Good news and a bit of bad news await Social Security beneficiaries in 2025, and staying well-informed will help you make the right financial decisions. Some states are making changes in how they tax or don’t tax Social Security benefits, which could have a big impact on your tax filings.
If you’re lucky enough to live in one of the states that don’t tax Social Security benefits, this could mean more money in your pocket. Let’s break down which U.S. states will tax Social Security benefits in 2025 and what conditions you need to meet.
Which States Will Tax Social Security Benefits in 2025?
The good news is that Kansas and Missouri decided to stop taxing Social Security benefits starting in 2024, so their residents will be exempt from taxes in 2025, making tax season a little less stressful. Now, 41 states don’t tax Social Security benefits, but nine states will still impose taxes. These are the states where you’ll need to watch out for taxes on your Social Security benefits:
- Colorado: With a population of nearly six million, residents who receive Social Security benefits will have to pay taxes in 2025. However, those between 55 and 64 years old can deduct federal taxes on their benefits if their gross income is $75,000 or less for individuals or $95,000 for couples filing jointly.
- Connecticut: This state follows a similar tax rule to Colorado. If you’re a single filer earning over $75,000 or a couple earning over $100,000, you will be taxed on your benefits.
- Minnesota: In Minnesota, couples need to have an adjusted gross income no higher than $105,380 to be exempt from taxes. In contrast, individuals with a gross income of $82,190 or less can avoid paying taxes on benefits.
- Montana: In Montana, the income thresholds for taxes are lower. Individuals must earn no more than $25,000, while couples need to earn less than $32,000 to avoid taxes on Social Security.
- New Mexico: New Mexico has higher income thresholds, with individuals earning up to $100,000 and couples earning up to $150,000 exempt from taxes on their Social Security benefits.
- Rhode Island: In Rhode Island, individuals with an income of $88,950 and couples with $111,200 or less can avoid paying taxes on Social Security.
- Utah: Utah has lower income limits for taxes: $30,000 for single filers and $50,000 for couples.
- Vermont: Vermont’s tax exemptions are also on the lower side, with individuals needing to earn no more than $50,000 and couples no more than $65,000 to avoid taxes.
- West Virginia: Although West Virginia plans to stop taxing Social Security benefits soon, the tax still applies in 2025. The income limits are $50,000 for individuals and $100,000 for couples filing jointly.
Strategies to Manage Your Finances
With these varying policies across states, it’s important to plan. You can take steps to protect yourself from potential tax increases and inflation. Tax-free savings strategies might be a good way to supplement your savings and make sure you are financially secure.
Social Security and Retirement Benefits in the U.S.
By the end of 2024, approximately 68.4 million Americans will be receiving some form of benefit from the Social Security Administration (SSA) each month. The SSA was established in 1935 and offers a number of vital programs, including:
- Retirement benefits
- Disability benefits (SSDI)
- Survivor benefits
- Supplemental Security Income (SSI)
- Medicare
How COLA Affects Social Security Benefits
Every year, Social Security benefits are adjusted through the Cost-of-Living Adjustment (COLA). This is designed to help Social Security benefits keep up with inflation. For 2025, the COLA is set at 2.5%, meaning recipients will see a 2.5% increase in their benefits starting in January 2025. However, not everyone is happy with this increase, as some argue that the adjustment doesn’t reflect the true cost of living, especially for economically vulnerable groups like the elderly.
Many changes are coming to Social Security benefits in 2025, and beneficiaries need to stay on top of them to make informed financial decisions.
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