Social Security plays a significant role in the financial well-being of millions of Americans, especially for those in retirement. According to the AARP, 40% of Americans aged 65 and older depend on Social Security benefits for at least half of their income. However, depending on where you live, the amount you keep from your Social Security benefits can vary greatly.
While up to 85% of Social Security benefits can be taxed at the federal level, some states also tax these benefits. Fortunately, the number of states that impose state taxes on Social Security is shrinking, making it a more retirement-friendly landscape in 2025. In fact, only nine states will continue to tax Social Security benefits in 2025.
The States That Won’t Tax Social Security in 2025
Brian Kuhn, a Certified Financial Planner and Senior Vice President at Wealth Enhancement Group, pointed out, “The list of states that do not tax Social Security is much longer than those that do.” This is encouraging news for retirees, as it helps stretch their limited retirement income further.
Each state has its own tax rules, and in recent years, several states have made changes to their tax laws regarding Social Security. For example, Missouri and Nebraska have decided to stop taxing Social Security benefits starting in 2024. Kansas also joined this group with a bill signed in mid-2024, ensuring that it will no longer tax Social Security.
States That Will Tax Social Security Benefits in 2025
Though most states are moving toward exempting Social Security benefits from state taxes, there are still nine states where Social Security benefits will continue to be taxed in 2025. These states include:
- Colorado
- Connecticut
- Minnesota
- Montana
- New Mexico
- Rhode Island
- Utah
- Vermont
- West Virginia
However, there is some good news for those living in West Virginia. The state has decided to phase out its tax on Social Security benefits, with the full exemption taking effect by 2026. This change is part of a broader trend: More states are realising the need to provide relief to retirees by reducing taxes on their benefits.
States with No Social Security Tax
In contrast, 41 states plus Washington, D.C., will not tax Social Security benefits in 2025, based on current laws. This is a significant advantage for retirees living in these states, as they can keep all of their Social Security income without worrying about paying state taxes on it. The states that won’t tax Social Security benefits in 2025 include:
- Alabama
- Alaska
- Arizona
- Arkansas
- California
- Delaware
- Florida
- Georgia
- Hawaii
- Idaho
- Illinois
- Indiana
- Iowa
- Kansas
- Kentucky
- Louisiana
- Maine
- Maryland
- Massachusetts
- Michigan
- Mississippi
- Missouri
- Nebraska
- Nevada
- New Hampshire
- New Jersey
- New York
- North Carolina
- North Dakota
- Ohio
- Oklahoma
- Oregon
- Pennsylvania
- South Carolina
- South Dakota
- Tennessee
- Texas
- Virginia
- Washington
- Wisconsin
- Washington, D.C.
- Wyoming
How Much Do Retirees Save on Social Security Taxes in These States?
One important question retirees may have is how much money they can save by living in a state that doesn’t tax Social Security benefits. Kuhn suggests that retirees can calculate their savings by considering the effective state tax rate they pay on all their taxable income sources and applying that rate to their total Social Security benefits.
For example, if you live in a state that imposes a 5% income tax on other income sources and you receive $30,000 in Social Security benefits, you could potentially save $1,500 per year in taxes by moving to a state that does not tax Social Security benefits.
This can result in significant savings, especially for retirees on a fixed income. By avoiding state taxes on Social Security, retirees can stretch their budgets further, allowing them to spend more on necessities or enjoy a higher quality of life during retirement.
The Impact of These Tax Exemptions on Retirees
The trend of eliminating state taxes on Social Security benefits is particularly beneficial for retirees in states with high costs of living. For example, states like Florida, Texas, and Tennessee are popular retirement destinations due to their lack of a state income tax, which includes Social Security benefits.
In addition, retirees living in states without Social Security taxes can enjoy greater financial flexibility. Without the burden of state taxes on Social Security, they may have more money to spend on healthcare, housing, and other essential needs. This is especially important for older Americans, who often face increasing healthcare costs as they age.
Conclusion
In 2025, 41 states plus Washington, D.C., will not tax Social Security benefits, providing significant relief to retirees. While there are still nine states that will tax these benefits, it is encouraging that more states are moving toward exempting Social Security income from state taxes. If you are planning for retirement, it may be worth considering the tax policies of different states, as this could impact how much of your Social Security benefits you get to keep.
As more states revise their tax policies to support retirees, the trend toward tax-free Social Security is likely to continue. Retirees in states that offer this exemption can enjoy a more secure and comfortable retirement, knowing that they can keep more of the income they’ve earned through Social Security.
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