Retirees in These 9 States Could Lose Part of Their Social Security—Here’s Why

Retirees in These 9 States Could Lose Part of Their Social Security: For most retirees in America, Social Security is more than just a benefit—it’s a vital source of income. Yet what many don’t realize is that depending on where you live, your monthly check might be smaller than expected. That’s because nine U.S. states still tax Social Security benefits. And if you’re a resident of one of them, you could lose hundreds—or even thousands—of dollars each year to state taxes. So let’s walk through everything you need to know: the states involved, how their tax rules work, and how to protect your benefits legally and smartly.

Retirees in These 9 States Could Lose Part of Their Social Security

If you’re retired—or planning to retire soon—it pays to know how your state treats Social Security. While most states leave your benefits alone, nine states still apply income taxes, and for some retirees, that can be costly. But don’t worry—with a bit of planning, smart income strategies, and maybe even a change of scenery, you can protect more of your monthly check and make your golden years truly golden.

Understanding How Social Security Taxes Work

At the federal level, Social Security benefits may be taxed depending on your combined income, which includes:

• Your adjusted gross income (AGI)
• Non-taxable interest (like municipal bonds)
• 50% of your Social Security benefits

If that total is more than $25,000 for single filers or $32,000 for married couples filing jointly, a portion of your benefits—up to 85%—is taxable. But on top of that, nine states also apply their own taxes to Social Security. While most of the country doesn’t tax retirement benefits at all, these states follow their own rules—and those rules vary significantly.

Retirees in These 9 States Could Lose Part of Their Social Security (and What You Should Know)

Let’s break down each state’s approach to Social Security taxation:

1. Colorado

• Flat tax rate: 4.4%
• Exempt if AGI is under $75,000 (single) or $95,000 (married filing jointly)
• Under 65? You can deduct up to $20,000 of all retirement income

Colorado is relatively generous if you’re above 65, but retirees with higher income may still face taxes.

2. Connecticut

• Tax rate: 4.5%–6.99%
• Exempt if AGI is under $75,000 (single) or $100,000 (joint)
• If over those thresholds, 25% of Social Security benefits are subject to tax

Connecticut provides some relief but hits middle-income retirees harder than some other states.

3. Minnesota

• Tax rate: 6.8%–9.85%
• Income limit for exemption: $84,490 (single) or $108,320 (joint)
• For each $4,000 over the limit, 10% more of benefits are taxed

Minnesota is known for being one of the least tax-friendly states for retirees, especially those with other income sources like pensions or IRA withdrawals.

4. Montana

• Tax rate: 4.7%–5.9%
• Follows federal taxation rules—if it’s taxed federally, it’s taxed by the state
• Residents aged 65+ can deduct up to $5,660

Montana mirrors federal tax rules but offers a modest deduction for older retirees.

5. New Mexico

• Tax rate: 4.9%–5.9%
• Exempt if AGI is under $100,000 (single) or $150,000 (joint)
• Recent reform: 100% exemption began phasing in from 2022

Although New Mexico used to be one of the least favorable states for retirees, it’s improving thanks to recent legislation.

6. Rhode Island

• Tax rate: 4.75%–5.99%
• Full exemption for AGI under $104,200 (single) or $130,250 (joint)
• Must be age 65+ to qualify

The exemption thresholds in Rhode Island are relatively generous, but retirees with income from 401(k)s or pensions should still be careful.

7. Utah

• Flat tax rate: 4.55%
• Offset by a retirement tax credit for AGI under $45,000 (single) or $75,000 (joint)
• Still taxed even if federally exempt

Utah taxes all retirement income but offers a credit to soften the blow. It’s essential to understand whether you qualify.

8. Vermont

• Tax rate: 3.35%–8.75%
• Exempt if AGI ≤ $50,000 (single) or $65,000 (joint)
• Phased out entirely by $60,000/$75,000

Vermont hits retirees who fall just above the exemption line, so managing income levels is especially important.

9. West Virginia

• Taxing only 35% of benefits in 2025
• 100% exemption starting in 2026

West Virginia has been phasing out its tax on Social Security. By 2026, the state will no longer tax benefits at all—a win for future retirees.

How to Protect Your Social Security from State Taxes?

Manage Your Adjusted Gross Income (AGI)

State taxation is almost always based on AGI. By keeping it below your state’s threshold, you could avoid taxes entirely. Strategies include:

• Delaying IRA withdrawals until needed
• Using Roth IRA income, which doesn’t count toward AGI
• Tax-loss harvesting if you hold taxable investments

Take Advantage of State-Specific Credits or Deductions

Some states (like Utah and Montana) offer deductions for seniors or credits for low-income residents. Know what’s available and plan accordingly.

Time Your Retirement Income

You can delay claiming Social Security until age 70. This increases your monthly benefit and allows you to better control taxable income in earlier retirement years.

Consider Charitable Contributions

Qualified Charitable Distributions (QCDs) from IRAs allow you to reduce AGI while supporting causes you care about.

Relocate Strategically

This isn’t always practical—but if you’re flexible, moving to a state with no income tax (like Florida, Texas, or Nevada) can preserve more of your retirement income.

Tax-Free States for Social Security

The following states do not tax Social Security or personal income:

• Florida
• Texas
• Tennessee
• Alaska
• South Dakota
• Nevada
• Wyoming
• Washington

Living in one of these states could offer significant savings, especially for retirees relying heavily on fixed incomes.

Real-Life Example: Meet Mike and Sharon

Mike and Sharon are a retired couple living in Connecticut. Their combined AGI is $105,000, just over the exemption threshold. As a result:

• 25% of their $36,000 Social Security income is taxable at the state level
• That’s $9,000 added to their taxable income
• At 6%, they owe an additional $540 in taxes annually

If they reduced their AGI below $100,000 by converting some IRA money to Roth earlier or using QCDs, they’d owe $0 in Connecticut Social Security tax

Relocation Considerations Beyond Taxes

While taxes matter, they’re only part of the picture. Think about:

• Cost of living: Are groceries, rent, and healthcare affordable?
• Family proximity: Are kids or grandkids nearby?
• Climate preferences: Warm winters or cool summers?
• Healthcare access: Are hospitals and specialists within reach?

Balancing all these factors leads to better long-term satisfaction in retirement.

Common Mistakes to Avoid

• Assuming all states treat Social Security the same
• Not adjusting income sources to control AGI
• Claiming benefits too early, increasing long-term tax exposure
• Failing to use tax credits or deductions available at the state level

Helpful Resources

Goodbye to Social Security As You Know It; Congress Approves Sweeping Tax Reforms That Will Cut Benefits

SSI and Social Security 2025 Payouts Revealed—Check the New National Averages Now

Social Security Privatization Could Backfire — Here’s Why Experts Are Sounding the Alarm