Social Security benefits play a crucial role in enhancing the financial stability of many Americans, providing essential support for retirement, survivor, and disability needs. However, these benefits can lead to unintended tax implications for some recipients, depending on their overall household income and the state in which they reside.
In 2025, nine states will tax Social Security benefits, presenting varying conditions for recipients. Notably, Nebraska has eliminated this tax starting this year, and West Virginia, effective for tax year 2026, will also cease taxing these earnings.
States Taxing Social Security Earnings for 2025
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Colorado: Recipients under 65 may have the first $20,000 of their benefits exempt from state tax, while those aged 65 and older are entirely exempt. A new provision allows those aged 55 to 64 to deduct up to $24,000.
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Connecticut: Single filers with an adjusted gross income (AGI) below $75,000 and joint filers below $100,000 are exempt from taxes on benefits. However, for those exceeding these thresholds, up to 25% of benefits may be taxed.
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Minnesota: Benefits are partially exempt, with full exemptions phasing out at an AGI of $108,320 for married couples and $84,490 for single filers.
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Montana: Tax liability on Social Security benefits depends on the recipient’s AGI.
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New Mexico: Most recipients are not taxed on their benefits, with exemptions for single earners under $100,000 and couples under $150,000.
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Rhode Island: Income exceeding $107,000 for single filers or $133,750 for joint filers will forfeit any tax breaks.
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Utah: Benefits are taxable once income hits $54,000 or more ($90,000 if married filing jointly). Below these thresholds, recipients can claim a nonrefundable credit.
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Vermont: Single filers with an AGI under $50,000 and joint filers under $65,000 are exempt. Further phases apply as incomes rise.
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West Virginia: The state has expanded exemptions this year, allowing for a 65% subtraction from federal AGI for Social Security benefits starting January 1, 2025.
Strategies to Mitigate Tax Liabilities
While the prospect of taxes on Social Security benefits may seem daunting, there are strategies to alleviate some of the financial burden. First, residents in certain states might find that their state does not tax Social Security at all, eliminating additional complications. For those in states with taxes, understanding AGI thresholds is essential; remaining below these limits can help avoid tax requirements.
Additionally, planning the onset of Social Security benefits can also influence tax liability. Some individuals may choose to delay starting their benefits in order to maximize their monthly payments, which could also help in staying below tax thresholds.
Filing for Benefits
As tax season approaches, awareness of required documents is critical. The Social Security Administration issues an SSA-1099 form, which details the benefits received over the year. This form aids in calculating any tax obligations when filing federal returns.
Understanding the nuances of Social Security taxation is essential for recipients looking to make the most of their benefits, ensuring that they maximize their income while minimizing tax liabilities.
