Social Security Retirement Benefits & Taxation by State

In addition to federal taxes on Social Security benefits, you may have to pay state taxes on these benefits.

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When choosing where to retire, seniors must consider a wide variety of factors, from weather and access to favorite pastimes to proximity to family and friends. To ensure your retirement savings will last well into your golden years, you will need to understand how the tax policies in each state will affect your income. While some states completely exempt Social Security benefits from taxation, others fully tax these benefits, which can dramatically affect how much you have available to spend each month. Some states might also allow local taxation of benefits.

States With No State Income Tax

As of November 2012, there were seven states that did not charge any type of state income tax, including taxes on Social Security benefits. These states include Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. Two more states, Tennessee and New Hampshire, do not tax income or Social Security benefits, but do tax interest and dividends.

States That Exempt Social Security Benefits From Taxation

Of the states that do charge state income tax, a full 29 exempt Social Security benefits from taxation. These 29 states include Alabama, Arizona, Arkansas, California, Delaware, District of Columbia, Georgia, Hawaii, Idaho, Illinois, Indiana, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, Missouri, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Virginia and Wisconsin.

States That Partially Exempt Social Security From Taxation

Connecticut, Iowa and Kansas allow for partial exemption of Social Security benefits from taxation depending on income level. In Connecticut, individual taxpayers with a federal adjusted gross income of $50,000 or less and married couples with an AGI of $60,000 or less are exempt from paying Social Security taxes. Kansas exempts Social Security benefits from taxation for taxpayers with an AGI of $75,000 or less. As of 2012, individual taxpayers in Iowa with an AGI below $25,000 and married taxpayers with an AGI below $32,000 were exempt from Social Security taxes. This tax was being phased out for all Iowa taxpayers by 2014.

States That Provide Retirement Exclusions

Colorado, Utah and West Virginia provide some form of exemption or credit on retirement income that may help taxpayers avoid Social Security taxes. In Colorado, taxpayers between the ages of 55 and 64 can exclude up to $20,000 of retirement earnings from taxes, which may include Social Security, pensions and other income. Colorado residents over the age of 64 can exclude up to $24,000. Utah residents over the age of 65 may be eligible to claim a credit of up to $450 for individuals or $900 per couple to offset taxes on Social Security benefits. In West Virginia, individual filers may exclude the first $8,000 of retirement earnings from taxation, while married couples can exclude up to $16,000 in retirement income, which may include Social Security.

States That Tax Social Security Income

Minnesota, Montana, Nebraska, New Mexico, North Dakota, Rhode Island and Vermont all tax Social Security benefits if these benefits are also taxable at the federal level. Montana uses a slightly different income calculation than the federal government when determining what portion of benefits will be taxed, while the remaining six states follow the same guidelines as the federal government when determining what portion of benefits to tax.