Social Security benefits have long been a crucial source of income for many Americans, particularly retirees.
However, starting in 2025, certain states will start taxing these benefits, leaving many Social Security recipients wondering how these changes will impact them. Let’s explore which states are making these changes and how it could affect you.
States That Tax Social Security Benefits
As of now, only nine states tax Social Security benefits. These states are:
- Colorado
- Connecticut
- Minnesota
- Montana
- New Mexico
- Rhode Island
- Utah
- Vermont
- West Virginia
This means that if you’re living in any of these states, your Social Security benefits might be subject to state income tax in 2025.
Changes Coming in 2025
Starting in 2025, several states are expected to make significant adjustments to how they tax Social Security.
For example, in Colorado, individuals who earn $75,000 or less (or couples who earn $150,000 or less) can write off 100% of their Social Security benefits from state taxes.
Other states, like Minnesota, will impose taxes only on those earning above certain thresholds.
Federal Taxes on Social Security Benefits
While some states are introducing new taxes on Social Security, it’s important to remember that federal taxes still apply.
The IRS has specific guidelines to determine how much of your Social Security benefits are taxable based on your combined income.
- Single Filers:
- $25,000 to $34,000 combined income – up to 50% taxable.
- Over $34,000 combined income – up to 85% taxable.
- Married Filing Jointly:
- $32,000 to $44,000 combined income – up to 50% taxable.
- Over $44,000 combined income – up to 85% taxable.
How the IRS Calculates Taxable Social Security Benefits
The IRS determines the amount of your Social Security benefits that are taxable by calculating your combined income, which includes your adjusted gross income, non-taxable interest, and half of your Social Security benefits.
This combined income will determine the percentage of your Social Security benefits that will be taxed.
Here’s an example of how it works:
- If a single person has a combined income of $31,000, they may be taxed on 50% of their Social Security benefits, which will be added to their taxable income.
State-Specific Social Security Tax Guidelines
Each state has its own rules regarding the taxation of Social Security benefits. In Colorado, retirees can write off a large portion of their benefits, whereas states like Utah impose a flat tax rate of 4.55%.
Other states, like Minnesota, only tax those with higher incomes, setting specific thresholds for eligibility.
| State | Tax Rate on Social Security | Minimum Income to Tax | Maximum Taxable Amount | Changes in 2025 |
|---|---|---|---|---|
| Colorado | 0% to 100% | $75,000 | $150,000 | 100% Write-Off for Eligible Filers |
| Minnesota | 0% to 85% | $82,190 | $105,380 | Tax on Higher Incomes |
| Utah | 4.55% | All incomes | N/A | Flat Tax Rate |
| West Virginia | 0% to 85% | $25,000 | $44,000 | No Changes in 2025 |
In conclusion, the taxation of Social Security benefits is set to change in several states starting in 2025, impacting retirees who rely on these benefits.
While some states are offering exemptions or reductions, others will continue to tax benefits based on income levels. It’s essential for retirees to stay informed about both federal and state tax regulations to understand how these changes may affect their finances.
Individuals can reduce the financial burden on their retirement income by planning accordingly and possibly relocating to a state with no Social Security tax.
FAQs
1. What States Tax Social Security Benefits?
Nine states tax Social Security benefits: Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, and West Virginia.
2. How Much of My Social Security Is Taxable?
The IRS taxes up to 50% of your Social Security benefits if your combined income is between $25,000 and $34,000 (single) or $32,000 to $44,000 (married, filing jointly). Up to 85% of your benefits can be taxed if your income exceeds these thresholds.
3. What Is the Impact of the 2025 Changes?
Starting in 2025, several states, such as Colorado, will increase their tax exemptions on Social Security benefits for eligible filers, whereas others may continue or introduce taxes based on income thresholds.
4. Do All States Tax Social Security Benefits?
No, 41 states and Washington, D.C. do not tax Social Security benefits, providing relief to the majority of retirees.
5. How Can I Minimize the Tax on My Social Security?
To minimize the tax on Social Security, consider managing your overall income to keep it below taxable thresholds or move to a state with no Social Security tax.
