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Here’s the List of States That Don’t Tax Social Security

Do you want to know more about states that do not tax Social Security? Here’s what to know about Social Security tax differences from state to state.

Do you want to know more about states that do not tax Social Security? Here’s what to know about Social Security tax differences from state to state.

A few groups of people may be interested in learning more about states that do not tax Social Security. Business owners, employees, and retirees can all benefit from understanding their state’s Social Security tax regulations. If you’re a business owner, you’ll want to understand Social Security laws because your business may be required to pay a Social Security tax. If you’re an employee who accepts a salary or regular paychecks, you’ll also want to understand your state’s laws regarding Social Security tax because you may also have Social Security tax taken out of your salary.  

Finally, as a soon-to-be retiree, your state may or may not require you to pay taxes on your Social Security or pension income. It is this final group—retirees—that this guide focuses on. There are a lot of things to know about Social Security tax, especially if you’re heading into retirement and trying to figure out how much income you’ll have leftover if and when Social Security tax is deducted from your retirement income.

Different states in the United States have varying laws and regulations regarding taxing Social Security recipients, so you can’t assume you will or won’t be taxed based on what’s happening in a neighboring state. The more you know about the laws and regulations in your state, the easier it will be to plan for potential taxes on your benefits or even move to a state that doesn’t tax your Social Security benefits. This guide covers Social Security benefits and includes a list of states that do and do not tax it.

Can States Tax Social Security Benefits?

There is a pervasive myth that states can’t tax Social Security benefits, but this is no longer true. States can, indeed, tax Social Security recipients. When the Social Security program was first created in 1930, its benefits weren’t subject to federal income taxes. It was only in the 1980s when the Social Security Administration financing structure was overhauled by Congress in the 1980s, that a portion of Social Security benefits became taxable in some states and cases. 

It’s important to note that in the states where Social Security taxes are levied, there are some restrictions on how much you can be taxed. For example, suppose your provisional income (which refers to your tax-exempt interest income, your adjusted gross income, plus half of your annual Social Security benefits) is more than $25,000 (for an individual) or more than $32,000 (for a married couple). In that case, you can expect a portion of your Social Security benefits to be taxed each tax year. 

To understand the above calculations better, your tax-exempt interest income refers to interest payment earnings that aren’t subject to a federal or state income tax. Adjusted gross income is the total gross income minus deductions. 

Here’s an example of how much of your benefits could potentially be taxed if you live in a state that taxes Social Security benefits and you make a certain income range. 

  • If you have a combined income of less than $25,000 (for individual income tax) or $32,000 (for a couple), your Social Security benefits are not taxed. 
  • If you have a combined income between $25,000 and $34,000 (for a single taxpayer) or between $32,000 and $44,000 (for a couple), as much as 50% of your benefits can be taxed.
  • If you have a combined income of more than $34,000 (for a single taxpayer) or $44,000 (for a couple), as much as 85% of your benefits can be subject to taxes.  

These taxation rules apply to all the benefit types paid from Social Security’s trust funds (including Social Security disability insurance, survivor benefits, and retirement benefits). But they do not apply to supplemental security income, administered by the Social Security Administration but paid from the general U.S. Treasury funds. 

Even Social Security disability benefits may be taxed depending on your overall income and the type of disability benefit you receive. You can use the IRS’ Interactive Tax Assistant online tax tool to help determine how much Social Security tax you’ll likely pay in your state. You can also rely on the assistance of a skilled financial advisor to help you understand whether your state is known to tax Social Security benefits, and how much will come out of your retirement pay. 

What Are the States That Do Not Tax Social Security?

Now that you know a little about Social Security income taxes in applicable states, it’s time to learn which states do not tax Social Security. Whether you’re filing as a single taxpayer or as a married taxpayer, you won’t need to pay Social Security income tax in the following states:

  • Alabama
  • Arkansas
  • Arizona
  • Alaska
  • California
  • Florida
  • Idaho
  • Iowa
  • Hawaii
  • Maine
  • Mississippi
  • Nevada
  • New York State
  • Delaware
  • Georgia
  • Illinois
  • Indiana
  • Kentucky
  • Louisiana
  • Massachusetts
  • Michigan
  • South Carolina
  • Tennessee
  • Wisconsin
  • South Dakota
  • Oklahoma
  • New Hampshire
  • North Carolina
  • Ohio
  • Pennsylvania
  • Texas
  • Virginia
  • Maryland
  • Oregon
  • New Jersey
  • Washington
  • Wyoming

That’s a pretty impressive list for anyone interested in hanging onto as much of their retirement income as possible. But, there’s a huge caveat that must be mentioned regarding some of the above states’ taxes on Social Security. Even though they don’t levy an official Social Security tax, you may not be able to enjoy Social Security income totally tax-free. While that may seem contradictory at first, here’s why people who live in states with no Social Security tax could end up paying taxes on their Social Security benefits anyway. 

