Do You Have to Pay State Taxes on Social Security Benefits?
Learn how state taxes apply to Social Security benefits, including income thresholds, federal coordination, and strategies for managing potential tax obligations.
Social Security benefits can be taxed at the federal level, but whether they are subject to state taxes depends on where you live. Some states tax these benefits fully or partially, while others exempt them entirely. Retirees need to understand their specific state’s rules to avoid unexpected tax bills.
Basic State Taxation Criteria
States take different approaches to taxing Social Security benefits. Some follow federal guidelines, while others apply their own rules, leading to significant differences. Currently, 38 states and Washington, D.C., do not tax Social Security benefits, while 12 states impose some level of taxation.
Among the states that tax these benefits, methods vary. Minnesota and Vermont use federal taxable Social Security income as a starting point but offer deductions or exemptions based on income levels. Colorado and Nebraska provide partial exclusions, allowing retirees to shield a portion of their benefits. Missouri and Connecticut phase out taxation for lower-income residents but impose taxes on higher earners.
The way states calculate taxable Social Security income also differs. Nebraska is phasing out taxation entirely, with benefits becoming fully exempt by 2025. Kansas exempts benefits for residents with an adjusted gross income (AGI) below $75,000, regardless of filing status. These variations mean retirees in one state may owe taxes while those in a neighboring state pay nothing.
Income Threshold Requirements
State taxation of Social Security benefits often depends on income thresholds, which determine whether retirees owe taxes and, if so, how much. These thresholds vary widely, with some states setting strict income caps while others phase in taxation gradually.
Many states that tax Social Security benefits use AGI or a modified version of it to establish eligibility for exemptions or reductions. Missouri exempts benefits for individuals with an AGI below $85,000 ($100,000 for married couples filing jointly), while higher earners see a partial exemption or full taxation. Colorado allows retirees to deduct up to $24,000 of Social Security income if they are 65 or older, but this deduction decreases for those with higher earnings.
Some states impose a tiered system where taxation increases as income rises. Connecticut exempts Social Security benefits for single filers earning less than $75,000 and joint filers below $100,000. Those exceeding these limits face partial taxation, with the percentage increasing as income grows. Retirees near the threshold must carefully manage withdrawals from retirement accounts to avoid crossing into taxable territory.
Coordination With Federal Returns
Some states base their Social Security taxation on federal rules, while others apply independent calculations. The IRS may tax up to 85% of a retiree’s benefits based on combined income, and states that follow this method typically use the federally taxable amount as a starting point. This simplifies compliance but can create unintended tax consequences for those with fluctuating income from investments, pensions, or part-time work.
A retiree’s federal tax return can directly impact how much of their Social Security income is subject to state taxes. States that mirror federal rules require taxpayers to report the same taxable Social Security income that appears on their IRS Form 1040. However, states with independent tax structures may require adjustments. New Mexico, for example, previously taxed Social Security benefits fully but introduced an exemption in 2022 that phases in based on total income.
Federal tax brackets adjust for inflation annually, which can push retirees into higher tax brackets at both federal and state levels. Some states adjust their tax brackets for inflation, while others do not, potentially increasing tax liability even if a retiree’s purchasing power remains unchanged.
Adjusting State Withholding
Many states do not automatically withhold taxes on Social Security benefits unless specifically requested. Unlike federal withholding, which can be adjusted using Form W-4V, state-level adjustments often require individual state tax forms or estimated tax payments. Retirees in states that tax Social Security may need to manually elect withholding or make quarterly payments to avoid underpayment penalties.
Since state tax withholding is not deducted from Social Security benefits by default, retirees must assess their overall tax liability. Those with additional income sources, such as pensions, annuities, or withdrawals from tax-deferred accounts, may find their total taxable income places them in a higher state tax bracket. Some retirees opt to increase withholding from other income sources, such as IRA distributions, to cover state obligations without affecting their Social Security payments.