In 2026, while many U.S. states have moved to exempt Social Security benefits from state income taxes, eight states still impose a tax on Social Security benefits. For retirees relying on these benefits, knowing which states will still tax them and how much it could cost them is essential for financial planning.
As Social Security taxes are becoming a focal point in retirement discussions, the issue of state taxation continues to affect many seniors across the country.
Tax Social Security in 2026
While Social Security benefits are exempt from federal taxes for many recipients, state taxes can significantly reduce the funds available to retirees. Understanding the landscape of state taxation for Social Security is crucial to ensure that retirees are well-prepared and informed about their income.
Which 8 States Will Still Tax Social Security in 2026?
In 2026, the following eight states will still tax Social Security benefits, affecting retirees who live in or plan to move to these areas:
- Colorado
- Connecticut
- Minnesota
- Montana
- New Mexico
- Rhode Island
- Utah
- Vermont
In these states, the amount of Social Security that gets taxed depends on various factors such as total income, filing status, and income thresholds. For example, retirees who have other sources of income, such as pensions or savings, may find that a portion of their Social Security benefits is taxable at the state level.
How These States Tax Social Security Benefits
While federal taxation of Social Security benefits is determined by a formula based on total income, state taxation is governed by each state’s individual income tax laws. The key differences between the states that tax Social Security benefits are:
- Colorado offers substantial exemptions for seniors but still taxes benefits above certain income thresholds.
- Connecticut taxes Social Security benefits for those with higher incomes but offers substantial exemptions for low-income seniors.
- Minnesota taxes Social Security benefits that are federally taxable but offers various deductions to reduce the overall tax burden.
- Montana similarly taxes federally taxable Social Security benefits but offers progressive deductions.
- New Mexico offers deductions for Social Security, but benefits are taxed above a certain income threshold.
- Rhode Island, Utah, and Vermont have specific income cutoffs above which Social Security benefits are taxable, with varying rates based on the total income.
How Much Could It Cost You?
The cost of state taxes on Social Security benefits can vary greatly depending on your total income and the state you live in. Here’s a breakdown of the potential tax impact:
- In Colorado, Social Security benefits are taxed after certain deductions. If your total income exceeds certain limits, a portion of your benefits could be subject to the state income tax rate of approximately 4.4%.
- Connecticut only taxes Social Security benefits for higher earners, and the state offers various exemptions to reduce tax liability. A single filer earning more than $75,000 could face tax on a portion of their Social Security benefits.
- Minnesota, with its progressive tax system, taxes Social Security benefits at rates ranging from 5.35% to 9.85% depending on income. Retirees with higher overall income will pay more on the taxable portion of their Social Security benefits.
- Montana taxes benefits above $25,000 for single filers and $32,000 for married couples, subject to its standard tax rates of up to 6.9%.
- Rhode Island applies state taxes to Social Security benefits for those making above $88,000 per year, but offers exemptions for low-income earners.
- New Mexico and Utah impose taxes based on a graduated system, with benefits taxed above certain income thresholds and subject to income tax rates ranging from 1.7% to 5.9%.
For example, a retiree with $24,000 annually in Social Security income in a state like Minnesota could see taxes of approximately $1,200–$2,000 per year, depending on total taxable income. This might not be much for high-income retirees but could make a big difference for seniors on fixed incomes.
What Does This Mean for Retirees on Fixed Incomes?
For many retirees, Social Security benefits are a critical component of their income, and state taxes on these benefits can reduce the money available for essential expenses such as housing, healthcare, and daily living.
Retirees with limited income from pensions, savings, or investments may be disproportionately affected by state income taxes on Social Security.
Planning for State Taxes
Retirees living in states that tax Social Security benefits should consider these taxes when planning their retirement budgets. In some cases, lower-income retirees may qualify for exemptions or reduced tax rates, making it crucial to understand each state’s specific exemption rules.
For those whose income exceeds these limits, taxes can reduce their effective income, especially when combined with other retirement income sources.
Will More States Follow Suit?
Several states, including West Virginia, have fully phased out taxes on Social Security benefits in recent years. This shift reflects a growing trend to attract retirees by reducing tax burdens. As the population ages, more states are reassessing their tax policies to make themselves more retiree-friendly.
Future Tax Reforms
Some states are considering legislation that could eventually eliminate or reduce taxes on Social Security benefits entirely. As retirement income planning becomes more critical for the aging population, states may face increasing pressure to adapt their tax codes to remain competitive.
How Can Retirees Manage State Tax Implications?
For retirees concerned about Social Security tax in states where it still applies, there are several strategies they can consider:
- Relocate to a state with no Social Security tax. States like Florida, Texas, and Pennsylvania are ideal for retirees looking to preserve their Social Security benefits.
- Maximize deductions and credits in states that offer exemptions. Most states that tax Social Security offer some form of tax relief for lower-income retirees.
- Strategize your income by keeping total income under the state’s exemption threshold. This may involve drawing down other retirement accounts carefully to avoid crossing these thresholds.
- Consult a financial advisor to help plan tax-efficient withdrawal strategies from Social Security and other retirement assets.
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Looking Ahead
While the taxation of Social Security benefits remains a significant issue for retirees, understanding the state-specific tax rules is essential to maximizing retirement income. In the coming years, the number of states that tax Social Security benefits may continue to decrease, as states recognize the need to attract retirees and foster a retirement-friendly environment.
For those already living in states that impose taxes, it’s critical to plan ahead, stay informed, and adjust income strategies accordingly to avoid unnecessary tax burdens.