In many of the above-listed states, you’ll still pay the federal government taxes on your Social Security retirement benefits if your total income exceeds $25,000 (if you’re filing singly) or $32,000 (for a joint married filing). Not all sources of income are officially counted in your total income for federal tax purposes. For example, certain types of non-taxable income (including tax-free Roth IRA distributions and a certain percentage of military pensions) do exist. 

However, other types of pension income may contribute partially or fully to your total income for federal tax purposes. For example, half of Social Security benefits, interest income from municipal bonds, and 401(k) distributions contribute to your total taxable income.

How Much Can You Save by Living in a State Without Social Security Tax? 

Depending on your total taxable retirement income, you could save thousands of dollars by living in a state with no Social Security or income tax. But be aware that some of these states make up for lost tax revenue by charging exorbitantly high taxes in other areas. 

For example, Alaska may not have a state income tax, but it does have a high property tax rate. The median property tax amount homeowners in Alaska pay in any given tax year is $3,570. But despite the high property tax, many residents still come out on top at tax filing season because they can receive a substantial oil wealth trust fund payout if they’ve lived in the state for a year or longer. In 2022, this annual payout was $3,284 per resident. 

In Nevada, residents enjoy some of the lowest tax rates in the nation. They don’t have to pay income tax or Social Security taxes. They also don’t need to worry about paying taxes on their pension payouts. Unlike Alaska, Nevada doesn’t get its revenue from high property taxes. However, the state does have a high sales tax rate of 6.85%.  

Each state that doesn’t have a personal income tax or retirement income tax may have high taxes in other areas. Whether it be in the form of a higher estate tax or sales tax, states must get the revenue necessary to provide services their residents need and want. To determine whether a state is a good destination to retire if you want to hang onto as much of your retirement income as possible, you need to take all state taxes into consideration.  

To get a more accurate picture of how much money you can realistically save in any state, it’s also important to analyze the average cost of living. You may find that the average cost of living is cheaper in some states, even if they charge Social Security or income tax, but have low property tax or sales tax. 

For instance, Texas is well-known and applauded by residents because it doesn’t charge any state income at all. But if you take a close look at its motor fuel taxes as well as “sin taxes” on tobacco products, mixed beverages, and slot machines, you’ll see that the overall tax burden on residents and retirees may not be as low as it seems at first glance. 

To help you determine the overall tax-friendliness of different states for retirees, here’s a brief guide to how many of the different states tax retirees.

Alabama

Alabama receives a tax-friendly rating thanks to its relatively low taxes. The average tax rate for combined state and local sales comes in at 9.24%, but there is no estate tax or inheritance tax, and the state income tax range is just 5% for those who pay the highest income tax rate. The median property tax rate in the Yellowhammer State is $390 for every $100,000 in home value (as assessed). 

Alaska

Alaska receives a mixed rating in terms of tax-friendliness because of its notoriously high property tax rates. The state also charges a high tax rate for alcoholic beverages. However, the lack of state income tax and an average tax rate of just 1.76% for combined state and local sales does make this state an appealing retirement destination for some. 

Arizona

This warm and sunshiny state receives a highly tax-friendly rating. The state income tax range is just 2.55% on taxable income of up to $28,653 for single filers and $57,305 for married joint filers). Taxable income over that amount is charged at 2.98 for both single and joint-married filers. The state doesn’t charge a Social Security tax or an estate tax. Military retirement income is also tax-free in this state. 

Arkansas

Arkansas is another state that has earned a tax-friendly rating. It doesn’t levy an estate tax, Social Security tax, or a tax on military retirement pay. It also allows taxpayers to exempt as much as $6,000 of their retirement income from their income taxes. Compared to many other states, Arkansas also has a low property tax rate. It is worth noting, though, that Arkansas does have some rather high sales taxes. 

California

The Golden State joins the other states in this list for its tax-friendly status. Though sales taxes are fairly high here, the state income tax range is just 1% on single filers who make up to $10,0999 in taxable income and joint filers making up to $29,198 in taxable income. The state doesn’t tax Social Security income, but it does tax other forms of retirement income. You won’t pay an estate or inheritance tax in California. 

