States Exempt Social Security: What Retirees Need to Know
Social Security plays a crucial role in ensuring retirement security for millions of Americans. In fact, according to AARP, 40% of Americans aged 65 and older rely on Social Security for at least half of their income. However, the amount of Social Security benefits that retirees get to keep varies significantly depending on where they live.
Not only can up to 85% of Social Security benefits be subject to federal taxation, depending on income, but retirees may also face state income taxes on their benefits. Fortunately, many states are moving to exempt Social Security from taxation. By 2025, a majority of states will not tax Social Security benefits, offering retirees much-needed financial relief.
Understanding State Taxation of Social Security Benefits
Each state has its own tax policies, and while the federal government has set guidelines on Social Security taxation, states have the freedom to impose their own rules. Some states fully tax Social Security benefits, others offer partial exemptions based on income thresholds, and an increasing number of states completely exempt Social Security benefits from taxation.
Brian Kuhn, CFP, CLU, SVP, and financial consultant at Wealth Enhancement Group, emphasizes that “the list of states that exempt Social Security is far larger than those that do tax it. Each state has its own rules, which can change, including recent decisions in Missouri and Nebraska.”
States That Have Recently Moved to Exempt Social Security
Several states have recently updated their tax policies to provide relief for retirees. Missouri and Nebraska, for example, have decided to stop taxing Social Security benefits in 2024. Kansas also joined the trend, with a bill signed in mid-2024, eliminating Social Security taxes going forward. This shift reflects a growing recognition of the financial burdens retirees face and an effort to make states more attractive destinations for those living on fixed incomes.
Only Nine States Will Tax Social Security Benefits in 2025
As of 2025, only nine states will continue to tax Social Security benefits. These states are:
- Colorado
- Connecticut
- Minnesota
- Montana
- New Mexico
- Rhode Island
- Utah
- Vermont
- West Virginia
Kansas is no longer present on this list, and West Virginia has announced plans to phase out taxes on Social Security by 2026. This means that by 2026, the number of states that tax Social Security will shrink even further.
Kuhn notes, “It is important to remember that each state has specific fiscal provisions, so some states may provide deductions for individuals who fall below certain income thresholds.” This means that even in states that do tax Social Security, many retirees with lower incomes may still qualify for exemptions or reductions.
The Majority of States Exempt Social Security Benefits in 2025
By 2025, a total of 41 states, plus Washington, D.C., will not tax Social Security benefits based on current laws. These states include:
- Alabama
- Alaska
- Arizona
- Arkansas
- California
- Delaware
- Florida
- Georgia
- Hawaii
- Idaho
- Illinois
- Indiana
- Iowa
- Kansas
- Kentucky
- Louisiana
- Maine
- Maryland
- Massachusetts
- Michigan
- Mississippi
- Missouri
- Nebraska
- Nevada
- New Hampshire
- New Jersey
- New York
- North Carolina
- North Dakota
- Ohio
- Oklahoma
- Oregon
- Pennsylvania
- South Carolina
- South Dakota
- Tennessee
- Texas
- Virginia
- Washington
- Wisconsin
- Wyoming
- Washington, D.C.
How Much Do Retirees Save in Taxes in States That Exempt Social Security?
Retirees living in states that exempt Social Security from taxation can experience significant tax savings. To estimate how much can be saved, retirees should check the effective state tax rate on taxable income and apply that rate to their total Social Security benefits.
For example, if a retiree lives in a state with a 5% effective tax rate and receives $30,000 in Social Security benefits annually, they could save $1,500 in taxes each year. These savings can make a meaningful difference for retirees living on fixed incomes.
However, not all situations are identical. Some states offer additional special exemptions. For instance, Colorado has provided full deductions for Social Security benefits for residents aged 65 and older since 2022. Starting in 2025, this full exemption will be expanded to include those aged 55 to 64 with an adjusted gross income of $75,000 or less for individuals or $95,000 for married couples filing jointly.
The Impact of Social Security Tax Exemptions on Retiree Finances
The decision by more states to exempt Social Security from taxation is part of a broader effort to improve financial conditions for retirees. Kuhn points out that the financial impact of these exemptions can be substantial. “In Missouri, retirees are looking at a collective annual savings of about $309 million,” he explains. “In Nebraska, it’s about $17 million. That’s a huge amount of money that retirees are able to keep rather than paying it in state taxes.”
For many retirees, these tax savings can mean the difference between financial stability and hardship. With the rising costs of healthcare, housing, and other essential expenses, every dollar saved on taxes can be redirected toward covering these necessities.
Why More States Are Moving to Exempt Social Security
The growing trend of states exempting Social Security from taxation reflects broader demographic and economic shifts. As the U.S. population ages, states are recognizing the financial challenges that retirees face and are adjusting their tax policies to accommodate these realities.
There are several reasons why states are increasingly choosing to exempt Social Security:
- Economic Competitiveness – States that do not tax Social Security can attract more retirees, boosting their economies.
- Cost of Living Considerations – Retirees often live on fixed incomes, and states are acknowledging the burden that taxes place on them.
- Political Pressure – Many advocacy groups, including AARP, have been pushing for tax exemptions to support aging populations.
- Increasing Retiree Population – With more Americans reaching retirement age, tax-friendly policies are becoming a priority for lawmakers.
States Exempt Social Security: The Benefits for Retirees
An increasing number of retirees are making the decision to relocate to states that do not tax Social Security benefits. As the cost of living continues to rise in many urban areas, more seniors are actively seeking states that offer lower taxes and more favorable conditions for retirement.
Beyond Social Security tax exemptions, many of these states provide additional financial benefits. Some states offer pension income exemptions, while others provide property tax relief programs specifically designed for retirees. These supplementary benefits enhance the financial appeal of states that already exempt Social Security.
For retirees, the decision to move to a tax-friendly state is often about more than just savings—it’s about achieving a higher quality of life. Lower taxes can translate into a better standard of living, reduced financial stress, and increased financial security throughout retirement.
Conclusion – States Exempt Social
As the list of states that exempt Social Security from taxation continues to grow, retirees have more opportunities than ever to maximize their retirement income. This trend is not only about eliminating taxes but also about helping retirees maintain financial security and improve their overall quality of life.
Retirees planning for their financial future should carefully evaluate state tax policies and consider relocating to a state that offers Social Security tax exemptions. Over time, the savings can add up significantly, allowing retirees to enjoy a more comfortable and financially stable retirement.
By staying informed about tax policies and taking advantage of states that exempt Social Security, retirees can make more strategic financial decisions and ensure they retain more of their hard-earned money. The trend is clear: more states are recognizing the importance of providing tax relief for retirees, making it easier for them to enjoy a worry-free retirement.
About exemption for members of religious groups: Some religions, such as the Amish and Mennonites, may be exempt from paying Social Security taxes, as long as they give up all benefits under the program. To apply for the exemption, you must complete and submit Form 4029 to the IRS. More details at the link:
🔗 SSA – Exemption for members of religious groups
About exemption for self-employed individuals and other rules: Those who wish to claim the exemption from Social Security due to self-employment must file the appropriate form before the filing deadline for the first tax year. The rules for maintaining the exemption and its impact on future benefits are detailed here:
🔗 SSA Handbook – Section 1129
