States That Do Not Tax Social Security Benefits: Know Federal & State Tax Rules

Social Security benefits are a crucial source of income for nearly 54 million Americans, providing a financial lifeline for many retirees.

However, like other forms of income, Social Security benefits can be subject to taxes, depending on both federal and state rules.

Let’s explore how Social Security income is taxed, where it is exempt, and what retirees need to know to plan their finances effectively.

The Good News: Most States Do Not Tax Social Security Benefits

The positive aspect of Social Security taxes is that 41 states (plus Washington, D.C.) do not tax Social Security income.

For many retirees, this means they can keep more of their benefits. Here is a list of the states where Social Security benefits are currently not taxed:

States That Do Not Tax Social Security
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	Washington, D.C.

Important Note: Tax rules are subject to change. For example, in 2024, Missouri, Nebraska, and Kansas removed their Social Security tax, joining the majority of states that do not tax these benefits.

If you live in one of the nine states that still tax Social Security, be sure to review your state’s tax rules annually, as more states may eliminate this tax in the future.

The Bad News: Federal Taxes on Social Security Still Apply

Regardless of your state’s tax laws, federal tax rules on Social Security benefits still apply to everyone.

The IRS uses a calculation called “combined income” to determine if and how much of your benefits will be subject to federal taxes.

What Is Combined Income?

Your combined income includes:

1. Adjusted Gross Income (AGI): Your total income from all non-Social Security sources, such as wages, pensions, and investment income.
2. Nontaxable Interest: Interest income that is not subject to federal tax, such as interest from U.S. Treasury bonds and municipal bonds.
3. Half of Your Social Security Benefits: 50% of the total Social Security benefits you receive during the year.

Federal Tax Rules for Social Security Income

Based on your combined income, the IRS applies the following thresholds to determine how much of your Social Security benefits are subject to taxation:

Filing Status	Combined Income	Taxable Benefits
Single, Head of Household, Widow(er), Married Filing Separately (if living apart)	Up to $25,000	0%
	$25,000 – $34,000	Up to 50%
	Over $34,000	Up to 85%
Married Filing Jointly	Up to $32,000	0%
	$32,000 – $44,000	Up to 50%
	Over $44,000	Up to 85%

Note: These percentages refer to the portion of your benefits that can be taxed, not the tax rate.

For example, if you fall into the highest bracket, up to 85% of your Social Security benefits could be taxable, but it will be taxed at your regular income tax rate.

Example: Federal Taxation in Action

Let’s see how these rules apply in a real-world scenario:

Scenario:

• Filing Status: Married, filing jointly
• AGI: $36,000
• Nontaxable Interest: $1,000 from Treasury bonds
• Social Security Benefits: $24,000

Step 1: Calculate Combined Income

1. $36,000 (AGI)
2. $1,000 (nontaxable interest)
3. $12,000 (half of Social Security benefits: $24,000 ÷ 2)

Combined Income: $36,000 + $1,000 + $12,000 = $49,000

Step 2: Determine Taxable Portion of Social Security

With a combined income of $49,000, up to 85% of Social Security benefits could be taxable:

Taxable Benefits: 85% of $24,000 = $20,400

Step 3: Calculate Federal Tax Owed

If your regular income tax rate is 22%, the tax on the taxable portion of your Social Security benefits would be:

22% of $20,400 = $4,488

Important: While up to 85% of your benefits may be eligible to be taxed, they are taxed at your regular income tax rate, not a separate higher rate.

How to Minimize Tax on Social Security Benefits

Here are a few strategies to help lower or avoid taxes on Social Security income:

1. Withdraw Tax-Deferred Savings Carefully:
   • If you have a 401(k) or traditional IRA, plan your withdrawals carefully to avoid pushing your combined income into a higher bracket.
2. Consider a Roth IRA:
   • Withdrawals from a Roth IRA do not count toward your AGI, helping to lower your combined income.
3. Delay Claiming Social Security:
   • Waiting until age 70 to claim Social Security benefits can maximize your monthly payments, potentially reducing the need for withdrawals from taxable accounts.
4. Stay Informed About Tax Rules:
   • Regularly check both federal and state tax rules to ensure you’re aware of any changes that could affect your benefits.

While Social Security is a key source of income for millions of retirees, it’s essential to understand how it is taxed at both the federal and state levels.

Fortunately, most states do not tax Social Security benefits, but federal taxes can still apply, depending on your combined income.

By staying informed and strategically managing your income sources, you can minimize the tax impact on your benefits and make the most of your retirement income.

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