Colorado

This is one of the most tax-friendly states for retirees, even though it does tax Social Security benefits. Taxpayers can benefit from a retirement-income exclusion from state taxes once they reach age 55 or older. Colorado also has some of the lowest median property tax rates in the nation, with seniors potentially qualifying for an additional exemption. But watch out; Colorado is known for its high sales taxes, which are higher than 11% in some portions of the state! 

Delaware

This tax-friendly state has no sales tax, no death taxes, and a fairly low state income tax. Your estate won’t be taxed either if you live here. You’ll also benefit from low property tax rates of just $533 per $100,000 of your home’s value (as assessed). 

District of Columbia

You’ll be in a good position from a tax standpoint if you choose to retire in the District of Columbia. Although most forms of retirement income are taxable, your Social Security income isn’t. The median property taxes in this bustling state are also some of the lowest in the country. There are additional property tax exemptions seniors can claim. The state also boasts modest sales taxes and decent state income tax rates.  

Florida

The Sunshine State could also be referred to as the “Retirement State,” thanks to its lack of a state income tax. The combined state and local sales tax rate isn’t sky-high either. Instead, It sits at 7.01%, which makes it quite average. A Florida resident who is a widow or widower also has the option of claiming a $500 tax exemption, as well. 

Georgia

This beautiful state is another tax-friendly retirement destination. The state income tax range is between 1% and 5.75%. Social Security is tax-exempt, as well as up to $65,000 of most retirement income. The combined state and local sales tax rate average is 7.37%. The median property tax rate is also fairly average. 

Hawaii

Who wouldn’t want to retire in Hawaii? Though the state is associated with a high cost of living, it does have relatively low tax rates in some areas. Social Security earnings are exempt from taxes, but you should know that the state income tax range can get as high as 11% for couples with a taxable income over $400,000 who are filing jointly. It’s also 11% for couples filing separately and individuals who make over $200,000 in taxable income. 

 Idaho

The state of Idaho taxes all income except for Railroad Retirement benefits and Social Security. But it is still one of the most tax-friendly states for retirees because retirees who have qualifying public pensions can receive a generous tax deduction at the end of the tax year. Additionally, sales taxes are quite reasonable in the Gem State, and Idaho offers a $140 tax credit per person aged 65 and older to offset some of the cost of groceries. 

Kentucky

If you’re drawn to country life and have your eye on the Bluegrass State, you’ll appreciate the fact that retirees have a fairly low tax burden here. You don’t need to pay Social Security taxes, and the sales tax of 6% is pretty reasonable. The state also offers an exception of up to $31,110 per person for various types of retirement income. The flat 5% income tax rate is also not too shabby when compared with other states. 

Louisiana

With a state income tax range of 1.85% and 4.25%, the Pelican State is appreciated for its fairly low-income taxes. Plus, Social Security benefits aren’t subject to state taxes at all. You can also exempt military pensions and some other pensions from your state income taxes if you retire here. Property taxes in Louisiana are some of the lowest in the nation, but retirees must be prepared to pay the highest combined local and state sales tax rates on practically everything they purchase. 

Mississippi

Thanks to its Social Security state income tax exemption and other generous tax deductions, Mississippi is considered a tax-friendly state and a great retirement destination. The state also excludes 401(k) and IRA withdrawals and other sources of qualified retirement income from being taxed. But like many stat
s with generous tax deductions, Mississippi has a pretty high sales tax rate of 7%. 

Nevada

Retiring in the Silver State doesn’t just promise fun and excitement, but tax savings as well. There is no state income tax, and your Social Security checks won’t be taxed, either. Additionally, the state has ditched estate and inheritance taxes, and its property taxes are well below the national average. The state sales tax isn’t great, but it’s not too bad either at 6.85%. Unfortunately, some counties choose to add a local tax rate of 1.53%, which makes the combined local and state sales tax rate in Nevada a hefty 8.23%. 

South Carolina

If you’re charmed at the thought of tax breaks, you’ll love South Carolina in your retirement years. The state has low property tax rates, exempts Social Security benefits from state taxes, and allows taxpayers who are 65 or older to exclude as much as $100,000 of their retirement income from their taxes. The average combined local and state sales tax here is on the high end, though (at 7.44%). 

