Where you choose to live in retirement can make a real difference in how much of your Social Security income you actually get to keep. While federal taxes already take a bite out of these benefits based on your income level, some states still apply their own taxes. This makes it important for retirees to stay informed and plan smartly to protect their finances.
Thankfully, more and more states are moving away from taxing Social Security benefits. However, nine states will still continue this practice in 2025. Knowing which states are tax-friendly—and which aren’t—can help you make better decisions about where to live and how to manage your retirement income.
How State Taxes Cut Your Social Security in Retirement
Social Security is one of the most important sources of income for older Americans. In fact, AARP notes that nearly 40% of people aged 65 and older depend on it for at least half of their total income. While most people understand the role of federal taxes on Social Security, many overlook the fact that state-level taxes can also reduce their benefits, depending on where they live.
In some states, Social Security benefits are partially or fully taxed, which can significantly affect retirees living on a fixed income. That’s why it’s essential to factor in your state’s tax rules when planning for retirement—because your location can impact how much money you take home each month.
Fewer States Are Taxing Benefits—But Some Still Do
The good news for retirees is that the number of states taxing Social Security is dropping. By 2025, only nine states will continue to do so. This is a clear shift in favor of older residents, giving many the chance to hold on to more of their hard-earned benefits. Financial advisor Brian Kuhn from Wealth Enhancement Group points out that most states now avoid taxing these benefits, and that’s a trend that seems to be growing.
Recent decisions in Missouri and Nebraska reflect this shift. Both states will stop taxing Social Security in 2024, while Kansas has passed similar legislation set to take effect the same year. These changes are seen as steps to support retirees, acknowledging just how crucial Social Security is for their financial security.
Which States Still Tax Social Security in 2025?
Despite this positive trend, there are still a few states that will continue to tax Social Security benefits in 2025. These include:
- Colorado
- Connecticut
- Minnesota
- Montana
- New Mexico
- Rhode Island
- Utah
- Vermont
- West Virginia
Retirees living in these states—or planning to move there—should be aware of how these taxes could impact their monthly budget. Even a small percentage taxed can add up over time, especially for seniors living on limited income.
West Virginia Is Phasing Out Its Social Security Tax
West Virginia is making progress by gradually eliminating taxes on Social Security. The state has announced a complete phase-out by 2026. While residents still have to deal with some tax in the short term, the future looks brighter for those relying on benefits. This change shows how state policies can shift and why it’s worth staying up to date with tax changes that might benefit you.
Why Every State’s Tax Policy is Different
According to Brian Kuhn, every state has its own way of handling Social Security taxes. Some states offer exemptions based on age or income levels, which means not everyone in a taxing state will actually owe money. Understanding these unique rules is important. You might qualify for deductions that reduce or eliminate your tax burden—even in a state that technically taxes benefits.
So before deciding where to settle in retirement, it’s smart to look beyond just climate or lifestyle. A state’s tax policy on Social Security could make a meaningful difference in your monthly income and long-term financial comfort.
Keep More of What You’ve Earned
Where you retire isn’t just about personal preference—it can also affect your financial future. As state tax laws continue to evolve, staying informed could help you keep more of your Social Security benefits. Whether you’re planning to stay where you are or considering a move, knowing which states protect your income can make a big difference in your retirement years.
