As retirement nears, managing your personal finances becomes more than just a budgeting task—it’s about understanding how taxation might eat into your hard-earned savings. For aging Americans, retirement income such as pensions, 401(k) distributions, and especially Social Security benefits, often come with a hidden pitfall: state taxes. While the federal government taxes up to 85% of Social Security benefits depending on income level, some U.S. states pile on their own layers of taxation. If you’re planning to retire soon or already have, knowing whether your state taxes Social Security and retirement income could greatly affect your financial picture.
Shockingly, a handful of states still consider Social Security benefits and other retirement income as taxable, and in many cases, those costs can impact seniors living on fixed incomes. As 2024 ushers in subtle yet meaningful changes in state tax codes, understanding which states are still taxing these benefits—and who exactly is affected—can help retirees make smarter choices about where to live, how to file, and what deductions may be available.
States that tax Social Security and retirement income: Overview
| State | Social Security Taxed? | Retirement Income Taxed? | Exemptions/Deductions |
|---|---|---|---|
| Connecticut | Partially | Yes | Income thresholds apply; pension exemptions for $100k or less |
| Kansas | Partially | Yes | Social Security not taxed under $75,000 income |
| Minnesota | Yes | Yes | Partial exemptions for lower-income seniors |
| Missouri | Partially | Yes | Phased out for income over $85,000 individual/$100,000 joint |
| Montana | Yes | Yes | Exemptions based on income levels |
| Nebraska | Yes | Yes | Phasing out by 2025; partial exemption available |
| New Mexico | Yes | Yes | Exempt for qualified seniors under $100k income |
| Rhode Island | Partially | Yes | Exempt below $95,800 single/$119,750 joint |
| Utah | Yes | Yes | Limited retirement credit available |
| Vermont | Yes | Yes | Exemption up to $50,000 single/$65,000 joint income |
| West Virginia | Partially | Yes | Phasing out Social Security tax by 2024 |
| Colorado | Yes | Yes | $24,000 exemption for taxpayers over 65 |
| Delaware | No | Yes | Up to $12,500 pension exclusion |
What changed this year
Retirement taxation remains a dynamic policy area, and 2024 continues that trend. Some states, like Nebraska and West Virginia, are moving toward complete elimination of taxes on Social Security benefits—a change long advocated by senior groups and financial advisors. Meanwhile, lawmakers in Minnesota and Utah are considering increases to income thresholds, allowing more retirees to benefit from deductions.
Many of these changes reflect broader demographic shifts. As baby boomers enter retirement in droves, state governments are facing both increased pressure to attract older residents and mounting challenges in generating revenue. The balance lies in gradual tax phase-outs coupled with income-based exemptions to ease the burden on fixed-income retirees without slashing the state budget.
Who qualifies and why it matters
Not every retiree in a state that taxes Social Security will end up paying those taxes. Most states apply income thresholds to determine eligibility for taxation. For example, Kansas exempts Social Security benefits for residents earning less than $75,000 annually, while Connecticut offers reductions for incomes under $100,000.
This makes financial planning essential. A retiree who dips just over an income threshold could face hundreds—even thousands—of dollars in unexpected tax liabilities. And for pension income, the rules can vary even more widely. Some states treat private pensions differently than public ones, and a few offer targeted exemptions for former military members or civil servants.
Retirement tax policy is an overlooked but crucial factor in where Americans choose to live after leaving the workforce.
— Jane Ellis, Certified Tax PlannerAlso Read
IRS Annex 1-A Explained: What the New Form Is for and How Filling It Out Can Benefit You
Planning around retirement taxation
If you’re a retiree or planning to become one within the next five years, there’s considerable benefit in evaluating both your expected income and your state’s tax policy. Here are some key strategies:
- Manage taxable income: Use Roth IRAs or Roth 401(k)s to reduce taxable distributions in retirement.
- Consider relocating: States like Florida, Texas, and Nevada have no income tax, offering long-term savings.
- Time Social Security benefits: Delaying benefits can reduce tax exposure and maximize monthly payments.
- Work with a tax advisor: Get personalized advice on deductions, exemptions, and drawdown strategies.
Even just one state line can mean the difference between a tax-heavy retirement and a secure one.
— Michael Reyes, Senior Financial Analyst
Winners and losers from these tax policies
| Group | Impact |
|---|---|
| Low-income seniors in Kansas and Rhode Island | Win — Often fully exempt from Social Security taxation |
| High-income retirees in Colorado or Minnesota | Lose — Face full or partial taxation of Social Security and pension |
| Veterans receiving military pensions in Delaware or Utah | Win — Some states offer exclusive exemptions |
| Middle-income retirees in Vermont | Mixed — Will face limited exemptions and partial taxes |
Legislative efforts to eliminate retirement taxes
Several states are actively introducing legislation to phase out or completely remove taxes on Social Security. West Virginia, for instance, is eliminating these taxes entirely by the end of 2024. Similarly, Nebraska has committed to phasing out their tax burden by 2025. These changes indicate momentum, but not all states are on board.
Opponents argue that eliminating Social Security taxation would reduce funding for essential state services. Proponents counter that taxing benefits essentially penalizes seniors twice—once during payroll contributions and again during retirement. As more retirees become politically active, changes are likely to continue across the map.
States need to find ways to support seniors without forcing them to move away for relief.
— Linda Appelman, Director of Elder Policy Institute
Watch your income thresholds closely
The most critical numbers to watch are your adjusted gross income (AGI) or modified adjusted gross income (MAGI). These determine not only your federal Social Security taxation but also your eligibility for state exemptions. In some cases, reducing income via careful planning—such as qualified charitable distributions (QCDs) or using Roth accounts—can keep you under key thresholds.
Taxation doesn’t just vary by state, but also by filing status. Married couples, for instance, often benefit from higher exemption levels compared to individuals. It’s essential to use these figures to tailor your retirement drawdown strategy accordingly.
Short FAQs about Social Security and retirement income taxation
Which states fully tax Social Security income?
Currently, 13 states tax Social Security income in some capacity, but only a few—Minnesota, Vermont, Utah, and Connecticut—tax it without generous income-based exemptions.
Can I move in retirement to avoid state taxes?
Yes. Many retirees relocate to tax-friendly states such as Florida or Texas, which do not tax income at all, including retirement income.
How can I reduce my taxable retirement income?
Use Roth accounts, delay Social Security benefits, and consider charitable contributions to keep your income within exemption brackets.
Do these taxes apply to IRA or 401(k) distributions?
In many of the 13 states that tax retirement income, traditional IRA and 401(k) distributions are taxable unless covered by state exemptions.
How do income thresholds affect Social Security taxation?
Most states with these taxes use AGI or MAGI thresholds to determine if any or all of your Social Security is taxable. Staying below these limits can eliminate your liability.
Are military pensions taxed in these states?
Some states offer unique exemptions for military pensions, while others do not. It’s important to check the specific state law or consult a financial advisor.
Will the number of states taxing Social Security shrink?
Likely yes. States like West Virginia and Nebraska are phasing out these taxes entirely, and discussions are ongoing in others amid growing political pressure.
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