States That Tax Social Security Benefits

Typically, the Social Security Administration finalizes the following year's COLA increase in mid October. At that time, Social Security beneficiaries and Supplemental Security Income recipients can start figuring out how much of a monthly boost they'll receive in the new year. As for people living in a certain nine states, they also regularly crunch numbers with regard to taxes, as their benefits are subject to state tax if they exceed certain thresholds. Note that Social Security benefits are taxed at the federal level for everyone, but only nine states tax them at the state level.

The nine states are Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, and West Virginia (which has begun the process to phase this tax out by 2026). Each state has different rules and income thresholds that determine whether or not a taxpayer will need to pay taxes on their benefits.

Just as your filing status and adjusted gross income (AGI) can tell you which tax bracket you're in, this information will also let you know if you owe state taxes on your Social Security if you live in one of the nine states that impose taxes on benefits. This is especially important to know for anyone who's about to receive Social Security for the first time, or who has recently moved to such a state from one that doesn't tax Social Security.

It should be noted Colorado doesn't tax Social Security for anyone 65 years old or older. Also, for West Virginia residents, the state has begun phasing out Social Security tax as of 2024. In February 2024, the House of Delegates approved a bill to phase the tax out over the next three years. In 2024, the tax would be cut by 35% (retroactive to January 1, per The Associated Press); by 65% in 2025; and in 2026, benefits will become fully deductible. Here is a look at some of the income limits for each state:

• Colorado: No taxes for those over 65 years of age
• Connecticut: AGI is above $75,000 if filing individually, $100,000 if filing jointly
• Minnesota: AGI is above $82,190 if filing individually, $105,380 if filing jointly, $52,690 if filing separately
• Montana: AGI is above $25,000 if filing individually, $32,000 if filing jointly
• New Mexico: Income is above $100,000 if filing individually; $150,000 if filing jointly, or as a surviving spouse or head of household; $75,000 if filing separately
• Rhode Island: No taxes for those at full retirement age (66 or 67, depending on your birth year)
• Utah: Income is above $45,000 if filing individually; $75,000 if filing jointly or as a head of household; $37,500 if filing separately
• Vermont: AGI is above $60,000 if filing individually, $75,000 if filing jointly
• West Virginia: 35% tax cut in 2024; 65% in 2025; fully deductible in 2026

As mentioned, Social Security is taxed at the federal level for all taxpayers; this has been the case since 1984. For your federal taxes, your Social Security is taxed if your combined income as a single filer exceeds $25,000 but is less than $34,000 per year (or $32,000 to $44,000 if filing jointly). If so, 50% of your benefit will be taxed. If your income exceeds $34,000 (or $44,000), the tax is 85%. To help, the IRS offers the option to withhold taxes throughout the year at 7%, 10%, 12%, or 22%, so that you won't have to pay one larger sum come tax time.

This is something you can budget for on your own, too. And if you live in a state that taxes Social Security, you can do so in anticipation of any state tax on your benefits as well, if you believe you'll be making more than the AGI threshold for your state. Just like 1099 workers should set aside 30% to 35% of their earnings to pay for taxes (to be safe), you can also allocate a portion of your income each month for taxes, so that you're not left scrambling to come up with the funds when you file.