Social Security benefits are earned through years of work and payroll tax contributions, which makes their taxation a particularly sore point for many retirees. You spent your entire working life paying into the system, only to see a portion taxed again in retirement.
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. The Council of Economic Advisors estimates that, as a result, roughly 88% of retirees receiving Social Security will owe no federal tax on their benefits. The deduction phases out starting at $75,000 in modified adjusted gross income for single filers and $150,000 for joint filers.
Federal taxes on Social Security have not disappeared entirely. The new deduction raises the effective income threshold for most seniors, but it is scheduled to expire after the 2028 tax year. For now, the relief is real and meaningful for the majority of recipients.
State taxes on Social Security are a separate matter. While 42 states and the District of Columbia exempt benefits entirely, eight states still impose their own levies. Understanding which states tax Social Security is essential 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, for example, 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.
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. Minnesota, for instance, exempts benefits for residents with adjusted gross incomes up to $86,410 (single) or $110,780 (joint filers) for 2026. Vermont provides a full exemption for single filers with AGI up to $55,000 and joint filers with AGI at or below $70,000. Higher earners, though, often face state-level taxation on at least a portion of their Social Security income.
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 adjusted gross income and filing status, you may qualify for full or partial relief without ever leaving your current home.
Second, compare the overall cost of living across states. New Mexico, for instance, has a cost of living about 7% below the national average, according to multiple regional cost indices. Even if you pay state tax on Social Security there, total expenses may come out lower than in a nominally tax-free state with higher property taxes, housing costs, or everyday prices.
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 in your later years can mean rebuilding a social life at precisely the stage when access to trusted relationships and nearby help with medical appointments or home maintenance matters most.
That said, some states on this list are 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 even steeper, with a top rate of 9.85% for those in the highest bracket, which kicks in above approximately $183,000 for single filers.
If your state combines high income taxes with elevated property taxes and a significant overall cost of living, relocating to a lower-tax state could make financial sense over a long retirement. States with no income tax at all (Texas, Florida, and Tennessee, for example) or those that exempt all retirement income can deliver substantial savings compounded across 20 or 30 years.
Do your homework before you move
Relocating for tax reasons is perfectly rational, but it should be a carefully researched decision rather than an impulsive one.
Focus on the total tax burden. Look at state income taxes, property taxes, sales taxes, and overall living expenses together. A state that taxes Social Security modestly might still be cheaper than one with no income tax but sky-high property assessments.
Evaluate your own income mix. 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 everything equally.
And keep in mind that Social Security taxation at the state level is often targeted 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 more in disruption and relocation expenses than you would ever recover in tax savings.
Editor’s note: This revision adds the OBBBA’s July 4, 2025 signing date and the Council of Economic Advisors estimate that 88% of Social Security recipients will owe no federal tax under the new law. It also includes the OBBBA deduction phase-out thresholds ($75,000 single / $150,000 joint MAGI), 2026 Social Security exemption income thresholds for Minnesota and Vermont, and updates New Mexico’s cost-of-living differential to approximately 7% below the national average based on current regional price data.
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