Social Security benefits are earned through years of work and payroll tax contributions, which makes their taxation a particularly sore point for many retirees. After decades of paying into the system, seeing a portion taxed again in retirement stings — and yet that is exactly what happens at both the federal and, in some cases, the state level.
The One Big Beautiful Bill Act, signed into law on July 4, 2025, introduced a temporary $6,000 senior deduction for taxpayers age 65 and older. For married couples where both spouses qualify, the deduction doubles to $12,000. It begins to phase out at $75,000 in modified adjusted gross income (MAGI) for single filers and $150,000 for joint filers, disappearing entirely above $175,000 for singles and $250,000 for joint filers. The Council of Economic Advisors estimated that roughly 88% of retirees receiving Social Security will owe no federal tax on their benefits as a result. That figure has drawn scrutiny: the Urban-Brookings Tax Policy Center estimated that fewer than half of older adults would actually benefit from the deduction, with independent analysts noting the relief is most meaningful for middle-income seniors rather than those at the lowest or highest ends of the income scale.
The deduction does not directly eliminate the federal tax on Social Security. It reduces seniors’ taxable income enough that many fall below the thresholds at which benefits become taxable, but the underlying rules on Social Security taxation remain unchanged. The deduction is also scheduled to expire after the 2028 tax year unless Congress acts to extend it.
State taxes on Social Security are a separate matter entirely. While 42 states and the District of Columbia exempt benefits from state income tax, eight states still impose their own levies. Knowing which ones matters when mapping out retirement finances.
The eight states that still tax Social Security in 2026
The list of states taxing Social Security has shrunk considerably in recent years. West Virginia completed a three-year phase-out of its Social Security tax in 2026, joining the growing majority of states that leave benefits untouched. Missouri, Kansas, and Nebraska made similar moves in prior years, each repealing its Social Security levy through a series of legislative steps.
As of 2026, the following eight states continue to tax Social Security income:
- Colorado
- Connecticut
- Minnesota
- Montana
- New Mexico
- Rhode Island
- Utah
- Vermont
Living in one of these states does not automatically mean you will pay tax on your benefits. Most offer exemptions or credits that shield moderate and lower-income retirees from the full bite. The details vary considerably by state, and understanding them is essential before drawing any conclusions about your own exposure.
Colorado allows taxpayers age 65 and older to deduct all of their federally taxed Social Security benefits from state taxable income. The state taxes all income at a flat 4.4% rate, so retirees above the deduction cap face a predictable, if real, bill. Connecticut exempts benefits entirely for single filers with adjusted gross income (AGI) below $75,000 and joint filers below $100,000; higher earners pay state tax on a portion of their benefits at ordinary Connecticut income tax rates.
Minnesota exempts benefits for residents below approximately $82,000 to $86,000 in AGI for single filers and roughly $105,000 to $111,000 for joint filers, with the precise figures adjusted annually. Residents above those thresholds face a top state rate of 9.85%, one of the highest in the country, making Minnesota particularly costly for higher-income retirees. Montana offers only a $5,500 subtraction from federal taxable income for taxpayers age 65 and older, with a top income tax rate of 5.65% applying to income above $95,000 for joint filers (or above $47,500 for single filers). That relatively modest subtraction means many Montana retirees with meaningful investment income will still owe state tax on a portion of their Social Security.
New Mexico is more generous than its inclusion on the taxing-states list might suggest. Single filers earning up to $100,000 per year and joint filers earning up to $150,000 pay no state tax on Social Security benefits at all. Utah mirrors federal taxation rules but offsets them with income-based tax credits; those credits phase out at higher income levels, so wealthier retirees may still carry a meaningful state bill. Vermont provides a full exemption for lower-income retirees, with benefits taxing in gradually above single-filer AGI of approximately $50,000 to $55,000 and joint-filer AGI of approximately $65,000 to $70,000, though the exact thresholds are adjusted periodically.
Should you relocate to avoid state taxes on Social Security?
If your state imposes taxes on Social Security benefits, relocating before you claim might seem appealing. Before house hunting, take a moment to evaluate the bigger picture.
First, check whether you will actually owe tax. Many of the eight states that tax benefits exempt retirees below certain income thresholds. Depending on your AGI and filing status, you may qualify for full or partial relief without leaving your current home.
Second, compare the overall cost of living across states. New Mexico offers high exemption thresholds and a cost of living that sits below the national average, according to regional cost indices. Even where some Social Security income does get taxed, total expenses may still come out lower than in a nominally tax-free state with higher property taxes, housing costs, or everyday prices. Texas, for instance, has no income tax but carries some of the highest effective property tax rates in the country, a trade-off that matters considerably for homeowning retirees.
Third, consider what you would give up by moving. Social connections, proximity to family, and established support networks become increasingly valuable in retirement. Uprooting yourself later in life can mean rebuilding a social world at precisely the stage when trusted relationships and nearby assistance with medical appointments or home maintenance matter most.
That said, some states on this list are genuinely expensive places to retire. Vermont carries a top marginal income tax rate of 8.75%, among the highest in the country, and taxes all forms of retirement income above its exemption thresholds. Minnesota is steeper still, with that 9.85% top rate applying to single filers with income above approximately $193,240 in 2026. Both states also tend toward higher overall costs of living relative to the Sun Belt alternatives many retirees consider.
If your state combines high income taxes with elevated property taxes and a significant overall cost of living, relocating to a lower-tax state can make financial sense across a long retirement. States with no income tax at all (Florida, Texas, and Tennessee, for example) or those that exempt all retirement income can deliver substantial savings, especially when compounded across two or three decades.
Do your homework before you move
Relocating for tax reasons is rational, but it should be a carefully researched decision rather than an impulsive one based on a single line item.
Focus on the total tax burden. State income taxes, property taxes, sales taxes, and overall living costs all belong in the analysis together. A state that taxes Social Security modestly might still be cheaper overall than one with no income tax but sky-high property assessments.
Evaluate your own income mix carefully. If you have pension income, IRA distributions, or other retirement sources alongside Social Security, examine how each state treats those streams. Some states offer broad retirement income exemptions; others tax all sources equally. A state that exempts Social Security but taxes IRA withdrawals heavily could leave you no better off after a move.
Keep in mind that Social Security taxation at the state level is often aimed squarely at higher earners. If your total income is modest, you may owe little or nothing even in a state that technically taxes benefits. Moving in that scenario could cost far more in disruption and relocation expenses than you would ever recover in tax savings.
Editor’s note: This revision adds state-specific detail for Colorado (4.4% flat rate, full deduction for taxpayers 65 and older), Montana (5.65% top rate, $5,500 subtraction for seniors), and New Mexico (single filers earning up to $100,000 and joint filers earning up to $150,000 are exempt), and softens the precise Minnesota and Vermont AGI thresholds to approximate ranges to reflect discrepancies across 2026 sources.
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