Most states don't tax Social Security, but thirteen do—and the rules vary widely
Most states do not tax Social Security benefits at all. However, thirteen states tax some or all of your Social Security income, and the amount you owe depends on your total income, your filing status, and specific rules that differ from state to state. If you live in Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, or West Virginia, you may owe state tax on your benefits. Illinois taxes benefits only under certain circumstances. Understanding your state's rules matters because it affects how much of your Social Security payment you actually keep.
The states that tax Social Security do not all use the same method. Some follow the federal formula, others use their own income thresholds, and several offer exemptions based on your age. This means two people with identical incomes can owe different amounts of tax depending on where they live. Knowing your state's specific rules before you claim benefits helps you plan your retirement income more accurately.
Key Takeaways
- Thirteen states tax Social Security benefits to some degree, while most states do not tax them at all.
- The amount of tax you owe depends on your combined income (Social Security plus other income sources), your age, and your filing status.
- Some states that tax benefits offer exemptions for people over a certain age, usually 59 or 62.
- You can contact your state tax authority or a tax professional to find out your specific tax liability before you claim benefits.
Which states tax Social Security and how much
Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, and West Virginia all tax Social Security benefits as income. The tax rate and the threshold at which you start owing tax varies by state. Some states use a combined income calculation (your adjusted gross income plus half your Social Security benefits) to determine whether you owe tax. Others use your total income from all sources.
Colorado, for example, taxes benefits only if your combined income exceeds a threshold that changes yearly. Connecticut taxes benefits using a formula based on your federal tax liability. Kansas taxes the same portion of benefits that the federal government taxes. Minnesota and Missouri have their own income thresholds and tax rates. Montana taxes benefits as regular income once you exceed a certain combined income level. Nebraska taxes benefits similar to the federal method. New Mexico exempts benefits for people over 59 and taxes them for younger retirees. Rhode Island taxes benefits for people with higher incomes. Utah taxes benefits as regular income. Vermont taxes benefits for people with combined income above a threshold. West Virginia taxes benefits for people with income above a certain level.
Illinois does not tax Social Security benefits for most people, but it does tax benefits for people who are not yet receiving Social Security themselves but whose spouse or ex-spouse is receiving it. The rules in each state can change, so you should verify the current rules with your state tax authority before you claim benefits.
How combined income affects your tax bill
Most states that tax Social Security use a combined income calculation to decide whether you owe tax. Combined income typically means your adjusted gross income plus half of your Social Security benefits. This matters because it means you can owe state tax on your benefits even if your benefits themselves are below the state's tax threshold.
For example, if you receive $20,000 in Social Security and $30,000 in pension income, your combined income would be $40,000 (the $30,000 plus half the $20,000). If your state's threshold is $35,000, you would owe tax on the portion of your benefits that pushed you over that line. The exact amount of tax depends on your state's tax rate and how it calculates the taxable portion of your benefits.
Some states allow you to subtract certain deductions or exemptions before calculating combined income. Older retirees may may have access to for age-based exemptions that reduce or eliminate the tax. You should check your specific state's rules because the thresholds and calculations change year to year, and the way your state counts income from different sources can significantly affect your final bill.
Age-based exemptions and deductions
Several states that tax Social Security offer exemptions or reduced taxes for people over a certain age. New Mexico, for instance, does not tax Social Security benefits for people age 59 and older. Some other states offer partial exemptions or higher income thresholds for older retirees. These exemptions can make a significant difference in your tax bill, especially if you are in your early 60s and planning to claim benefits soon.
In addition to age-based exemptions, some states allow you to deduct a portion of your benefits or to use a higher combined income threshold if you meet certain conditions. You may also be able to claim credits or deductions related to retirement income that reduce your overall state tax liability. The rules are specific to each state and change periodically, so it is worth checking with your state tax authority or a tax professional before you claim benefits to understand what exemptions or deductions you might may have access to for.
How federal taxation of Social Security affects state taxes
The federal government taxes Social Security benefits using a formula based on your combined income. If your combined income is below a certain threshold, you owe no federal tax on your benefits. If it is above that threshold, you may owe federal tax on up to 85 percent of your benefits. Some states that tax Social Security use the same combined income calculation as the federal government, while others use their own formulas.
Understanding your federal tax situation helps you predict your state tax situation. If you are paying federal tax on your benefits, you are likely to owe state tax as well in a state that taxes benefits. However, the reverse is not always true — you could owe state tax but not federal tax, or vice versa, depending on your state's specific rules and your income sources. A tax professional familiar with your state's rules can help you understand both your federal and state obligations and plan accordingly.
Planning ahead if you live in a state that taxes benefits
If you live in one of the thirteen states that tax Social Security, you should factor that tax into your retirement income planning. When you estimate how much income you will have in retirement, subtract the state tax you expect to owe on your benefits. This gives you a more accurate picture of your actual take-home income and helps you decide when to claim.
You can also consider the timing of when you claim benefits. If you claim early (before your full retirement age), your monthly benefit is smaller, which may reduce your combined income and lower your state tax bill. If you delay claiming, your monthly benefit is larger, which may increase your tax bill but also increases your lifetime benefits. The trade-off depends on your income from other sources, your state's tax rules, and your personal circumstances.
Some people in high-tax states also consider moving to a state that does not tax Social Security, though this is only practical if you are flexible about where you live. The tax savings must be weighed against the cost of moving and the loss of your current community and support network. For most people, the state tax on benefits is one factor among many in deciding where to retire.
How to find out what you owe in your state
Your state's tax authority publishes information about Social Security taxation on its website. You can search for your state's name plus "Social Security tax" to find the official rules, income thresholds, and tax rates. Many state tax authorities also publish worksheets or calculators that help you estimate your tax liability based on your income and filing status.
If you are unsure about your state's rules or how they apply to your situation, you can contact your state tax authority directly by phone or email. A tax professional who is familiar with your state's rules can also review your income sources and estimate your tax bill. This is especially helpful if you have income from multiple sources (Social Security, pensions, investments, part-time work) or if you are married and filing jointly, because the calculation becomes more complex and small changes in income can affect your tax bill significantly.
Frequently Asked Questions
Do I have to pay state tax on Social Security if I move to a state that does not tax it?
No. Once you move to a state that does not tax Social Security benefits, you are no longer liable for state tax on those benefits. However, you may still owe federal tax on your benefits depending on your combined income. You should update your address with Social Security and your state tax authority when you move.
Can I reduce my state tax bill by timing when I claim Social Security?
Yes, in some cases. If you claim benefits early, your monthly payment is smaller, which may lower your combined income and reduce your state tax bill. If you delay claiming, your monthly payment is larger, which may increase your tax bill. The best timing depends on your other income sources, your state's tax rules, and how long you expect to live in retirement.
What if I have income from a pension and Social Security in a state that taxes both?
Your combined income includes both your pension and your Social Security benefits (plus half your benefits in most states). This combined total determines whether you owe tax and how much. If your combined income is high, you may owe tax on both sources of income. A tax professional can help you estimate your total tax liability.
Do I need to make estimated tax payments on my Social Security in a state that taxes it?
It depends on your state's rules and the amount of tax you expect to owe. Some states require estimated payments if you owe a certain amount of tax. You can also ask Social Security to withhold taxes from your monthly benefit payment, which is simpler than making quarterly estimated payments. Contact your state tax authority to find out what is required in your situation.
Can I deduct my state Social Security tax on my federal return?
No. The federal government does not allow you to deduct state income tax on Social Security benefits as a separate line item. However, if you itemize deductions on your federal return, you can deduct state income taxes paid (up to a limit), which would include any state tax you owe on your Social Security benefits.