eliminating the tax would mean about $37 million loss in revenue and the three tax cuts together equal about $50 million, according to reports.

Justice sought to eliminate taxes on benefits this year, but lawmakers fought back over concerns it could create a $37 million hole in the state budget, according to AARP.

The state currently allows for a deduction of taxes on Social Security taxes for single residents who have an adjusted gross income of $50,000, or married residents who have an adjusted gross income of less than $100,000.

The West Virginia Department of Revenue, eliminating the tax on Social Security benefits would return an estimated $37 million to taxpayers in 2025 and $37.7 million in 2026. The agency said that the elimination of Social Security benefits will affect more than 50,000 West Virginia households.