For many retirees, Social Security benefits are a key source of income that helps cover living expenses. However, these benefits may come with a hidden cost—taxes. While federal taxes on Social Security benefits are a well-known concern, state-level taxation can further impact your retirement income. In 2025, some states will continue to tax Social Security benefits, adding to retirees’ financial planning challenges.
How Federal Taxes Apply to Social Security Benefits?
On a federal level, retirees are taxed on a portion of their Social Security benefits if their provisional income exceeds certain thresholds. For single filers, taxation begins when provisional income surpasses $25,000. Married couples filing jointly face a higher threshold of $32,000.
- Provisional income is calculated by adding half of your Social Security benefits, your adjusted gross income (AGI), and any nontaxable interest.
- If provisional income is above $34,000 for single filers or $44,000 for joint filers, up to 85% of Social Security benefits could be taxable.
Understanding how provisional income is calculated is critical for retirees to plan their taxes effectively and avoid unexpected bills.
States That Tax Social Security Benefits in 2025
While 41 states do not tax Social Security benefits, 9 states have provisions that may tax them. These states include:
- Colorado
- Connecticut
- Minnesota
- Montana
- New Mexico
- Rhode Island
- Utah
- Vermont
- West Virginia
Each state has unique tax rules and exemptions based on income levels.
Income Thresholds in Taxing States
Even in states that tax Social Security benefits, not all retirees will owe taxes. Most states apply income thresholds to determine tax liability. For example:
- In Connecticut, single filers with an AGI under $75,000 and married couples filing jointly with an AGI below $100,000 are exempt from state taxes on their benefits.
- Other states, like Minnesota and Montana, use similar income-based criteria to determine tax applicability.
To avoid surprises, it’s essential to check your state’s specific tax rules by visiting the state department of revenue’s website.
Strategies to Minimize Taxes on Social Security Benefits
Tax planning can help you reduce or even eliminate taxes on Social Security benefits. Here are some strategies to consider:
1. Strategic Withdrawals
Withdrawals from traditional retirement accounts like 401(k)s or IRAs count toward provisional income. To minimize taxes, plan withdrawals carefully, especially if you’re close to the income thresholds.
2. Roth IRA Benefits
Unlike traditional accounts, withdrawals from a Roth IRA are not taxable and do not count toward your provisional income. If possible, contribute to a Roth IRA or consider converting traditional retirement funds into a Roth account.
3. Roth Conversions
A Roth conversion involves transferring funds from a traditional retirement account to a Roth IRA. While this triggers a taxable event in the short term, future withdrawals will be tax-free. However, keep in mind that Roth withdrawals must meet the five-year rule for tax-free benefits. Consulting with a tax professional can help you determine if this strategy aligns with your retirement goals.
Take Control of Your Retirement Taxes
Understanding both federal and state tax rules is vital for protecting your retirement income. By proactively managing withdrawals, taking advantage of Roth IRA benefits, and staying informed about your state’s tax policies, you can reduce your tax burden and keep more of your hard-earned money.
If you live in one of the nine states that taxes Social Security benefits, take the time to review your financial plan. A little preparation can go a long way in ensuring that your retirement years are financially secure.
This article has been carefully fact-checked by our editorial team to ensure accuracy and eliminate any misleading information. We are committed to maintaining the highest standards of integrity in our content.
Premlata is a seasoned finance writer with a keen eye for unraveling complex global financial systems. From government benefits to energy rebates and recruitment trends, she empowers readers with actionable insights and clarity. When she’s not crafting impactful articles, you can find her sharing her expertise on LinkedIn or connecting via email at biswaspremlata@gmail.com.
