Down to the Final 8: The States Still Taxing Social Security Benefits in 2026, Despite Fierce Senior Backlash

For four decades, American workers hand over federal and state income taxes on every single paycheck. In eight state capitols, retiring still doesn’t stop the tax collector from taking a second bite.

AARP is fighting on behalf of seniors to stop this, but they’re running into heavy bureaucratic resistance in 8 stubborn states. Take Minnesota as an example. The state was sitting on a historic $17.5 billion surplus, yet still shaving thousands off fixed-income checks. As state director Cathy McLeer told the Senate Taxes Committee, taxing wages that were already taxed forty years ago is a unfair and regressive penalty on aging.

While 42 states now leave Social Security benefits completely untouched, eight holdouts still refuse to let go. Let’s start on a positive note by highlighting the states with citizen-friendly tax policies.

The Nine States Without an Individual Income Tax

For millions of retirees, the simplest tax shelter is living in a state without a personal income tax. Nine states charge zero income tax on wages, pensions, traditional IRAs, 401(k) withdrawals, and Social Security checks. These states are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.

New Hampshire completed its transition to a full zero-tax state on January 1, 2025. Lawmakers accelerated the repeal of the state’s 5% interest and dividends tax under House Bill 2. Washington levies no personal income tax on retirement income. However, the state taxes high-value non-retirement capital gains above an inflation-adjusted threshold ($278,000 for 2025, with the 2026 indexed figure scheduled for release by the state Department of Revenue in late autumn) at 7%.

These nine states fund public services through other taxes. Texas collects an effective property tax rate of 1.60%, among the highest in the nation. Florida maintains an average property tax rate of 0.86%. Tennessee relies on a 9.55% combined sales tax after repealing its Hall Income Tax in 2021. Alaska and Wyoming balance budgets using severance taxes on oil, gas, and coal extraction.

The Four States That Shield Pensions and Retirement Accounts

Many retirees believe they must move to Florida or Texas to protect their nest eggs. That belief is incorrect. Four states collect standard income taxes from workers, yet provide statutory exemptions for core retirement distributions.

Illinois enforces a flat 4.95% personal income tax under 35 ILCS 5/203. Even so, state statute exempts 100% of distributions from qualified employer retirement plans, traditional IRAs, 401(k)s, and public pensions. Mississippi provides an identical complete exemption for qualified retirement distributions under Miss. Code Ann. § 27-7-15(4)(k).

Pennsylvania levies a flat 3.07% income tax under 72 P.S. § 7303. State law fully shields retirement distributions once a worker reaches age 59½. Iowa also exempts retirement income for residents aged 55 and older under House File 2317, codified in Iowa Code § 422.7. That statutory exemption covers employer pensions, 401(k) withdrawals, and Social Security.

How Four Heartland States Eliminated the Benefit Tax

Between 2023 and 2026, four heartland states removed Social Security benefits from state taxation. Lawmakers watched neighboring states recruit retirees and responded with bipartisan relief bills.

West Virginia completed a three-year phase-out under House Bill 4880 in 2026. The legislation provided a 35% exemption in 2024 and 65% in 2025. It reached a full 100% exemption for the 2026 tax year. In Kansas, Governor Laura Kelly signed Senate Bill 1 following a June 2024 special legislative session. The bill repealed the state tax on Social Security. Previously, Kansas enforced a strict tax cliff where one dollar over $75,000 made all benefits taxable.

Missouri enacted Senate Bill 190. The law exempts all Social Security benefits from state taxation regardless of income. Nebraska passed Legislative Bill 754, accelerating the full exemption of benefits to January 1, 2024. That move took effect a full year ahead of the state’s previous legislative schedule.

The Final Eight States Still Taxing Benefits

The remaining eight states that tax Social Security apply complex formulas, age limits, and income brackets. Here is how each holdout state treats retirement benefits in 2026:

• Colorado: Under House Bill 21-1311, taxpayers aged 65 and older can deduct 100% of federally taxable Social Security. For individuals aged 55 to 64, House Bill 24-1142 exempts benefits if adjusted gross income is $75,000 or less for single filers or $95,000 or less for joint filers. Above those caps, the deduction drops to the standard $20,000 retirement income subtraction.
• Connecticut: Filers with adjusted gross income under $75,000 for singles or $100,000 for joint filers deduct 100% of benefits. For incomes above those cliffs, state law limits taxable benefits to no more than 25% of total benefits received.
• Minnesota: Enacted as the legislative compromise to full-repeal proposals like Senate File 15, Minnesota’s House File 1938 provides an inflation-indexed subtraction. In 2026, the full subtraction applies up to $86,410 for single filers and $110,780 for joint filers. Deductions phase out by 10% for every $4,000 of excess income ($2,000 for married filing separately).
• Montana: Following tax simplifications under Senate Bill 399, Montana taxes Social Security benefits to the same extent they are taxed federally. The state offers no dedicated exemption for benefits, though taxpayers aged 65 and older qualify for a general subtraction from federal taxable income ($5,500 statutory base, indexed to $5,660 for 2025 and adjusted annually for inflation).
• New Mexico: Under House Bill 163, codified at NMSA 1978 § 7-2-5.13, Social Security is fully exempt for single filers with adjusted gross income under $100,000, joint filers under $150,000, and married individuals filing separately under $75,000.
• Rhode Island: Taxpayers who reach Full Retirement Age can deduct benefits if federal adjusted gross income falls below indexed limits. In 2026, those limits stand at $107,000 for single filers and $133,750 for joint filers.
• Utah: Under Utah Code § 59-10-1042, expanded under Senate Bill 71, Utah offers a nonrefundable tax credit against state income tax on benefits. The credit phases out by 2.5 cents per dollar of modified adjusted gross income exceeding $54,000 for single filers or $90,000 for joint filers ($45,000 for married filing separately).
• Vermont: Under Act 71, which raised statutory thresholds by $5,000 beginning in 2025, Vermont fully exempts benefits for single filers with adjusted gross income up to $55,000 and married couples up to $70,000. The exemption phases out between $55,000 and $65,000 for singles, and between $70,000 and $80,000 for joint filers.

The Federal Formula and the $6,000 Senior Bonus Deduction

Even in the 42 states that exempt Social Security benefits, federal tax rules still apply. Under 26 U.S. Code § 86, the IRS taxes up to 85% of Social Security benefits based on provisional income. Provisional income equals a filer’s adjusted gross income, plus tax-exempt municipal interest, plus 50% of annual benefits.

Congress set the provisional thresholds in 1983 and 1993. The limits begin at $25,000 for single filers and $32,000 for joint filers. Because lawmakers never indexed these thresholds to inflation, the Social Security Administration long maintained a baseline estimate that roughly 40% of beneficiaries owed federal income taxes on their benefits—a share that independent budget analysts estimated climbed near 50% by 2024 as nominal wages rose.

However, that exposure shifted dramatically with the enactment of the One Big Beautiful Bill Act. For tax years 2025 through 2028, taxpayers aged 65 and older can claim an additional senior deduction. This bonus provides up to $6,000 for single filers and $12,000 for married couples where both spouses qualify.

As detailed in 24/7 Wall St.’s August 21 analysis, this senior deduction phases out for singles earning between $75,000 and $175,000, and married couples earning between $150,000 and $250,000. While the law leaves the 1983 provisional income formula in place, this deduction significantly reduces or wipes out the federal tax bite for millions of middle-income retirees.

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