Tennessee

The Volunteer State looks pretty great in terms of tax-friendliness. There is no state income tax, which means you won’t be paying taxes on your retirement payouts or Social Security benefits. Property taxes here are also below average, but the sales tax rate is the second-highest in the country.

Virginia

Retirees love how tax-friendly Virginia is (especially for residents aged 65 and older). Your Social Security benefits won’t be subject to taxes in this state, and you’ll have the option of deducting as much as $12,000 of your income if you’re at least 65 years old. Veterans may also deduct a portion of their military retirement income. Virginia also has low sales tax and property tax rates. 

Washington

There’s no state income tax or Social Security tax in Washington. Residents also enjoy reasonable property taxes. However, these tax benefits are somewhat muted by the 4th-highest sales taxes in the nation. 

Wyoming

The Equality State boasts the eighth-lowest local and state combined sales tax rate in the U.S. Property taxes are also quite low, and there’s no state income tax or Social Security tax. Retirees in this state have some of the lowest local and state tax burdens, thanks to the impressive revenues the state receives from mineral and oil rights. 

All of the states that are not specifically mentioned in the above list of tax-friendly ratings either receive a mixed rating or a poor rating in terms of tax-friendliness. Even some of the states that don’t tax Social Security benefits are not considered to be tax-friendly overall based on the comparatively high tax burden they put on residents.  

Is Social Security Taxed Differently in Each State?

Different states have various tax rates they use to tax Social Security retirement benefits (if they tax them at all). We’ll dive into those differing tax rates a little later in this guide. In the meantime, it’s important to understand that some states are much more “tax-friendly” for retired taxpayers than others. 

If you’re concerned about your ability to have the most comfortable retirement, you may want to learn more about the most tax-friendly states. It may be worth it to move to such states (though you should know that some of the states that don’t tax Social Security make up for it by having very high taxes in other areas).   

What Is the Average State Tax Rate on Social Security Benefits?

While states have differing Social Security tax regulations, they all must adhere to the Internal Revenue Code. This is the United States federal statutory tax law and covers regulations for individuals and businesses regarding the filing of taxes. If you’re ever confused about this code and how it governs Social Security tax laws in your state, you may want to refer to IRS publications that interpret the tax code. These publications can be found directly on the IRS website and cover everything from property tax to military retirement income tax and federal income tax. 

But to keep this guide simple, the focus will remain primarily on what you need to know as a retiree regarding Social Security retirement income tax laws in various states. To fulfill that objective, here is a list of states that can tax your Social Security income and their tax rate ranges:

  • Colorado (4.4%)
  • Connecticut (3% to 6.99%)
  • Kansas (3.1% to 5.7%)
  • Minnesota (5.35% to 9.85%)
  • Missouri (0% to 5.4%)
  • Montana (1% to 6.9%)
  • Nebraska (2.46% to 6.84%)
  • New Mexico (1.7% to 5.9%)
  • Rhode Island (3.75% to 5.99%)
  • Utah (4.95%)
  • Vermont (3.35% to 8.75%)
  • West Virginia (3% to 6.5%)

The average state tax rate on Social Security benefits differs based on the average income of retirees in each state. Since the tax rate for individual and married taxpayers depends on their adjusted gross income plus half of their annual security benefits and their tax-exempt interest income, it’s hard to specify the “average state tax rate.” 

How Can You Calculate the Impact of State Taxes on Your Social Security Benefits?

To calculate the impact of state taxes on your Social Security benefits, you’ll need to know your state Social Security tax rate. You’ll also need to know when to apply for social security benefits, since the timing of your first withdrawal will help determine the amount of your monthly benefits. 

If you live in one of the 13 states that levy taxes on Social Security benefits, learn as much as you can about how your benefits are taxed. Some states use the same provisional income formula the federal government uses, which means they add up your adjusted gross income plus your tax-exempt interest and half of your benefits from Social Security. That’s how they come up with your provisional income. 

If your provisional income is $0 to $25,000 for a qualifying widow, widower, head of household, or single taxpayer, up to 50% of your Social Security benefits could be considered taxable. If you have the same filing status listed above but make more than $34,000, you could be taxed on up to 85% of your Social Security benefits. 

If you have any concerns about the amount you might owe in Social Security taxes at the end of the year, you can request that the government withhold taxes from your monthly benefits. That way, you won’t need to worry about paying a large amount during the tax filing season, and you might even be eligible for a tax refund. Consult with your tax advisor to fully understand the impact of state taxes on your Social Security benefits.

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