For millions of Americans, Social Security benefits remain the cornerstone of retirement income. Roughly 40% of seniors aged 65 and older rely on Social Security for at least half of their earnings. Yet how much retirees actually keep can vary widely depending on where they live. While the federal government taxes benefits for higher earners, some states have long added their own income tax on top, cutting into retirees’ monthly checks.
That reality is changing fast. In 2025, 41 states plus Washington, D.C., will no longer tax Social Security income, offering significant financial relief to older Americans. This shift follows legislative reforms in Kansas, Missouri, and Nebraska, which officially eliminated state-level taxation on Social Security, ensuring that more retirees keep their full benefits when every dollar counts.
More States Move Away from Taxing Benefits
At the federal level, Social Security income can still be taxed—up to 85% of benefits—depending on income levels. But state tax laws are separate, and many used to treat Social Security the same as wages or pensions. Over the past two decades, however, a strong trend has emerged: more states are eliminating this tax to make retirement more affordable.
By 2025, only nine states will still impose some form of tax on Social Security, compared to nearly half of all states just a generation ago. For retirees, this means choosing where to live has become an even more important part of financial planning.
New Changes Taking Effect in 2025
The biggest policy shift comes from three Midwestern states that have decided to fully exempt Social Security income starting with the 2024 tax year, affecting returns filed in 2025:
- Kansas: Now exempts all Social Security benefits, regardless of income level. Previously, higher earners still paid state tax.
- Missouri: Removed the tax for all residents aged 62 and older, eliminating income restrictions that previously applied.
- Nebraska: Completed its phased elimination of the tax, moving from partial exemptions to a full repeal.
For retirees, these changes translate into hundreds or even thousands of dollars in savings annually, depending on income. In Missouri alone, analysts estimate seniors will collectively save around \$309 million per year, while Nebraska retirees will save \$17 million annually.
States That Still Tax Social Security in 2025
Despite the trend, nine states will continue taxing Social Security benefits in 2025. These are:
- Colorado
- Connecticut
- Minnesota
- Montana
- New Mexico
- Rhode Island
- Utah
- Vermont
- West Virginia (slated to phase out taxation completely by 2026)
Even within these states, many offer partial exemptions or deductions based on income or age. For instance, Colorado allows residents aged 65 and older to fully deduct their Social Security income. Starting in 2025, this benefit will expand to residents aged 55 to 64, provided their income is below a certain threshold.
This patchwork of policies underscores how inconsistent state tax treatment remains across the country, making location a major factor in retirement planning.
Full List: 41 States and D.C. That Don’t Tax Social Security in 2025
By 2025, most Americans will live in states that fully exempt Social Security benefits. These include:
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, and Washington, D.C.
This sweeping expansion of exemptions highlights the growing consensus that taxing Social Security is unfair to retirees living on fixed incomes.
How Much Can Retirees Save?
The financial impact of these policy changes is substantial. Consider an example:
- A retiree with \$30,000 in annual Social Security income living in a state with a 5% tax rate could save \$1,500 per year simply by moving to a state that exempts Social Security.
- On a larger scale, Missouri retirees collectively save \$309 million annually, while Nebraskans see a combined savings of \$17 million.
For individuals, these savings can offset the rising costs of healthcare, housing, and daily expenses. For states, the move often improves retirement migration trends, making them more attractive to older residents.
Why States Are Making the Change
Several factors have driven the momentum away from taxing Social Security:
- Political pressure: Lawmakers face growing demand from senior advocacy groups to provide relief.
- Economic competition: States want to attract and retain retirees, who contribute to local economies.
- Fairness arguments: Many argue that taxing Social Security is “double taxation,” since workers already paid into the system with after-tax earnings.
As more states repeal their taxes, pressure mounts on the remaining few to follow suit. With West Virginia set to end its tax in 2026, that number will drop to just eight states.
The Bigger Picture: Federal vs. State Taxes
While state relief is expanding, retirees must remember that the federal government still taxes benefits for many households. Up to 50% of benefits are taxable for individuals with income over \$25,000 (or couples over \$32,000), and up to 85% of benefits can be taxable for higher-income retirees.
This means that even if a retiree moves to a state with no Social Security tax, they may still face a federal tax bill depending on their income mix from pensions, savings, and part-time work.
5 SEO FAQs
Q1. How many states will tax Social Security in 2025?
Only nine states will continue taxing Social Security benefits in 2025, down from 12 previously.
Q2. Which new states eliminated Social Security taxes for 2025?
Kansas, Missouri, and Nebraska all passed laws exempting Social Security from state income taxes starting with the 2024 tax year.
Q3. Which states still tax Social Security benefits?
The nine states are Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, and West Virginia (set to phase out by 2026).
Q4. How much can retirees save by living in a state that doesn’t tax benefits?
Savings vary by income and tax rates, but a retiree receiving \$30,000 annually could save about \$1,500 per year in a state with a 5% tax rate.
Q5. Do retirees still pay federal taxes on Social Security?
Yes. Depending on income, up to 85% of Social Security benefits may still be taxable at the federal level.
