Retirees relying on Social Security benefits often face challenges in keeping their payments intact due to deductions like Medicare premiums and federal or state taxes. For 2025, the average monthly Social Security benefit for retired workers is expected to be around $1,976, amounting to roughly $24,000 annually. However, taxes could significantly reduce this amount for many.
The good news? Some states are relaxing their Social Security benefit tax laws, offering retirees more breathing room in their budgets. Let’s look into the states where changes are coming and look into the taxation landscape for retirees.
Table of Contents
Colorado
Colorado’s tax policy has historically allowed seniors aged 65 and older to exclude their Social Security benefits from state taxable income if those benefits were federally taxable. However, income limits applied:
- Individual filers: Adjusted Gross Income (AGI) of $75,000 or less
- Married couples filing jointly: AGI of $95,000 or less
This left out younger retirees or those claiming other types of Social Security benefits.
Starting in 2025, the state is expanding eligibility to include residents aged 55 and older. The same AGI limits will apply. Additionally, Social Security benefits that are not federally taxable will still be subject to state income taxes.
What does this mean?
More Coloradans will qualify for state tax exemptions on their Social Security income, helping older adults manage their budgets more effectively.
West Virginia
West Virginia began phasing out state taxes on Social Security benefits in 2022, with exemptions for individuals earning $50,000 or less and couples with $100,000 or less in federal AGI.
This phase-out is being rolled out in stages:
- 2024: Residents above the thresholds could exempt 35% of their Social Security benefits.
- 2025: The exemption increases to 65%.
- 2026 onward: Full exemption for all Social Security benefits, regardless of income.
What’s the impact?
By 2026, West Virginians won’t owe state taxes on their Social Security benefits, aligning the state with others that fully exempt these payments.
Social Security
In 2025, a few states will still tax Social Security benefits for some retirees:
| State | Tax Rules |
|---|---|
| Connecticut | Exempts benefits for lower AGIs; others may owe taxes. |
| Minnesota | Taxes Social Security benefits but offers AGI-based exemptions. |
| Montana | Applies state income tax to Social Security benefits. |
| New Mexico | Exempts lower-income retirees; others subject to tax. |
| Rhode Island | AGI-based exemptions apply; higher earners may owe taxes. |
| Utah | Offers partial exemption based on income and age. |
| Vermont | Taxes higher-income earners but exempts others. |
Each state has its own rules, often tied to income thresholds, making it essential for retirees to know their state’s policies.
Tips to Manage
- Know Your State Rules: Contact your state’s tax department or consult a tax advisor to know your liability.
- Plan for Deductions: Medicare premiums and taxes can shrink your Social Security checks, so budget accordingly.
- Maximize Benefits: Learn strategies to boost your Social Security income, potentially offsetting tax burdens.
Retirement Income
Knowing Social Security tax policies is crucial for retirees aiming to maximize their benefits. By staying informed and planning ahead, you can avoid surprises and make the most of your retirement income.
FAQs
Which states don’t tax Social Security benefits?
Most states, except a few like Colorado and Utah, don’t tax Social Security.
What’s the average Social Security benefit in 2025?
The average benefit will be around $1,976 per month in 2025.
How can I reduce Social Security taxes?
Move to a state that doesn’t tax benefits or adjust your income level.
When will West Virginia fully exempt benefits?
By 2026, West Virginia won’t tax Social Security benefits.
Do AGI limits affect Social Security tax exemptions?
Yes, many states base exemptions on Adjusted Gross Income thresholds.
