Social Security can be a lifesaver for millions of retired Americans. The guaranteed income has kept countless people above the poverty line and in a position to have money coming in, regardless of their personal retirement savings. That said, Social Security benefits are still income, and like other sources of income, they can be subjected to taxes. That’s the bad news.
The good news is that most states do not tax Social Security benefits, and more seem to be joining the wave with each passing year. Let’s look at which states those are.
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States that do not tax Social Security benefits
Below are the 41 states that do not tax benefits:
- 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
Although Washington, D.C. isn’t a state, retirees living there will not have their benefits taxed. It’s also worth noting that in 2024, three states — Kansas, Missouri, and Nebraska — got rid of their Social Security tax. This is an encouraging sign for the retirees in the nine states that still have such a tax.
You can avoid your state’s taxes, but not Uncle Sam’s
Taxes work differently on the local, state, and federal levels. Although you may be able to avoid paying state taxes on your Social Security benefits, federal tax rules still apply, and up to 85% of your benefits could be taxable. Below is how much of your benefits may be taxable on the federal level based on your combined income:
| Filing Status | Combined Income | Percentage of Benefits Taxable |
|---|---|---|
|
Single |
$25,000 to $34,000 |
Up to 50% |
|
Single |
More than $34,000 |
Up to 85% |
|
Married, filing jointly |
$32,000 to $44,000 |
Up to 50% |
|
Married, filing jointly |
More than $44,000 |
Up to 85% |
Source: Social Security Administration.
Your combined income is the total of three things: your adjusted gross income (AGI), half of your annual Social Security benefits, and any nontaxable interest you receive. Your AGI includes all income other than Social Security, and nontaxable interest is any interest income not subject to federal tax, such as certain bonds you may own.
You likely won’t pay much in federal taxes on your benefits
The key words to focus on when it comes to federal taxes on Social Security benefits are “taxable” and not “taxed.” In other words, if you’re married and filing jointly, with a combined income over $44,000, you won’t pay an 85% tax on your benefits, but 85% of your benefits will be eligible to be added to your other income and taxed at your regular tax rate.
As an example, let’s assume you’re married and filing jointly, with the following being true:
- You and your spouse’s AGI is $50,000
- You received $500 in nontaxable interest
- You received $20,000 in Social Security benefits for the year
In this scenario, your combined income is $60,500 ($50,000 + $500 + $10,000), meaning up to 85% of your Social Security benefits are eligible to be taxed.
Instead of paying 85% on $20,000 ($17,000), Social Security would take the $17,000, add it to any other income you have, and then tax it at your regular tax rate. If you’re in the 22% tax bracket, you would potentially owe $3,740 on the $20,000 in benefits you received.
Paying federal taxes may not seem ideal for retirees, but how it’s structured works out so that most people won’t pay all that much to Uncle Sam.
