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41 States That Don’t Tax Social Security Benefits

What’s your biggest worry regarding retirement? For most people, it’s simply outliving their money. That’s why so many of us are working so hard to save as much as we possibly can right now.

The good news is, your retirement income might actually go a little bit further than you expect. Although Social Security was never intended to be an individual’s sole source of retirement funding, at least this part of your future cash flow isn’t taxed in most states.

Still, there are a few things you’ll need to know about that taxation of your retirement benefits.

State taxation of Social Security retirement benefits

As of the latest look, 41 states don’t tax Social Security retirement benefits. In alphabetical order, these states are:

  1. Alabama
  2. Alaska
  3. Arizona
  4. Arkansas
  5. California
  6. Delaware
  7. Florida
  8. Georgia
  9. Hawaii
  10. Idaho
  11. Illinois
  12. Indiana
  13. Iowa
  14. Kansas*
  15. Kentucky
  16. Louisiana
  17. Maine
  18. Maryland
  19. Massachusetts
  20. Michigan
  21. Mississippi
  22. Missouri
  23. Nebraska
  24. Nevada
  25. New Hampshire
  26. New Jersey
  27. New York
  28. North Carolina
  29. North Dakota
  30. Ohio
  31. Oklahoma
  32. Oregon
  33. Pennsylvania
  34. South Carolina
  35. South Dakota
  36. Tennessee
  37. Texas
  38. Virginia
  39. Washington
  40. Wisconsin
  41. Wyoming

* Kansas altered its tax laws just last month to make Social Security benefits tax-free beginning this tax year.

But what if you live (or plan on living) in one of the other nine states? Don’t sweat it. Most of them are still relatively gentle when it comes to taxing these benefits.

Take Colorado as an example. Its residents between the ages of 55 and 64 aren’t taxed on their first $20,000 worth of yearly Social Security income, while anyone over the age of 65 living in the Centennial State doesn’t owe any income tax on their Social Security benefits. This means a huge swatch of older Coloradans are actually side-stepping the state’s 4.4% flat income tax on at least a portion of their retirement income.

Meanwhile, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, and Vermont each offer some degree of income-based tax breaks on Social Security income. That is to say, in several of these seven locales, only the highest of retirement earners will owe state taxes on any such benefits. In other states a decent-sized chunk of Social Security income is deductible from the federally reported taxable income generally used to determine state-based tax liabilities.

Last year was also the final year West Virginians’ Social Security income will be fully taxed by the state. Earlier this year the state’s legislature passed measures that will gradually phase out the taxability of these benefits. Only 65% of this income will taxable this year, and only 35% next year. Come 2026, the state won’t be taxing any portion of anyone’s Social Security income.

And the District of Columbia? Social Security retirement income is tax-exempt there as well.

By the way: Feeling compelled/pressured to join the crowd, many of the few states that do still tax even a portion of Social Security retirement income are now regularly considering a repeal of these tax laws.

A retired couple high-fiving after moving to a state that doesn't tax Social Security benefits.

Image source: Getty Images.

That said, regardless of which state you live in, your Social Security benefits are at least still subject to federal income taxation. Not all of it, though.

Individuals with adjusted gross annual income between $25,000 and $34,000 will potentially owe income tax on up to half of their benefits. For anyone with retirement earnings in excess of $34,000, up to 85% of their Social Security benefits are considered taxable income. And for joint filers, these thresholds are raised to $32,000 and $44,000.

Still, even if you can save just a few thousand bucks in taxes every year just by living in a different state, it may well be worth the move.

A big enough benefit to consider when making plans

Of course, there’s more to life than minimizing your annual tax bill. Maybe you’ve got close family in a state that still taxes Social Security benefits. Perhaps the cost of living is low even in a state that still taxes a sizable portion of your retirement income. There’s always more to the story.

For many current and soon-to-be retirees, however, saving just a few thousand bucks per year could make a major difference with their budgets — particularly for relatively high-earning retirees with income subject to state-level taxation. At the very least, it’s something worth considering. That’s especially true if you can sell your current home at an attractive price and/or find a new one at a price you also like.

The $22,924 Social Security bonus most retirees completely overlook

If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $22,924 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after. Simply click here to discover how to learn more about these strategies.

View the “Social Security secrets” ›

The Motley Fool has a disclosure policy.

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