As of Jan. 1, 2024, the number of states taxing Social Security benefits will drop into the single digits.
As Missouri and Nebraska have eliminated imposing Social Security income taxes starting next year, we are down from 11 to just nine states that will still levy the tax—each with its own unique way of doing so. The other 41 states and the District of Columbia do not tax Social Security benefits. The 3.2% Social Security cost of living adjustment (COLA) for 2024, which takes effect in January, means the current average Social Security benefit of $1,790 will increase by about $57 per month starting in January to $1,847.
Here’s a quick look at specifics of the nine states (listed alphabetically) that still tax Social Security in some form as of 2024:
Colorado
Colorado taxes Social Security benefits for taxpayers who are under 65 at the end of the tax year, but only above a certain level. For taxpayers between age 55 and 64, the first $20,000 of Social Security benefits are not taxable. Someone in that age range with average Social Security income of $22,164 would need to pay income taxes on the amount exceeding $20,000. Colorado’s state tax rate is 4.40% for the 2023 tax year. A 2021 bill that Governor Jared Polis signed allows people 65 and older to deduct all of their Social Security income from their Colorado taxable income beyond the previous limit of $24,000.
Connecticut
Connecticut taxes Social Security benefits based on Adjusted Gross Income (AGI), with specific thresholds determining whether the benefits are subject to taxation. If a taxpayer’s AGI is over $75,000 ($100,000 if married filing jointly and heads of household), their Social Security benefits become taxable. Taxpayers with AGIs equal to or greater than these thresholds qualify for a partial exemption through which no more than 25% of their total Social Security benefits received is subject to tax. Connecticut income tax rates range from 3.0% to 6.99%, depending on income.
Kansas
Similar to Connecticut, Kansas taxes Social Security for taxpayers with AGIs over $75,000. This means that a retired couple with $75,001 AGI could potentially owe $1,500 in more in state taxes than a couple earning $75,000. According to IRS data cited by the Wichita Beacon, 165,000 Kansas filers over the age of 65 had incomes of $75,000 or more—representing nearly 40% of households filing tax returns. Kansas is considered one of the least tax-friendly states for retirees, as the state also fully taxes income from private retirement plans, such as IRAs and 401(k)s, and out-of-state pensions. Social Security benefits are fully taxable at the same rates as all other income in Kansas—from 3.1% to 5.7%, depending on income.
Minnesota
Only a portion of a taxpayer’s Social Security income is subject to Minnesota’s income tax. There are two separate tax policies that result in Social Security income being nontaxable—an exclusion in federal law that “flows through” to the taxpayer’s Minnesota income tax, and an additional Minnesota-specific subtraction available for a portion of the income that is taxable federally. In tax year 2019, about 370,095 resident returns in Minnesota reported about $14.6 billion in Social Security income. Of that amount, 50.3% was taxable federally, and about 42.2% was taxable in Minnesota. Minnesota taxes Social Security benefits for people with AGIs over $78,000 ($100,000 if married filing jointly). Taxpayers with incomes above those thresholds may still get a partial exemption as the tax break follows a gradual phase-out, diminishing at a rate of 10% for every $4,000 increase in AGI over the specified threshold. Minnesota state tax rates range from 5.35% to 9.85%.
Montana
Montana taxes Social Security benefits for AGIs above $25,000 ($32,000 if married filing jointly), one of the lower income thresholds in the U.S. According to the AARP Montana Executive Council, if an individual Montana senior makes between $25,000 and $34,000 in Social Security income, half of that income may be taxable under Montana law. If a senior makes over $34,000, 85% of that Social Security income may be taxable. For any taxable Social Security benefits, rates in Montana range from 1% to 6.75%.
New Mexico
A 2022 change in state tax law means the vast majority of New Mexico retirees do not pay taxes on Social Security benefits, but taxpayers with more than $100,000 in income still face taxation, as do married individuals filing separately if their income exceeds $75,000 (or $150,000 if a surviving spouse, head of household or married filing jointly). Above those limits, New Mexico’s income tax rates range from 1.7% to 5.9%. The 2022 tax year marked the first time Social Security income is exempt from New Mexico income tax since 1990, when the legislature first began taxing it. Prior to the new law, the state taxed the Social Security income of seniors with incomes as low as $28,500.
Rhode Island
Rhode Island uniquely has a dual consideration for both timing and income levels when it comes to Social Security. The state taxes Social Security benefits for taxpayers who elect to take them before reaching full retirement age (usually 67) with AGIs above $95,800 for single filers or $119,750 for married filing jointly. People under those thresholds can exempt up to $15,000 of their retirement income. For those who have not reached FRA or with AGIs over those limits, Rhode Island tax rates range from 3.75% to 5.99%.
Utah
Utah matches the federal tax rules for Social Security, allowing taxpayers to exclude up to 15%, 50%, or 100% of their benefits from state tax, depending on income—but the state does target individuals with relatively modest AGIs. Taxation applies to those whose AGI exceeds $45,000, or $75,000 for those filing as head of household or married filing jointly, and $37,500 if married filing separately. Taxpayers falling below these specified income thresholds may be eligible for a non-refundable tax credit that’s reduced by 25 cents for each dollar over the income limit. Utah has a flat 4.65% tax rate.
Vermont
Social Security benefits in Vermont are subject to taxation for taxpayers whose AGI is above $60,000, or $75,000 if married filing jointly. Those falling within the income range of $50,000 to $59,999, and married couples with combined incomes between $65,001 and $74,999, are eligible for a partial exemption on their Social Security benefits. Vermont tax rates range from 3.35% to 8.75%.
SEE ALSO:
• Social Security Taxes vs. Benefits: Americans Take Far More Out Than They Pay In
• It’s Official: 2024 Social Security COLA Set at 3.2%
• 5 Surprises Top Bankrate’s Best States for Retirement 2023
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
