37 states that do not tax social security benefits


Income is the most important aspect of retirement planning, and Social Security is the biggest source of income for most retirees. If you are approaching the golden years, it is wise to take an inventory of your cash flow needs and your sources of income. This planning will help you determine the best age to take Social Security benefits, how to spend your 401 (k) or IRA, and how to structure your retirement payments. You need to understand the tax implications of any retirement income decisions you make, so it’s important to understand how your state taxes Social Security.

States without income tax

There are seven states that have no income tax. If you live in one of these countries, you will receive your social security benefits tax-free at the state level. These states are:

  1. Alaska
  2. Florida
  3. Nevada
  4. South Dakota
  5. Texas
  6. Washington
  7. Wyoming

This is obviously appealing to anyone earning a salary or receiving passive income, but it can be especially meaningful for retirees on a fixed budget. The average household spends around $ 48,000 a year in retirement, so a 5-10% savings on state income tax could easily keep $ 400 more in your pocket each month.

There are two other states that do not levy taxes on earned income or social security benefits:

  1. New Hampshire
  2. Tennessee

While it’s great that Tennessee and New Hampshire don’t tax your Social Security benefits, both still tax dividends and interest. This is relevant for about half of retirees who have investment accounts that generate income.

Image source: Getty Images.

States that exempt Social Security from income tax

That leaves 41 states that collect tax revenue, but most of them allow residents to deduct Social Security benefits from their taxable income. If you live in one of these states, your Social Security is not taxed.

  1. Alabama
  2. Arizona
  3. Arkansas
  4. California
  5. Delaware
  6. Georgia
  7. Hawaii
  8. Idaho
  9. Illinois
  10. Indiana
  11. Iowa
  12. Kentucky
  13. Louisiana
  14. Maine
  15. Maryland
  16. Massachusetts
  17. Michigan
  18. Mississippi
  19. New Jersey
  20. new York
  21. North Carolina
  22. Ohio
  23. Oklahoma
  24. Oregon
  25. Pennsylvania
  26. Caroline from the south
  27. Virginia
  28. Wisconsin

In addition, residents of the District of Columbia can deduct Social Security from their taxable income.

There really is no reason to denigrate tax-free income, but residents of the above states should consider other forms of taxation as well. Most states collect property taxes, with New Jersey, Illinois, New Hampshire, Connecticut, Vermont, and Texas among the highest.

Sales tax is another popular revenue stream for many states, which is relevant if all of your retirement income is spent on consumption. California residents pay a 7.25% tax on non-essential purchases. It’s 7% in Indiana and Mississippi. Several other states charge between 6% and 7%. Sales tax typically doesn’t apply to groceries, clothing, medical services, and basic necessities, so keep that in mind when making a retirement plan.

It is important to consider the impact of various taxes when budgeting and assessing the purchasing power of your retirement income.

States that tax social security

That leaves us with the 13 states that do not deduct Social Security from taxable income.

  1. New Mexico
  2. Utah
  3. Colorado
  4. Connecticut
  5. Kansas
  6. Minnesota
  7. Missouri
  8. Montana
  9. Nebraska
  10. North Dakota
  11. Rhode Island
  12. Vermont
  13. West Virginia

Before residents of these states get too mad about their retirement lifestyle, know that most of them offer breaks. Many of them allow retirees to fully deduct social security income as long as their income does not exceed a certain level. These thresholds can reach $ 100,000 for married couples in a few of these states. Most people won’t pay state income tax on their Social Security benefits, even in places that don’t offer general exemptions.


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