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Living in One of These 41 States? Here’s Good and Bad News About Social Security Taxes

As of the start of September, nearly 54 million Americans received Social Security retirement benefits. For many, Social Security is their main retirement income source, making it one of the country’s most important and effective social programs.

There are a lot of valid critiques of Social Security, but it should be easy to appreciate the financial lifeline it provides for millions.

Unfortunately, like other forms of income, Social Security benefits are subject to tax rules. However, there’s good and bad news for retirees. Let’s take a look at both.

"Tax Time" written on a note sitting on top of a laptop keyboard.

Image source: Getty Images.

Most retirees can avoid Social Security state taxes

The good news about Social Security taxes is that most states do not tax Social Security benefits. Here are the 41 states (and Washington, D.C.) that currently do not:

  1. Alabama
  2. Alaska
  3. Arizona
  4. Arkansas
  5. California
  6. Delaware
  7. Florida
  8. Georgia
  9. Hawaii
  10. Idaho
  11. Illinois
  12. Indiana
  13. Iowa
  14. Kansas
  15. Kentucky
  16. Louisiana
  17. Maine
  18. Maryland
  19. Massachusetts
  20. Michigan
  21. Mississippi
  22. Missouri
  23. Nebraska
  24. Nevada
  25. New Hampshire
  26. New Jersey
  27. New York
  28. North Carolina
  29. North Dakota
  30. Ohio
  31. Oklahoma
  32. Oregon
  33. Pennsylvania
  34. South Carolina
  35. South Dakota
  36. Tennessee
  37. Texas
  38. Virginia
  39. Washington
  40. Wisconsin
  41. Wyoming

States’ Social Security tax rules are fluid, so if you’re living in one of the nine states that currently tax benefits, be sure to keep up with your state’s rules each year because they can change. In 2024 alone, three states (Missouri, Nebraska, and Kansas) did away with their Social Security tax.

Unfortunately, federal tax rules still apply

Now, it’s time for me to be the bearer of bad news: Regardless of your state’s specific tax rules, federal tax rules still apply to everyone. The IRS uses your “combined income” to calculate your tax bill. It includes the following:

  • Adjusted gross income (AGI): Your total income from all non-Social Security sources.
  • Nontaxable interest: Interest income not subject to federal tax, such as U.S. Treasury and municipal bonds.
  • Half of your Social Security benefits: 50% of your total Social Security benefits for the current year.

Once your combined income is calculated, Social Security uses the following rules to decide how much of your benefits are eligible to be taxed.

Percentage of Taxable Benefits Added to Income Filing Single Married, Filing Jointly
0% Less than $25,000 Less than $32,000
Up to 50% $25,000 to $34,000 $32,000 to $44,000
Up to 85% More than $34,000 More than $44,000

Data source: Social Security Administration.

Seeing federal Social Security taxes in action

Federal Social Security tax rules are not as straightforward as I’m sure most people would prefer (surprise, surprise), so let’s walk through how they work.

At first glance, some people view the above table and think their Social Security benefits will be taxed up to 85%. Luckily, that’s not how it works. Those percentages are not how much Social Security will be taxed — just how much is eligible to be taxed.

Let’s imagine you’re married and filing jointly, and the following are true:

  • You and your spouse’s AGI is $36,000
  • You earned $1,000 in Treasury bond interest
  • Your Social Security benefits for the year add up to $24,000

In this situation, your combined income would be $49,000 ($36,000 + $1,000 + $12,000). This means up to 85% of your benefits for the year ($20,400) are eligible to be taxed.

Social Security would take the $20,400, add it to any other income you have, and then tax it at your regular income tax rate. If you’re in the 22% tax bracket, you’d owe $4,488 on the $24,000 you received in benefits that year. This outcome is much better than owing $20,400.

The more you understand how Social Security taxes work, the better you can plan your retirement finances.

The $22,924 Social Security bonus most retirees completely overlook

If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $22,924 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after. Simply click here to discover how to learn more about these strategies.

View the “Social Security secrets” »

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