8 States That Still Tax Social Security in 2026: A Comprehensive Guide
Retirees, take note! While federal income taxes on Social Security benefits are a well-known consideration, state taxes can also significantly impact your retirement finances. Here's a breakdown of the 8 states that still levy taxes on Social Security benefits in 2026, along with the potential tax implications and how to navigate them.
1. Colorado: Partial Exemption and Flat Tax Rate
Colorado residents aged 55 to 64 can exclude up to $20,000 of Social Security income from state taxes. Once they reach 65, the exclusion increases to $24,000. However, Colorado applies a flat 4.4% individual income tax rate, so even with the exemption, taxes can still apply. Consider consulting a financial advisor to explore strategies to minimize your tax burden in Colorado.
2. Connecticut: Income-Based Deductions
Connecticut taxpayers with adjusted gross income (AGI) below $75,000 (single filers) or $100,000 (married filing jointly) can deduct 100% of their Social Security income. For those above these thresholds, state taxes on Social Security benefits are capped at 25%. Connecticut's income tax rates range from 2% to 6.99%, so careful planning is essential.
3. Minnesota: Deductions for Most Residents
Minnesota residents can deduct at least a portion of their Social Security income. Single filers earning $84,490 or less and married couples filing jointly with income below $108,320 are fully exempt from state Social Security taxes. Those earning more may still owe state taxes, with rates ranging from 5.35% to 9.85%.
4. Montana: Limited Subtraction and Reduced Deductions
Montana imposes a 5.65% income tax on earnings above certain thresholds. Taxpayers aged 65 and older are limited to a $5,500 subtraction from federal taxable income. Several deductions previously available to older residents have been eliminated, making tax planning even more crucial in Montana.
5. New Mexico: Exemptions for Most Retirees
Since 2022, most New Mexico retirees have been exempt from state income tax on Social Security benefits. Single seniors with income below $100,000 and married couples filing jointly with income below $150,000 fall into this category. Those exceeding these thresholds must pay state taxes, with rates ranging from 1.7% to 5.9%.
6. Rhode Island: Income-Based Taxation
Rhode Island taxes Social Security benefits based on AGI. Married couples filing jointly owe state taxes only when AGI reaches $133,750 or higher. For most other filers, the threshold is $107,000. Rhode Island's income tax rates range from 3.75% to 5.99%, making it essential to understand your tax obligations.
7. Utah: Retirement Tax Credit and Flat Tax Rate
Utah offers a $450 retirement tax credit, but it's not available to those claiming other credits like Social Security or Military Retirement. The state applies a flat 4.5% income tax rate to all taxable income, so careful financial planning is essential to manage your tax burden in Utah.
8. Vermont: Full Exemption for Some, Partial for Others
Vermont provides full exemption from state taxes on Social Security income for retirees below certain income limits. Married couples filing jointly with AGI below $70,000 and single filers with AGI below $55,000 qualify for full exemption. Partial exemptions are available for those with AGI up to $64,999 (single) or $79,999 (joint).
The Bottom Line: Planning is Key
State taxes on Social Security benefits can significantly impact your retirement budget. Consider these strategies:
- Supplement Your Income: Explore part-time jobs or side hustles to boost your Social Security income.
- Consult a Financial Advisor: They can help you navigate state-specific tax laws and develop a personalized retirement plan.
- Stay Informed: Keep up-to-date on changes to state tax laws that may affect your retirement finances.
Remember, being proactive about your retirement finances is crucial. Don't let state taxes catch you off guard. Start planning today to ensure a more secure and comfortable retirement!
