Social Security is often a lifeline for retirees. But in some states, the tax man is lurking around the corner, ready to take a bite out of those benefits.
While many people assume their Social Security income is untouchable, the reality is more complicated. Depending on where you live, a chunk of that money could be taxed away -- leaving you with less than expected when tax time rolls around.
First off, it's important to remember that the federal government already taxes Social Security benefits, depending on your income level. But at the state level, policies can vary widely.
Forty-one states and the District of Columbia choose not to tax Social Security benefits at all, allowing retirees to keep more of their income. For the remaining states, retirees may face state taxes on their Social Security benefits — potentially cutting into their expected retirement income.
In 2025, retirees in nine states could see their Social Security benefits reduced due to state income taxes. These states include: Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont and West Virginia.
Each state has its own rules, and the amount of Social Security benefits that are taxed depends on various factors, including income levels. In some states, Social Security benefits are taxed if your total income exceeds certain thresholds. In others, a portion of your benefits may be taxable regardless of how much you earn.
Some states have recently taken steps to alleviate this tax burden. Utah, for example, is considering removing taxes on Social Security benefits, a move expected to save retirees around $143.8 million annually. Similarly, West Virginia has started phasing out its tax on Social Security benefits, with plans to eliminate it completely by 2026.
As tax laws continue to evolve, it's essential for retirees to keep a close eye on changes that may impact their income, ensuring they can make the most of their hard-earned Social Security benefits.