2025 Social Security Update: Over 40 States Offering Tax Relief on Retirement Benefits

For millions of American retirees, Social Security represents a substantial portion of their income — roughly 40% of seniors aged 65 and older depend on it for at least half their annual earnings, according to AARP data. The good news? The landscape for state-level taxation on these benefits continues to improve, with an expanding group of states protecting retirees’ checks from additional state income taxes.

The Shrinking List of States That Still Tax Social Security

While federal taxation can claim up to 85% of your Social Security benefits depending on income level, state taxes add another layer of complexity for many recipients. However, this burden is becoming less common. As of 2025, only nine states maintain Social Security taxation on retirement income.

“States have been gradually moving away from taxing Social Security,” explains Brian Kuhn, CFP and financial advisor at Wealth Enhancement Group. “We’ve seen recent policy shifts in Missouri, Nebraska, and Kansas, signaling a broader trend toward protecting retirees.”

The nine states currently taxing Social Security benefits are:

• Colorado
• Connecticut
• Minnesota
• Montana
• New Mexico
• Rhode Island
• Utah
• Vermont
• West Virginia (phasing out completely by 2026)

Notable changes in 2024 saw Kansas, Missouri, and Nebraska eliminate their Social Security taxes, reflecting a nationwide movement toward tax-friendly retirement policies.

41 States Plus Washington, D.C. Offer Complete Social Security Tax Exemptions

The majority of US jurisdictions — 41 states plus the nation’s capital — provide complete relief from state income taxation on Social Security benefits as of 2025. This tax-friendly group includes:

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, Washington D.C., Wisconsin, and Wyoming.

Calculating Your Potential Tax Savings

For those living in Social Security tax-exempt states, the financial benefit can be substantial. To estimate your personal savings, multiply your effective state tax rate by your total annual Social Security benefits.

“If you’re paying an effective state tax rate of 5% on other income, and receiving $30,000 in Social Security annually, that translates to $1,500 in annual savings,” Kuhn illustrates.

On a broader scale, the aggregate benefits are impressive. Missouri retirees collectively save approximately $309 million annually by avoiding state Social Security taxation, while Nebraska retirees retain about $17 million that would otherwise go to state coffers.

Understanding State-Specific Exemptions and Phase-Outs

Not all residents in taxing states face uniform taxation. Colorado exemplifies this complexity: seniors aged 65 and older have received full deductions on federally taxed Social Security benefits since 2022. Starting in 2025, this exemption expands to ages 55-64 with adjusted gross income limits of $75,000 (individuals) or $95,000 (joint filers).

Financial advisor Jeff Rose, CFP and founder of Good Financial Cents, emphasizes: “The specific rules vary dramatically by state. What applies in one jurisdiction may not in another. Retirees need to review their particular state’s provisions to understand their exact tax obligation.”

The bottom line: Location significantly impacts how much of your Social Security check you actually keep in retirement. Understanding your state’s tax treatment of benefits is a crucial component of retirement planning.