Retirees in These 9 States Will Face Social Security Taxes in 2025 — 3 Steps to Take Now

Social Security benefits are a critical source of income for millions of retirees across the United States. However, not all states treat these benefits the same way. While most states exempt Social Security from taxation, nine states will continue to tax benefits in 2025.

If you live in one of these states, it’s important to plan to minimize your tax burden and protect your retirement income.

The nine states that will tax Social Security benefits in 2025 include:

1. Colorado
2. Connecticut
3. Kansas
4. Minnesota
5. Montana
6. Nebraska
7. New Mexico
8. Rhode Island
9. Vermont

Each of these states has different tax policies regarding Social Security benefits, so it’s essential to understand your specific state’s tax laws. Some states impose taxes based on income levels, while others apply a flat rate. Regardless of where you live, taking proactive steps now can help you manage or reduce the impact of these taxes.

3 Things You Should Do ASAP If You Live in a Taxed State

If you reside in one of the nine states that will tax Social Security benefits in 2025, here are three essential steps to take as soon as possible to protect your retirement income.

1. Review Your State’s Tax Policies and Exemptions

Each of the nine states that tax Social Security benefits has its own rules and exemptions. Some states only tax Social Security benefits if your total income exceeds a certain threshold, while others tax benefits regardless of income level.

For example:

• Colorado offers exemptions for retirees above a certain age, reducing the taxable portion of Social Security benefits.
• Minnesota and Nebraska have income-based tax brackets where lower-income retirees may be exempt.
• New Mexico plans to phase out Social Security taxes for lower-income residents but still taxes higher-income retirees.

Understanding your state’s specific tax rules can help you determine how much of your Social Security benefits will be taxed. Check your state’s Department of Revenue website or consult a tax professional for up-to-date information.

2. Adjust Your Retirement Income Sources

One of the best ways to reduce Social Security taxes is to carefully manage your taxable income. In many states, Social Security benefits become taxable only when combined with other sources of income, such as pensions, withdrawals from 401(k) or IRA accounts, or investment earnings.

Consider these strategies:

• Withdraw strategically from retirement accounts: If you rely on withdrawals from a traditional IRA or 401(k), you may be pushing your income into a taxable bracket. Converting some of your funds into a Roth IRA, which provides tax-free withdrawals, could help lower your taxable income.
• Utilize tax-free investments: Municipal bonds and Roth accounts provide income that does not count toward taxable Social Security benefits.
• Delay Social Security benefits: If you haven’t yet claimed Social Security, delaying benefits until age 70 can increase your monthly payments and help reduce taxable income earlier in retirement.

By managing your withdrawals and taxable income, you can minimize the amount of Social Security benefits subject to state taxes.

3. Consider Relocating to a Tax-Friendly State

For retirees who want to avoid Social Security taxes altogether, moving to a more tax-friendly state may be a viable option. The majority of U.S. states do not tax Social Security benefits, making relocation an attractive choice for retirees looking to stretch their income further.

Some of the most popular states with no Social Security tax include:

• Florida
• Texas
• Nevada
• Tennessee
• Wyoming
• South Dakota
• Alaska

In addition to not taxing Social Security benefits, many of these states also have no state income tax, providing further financial relief. If you are considering relocating, weigh the cost of living, healthcare, and other factors before making a decision.

Final Thoughts: Plan Now to Protect Your Social Security Benefits

With nine states continuing to tax Social Security benefits in 2025, it’s more important than ever for retirees to take proactive steps to minimize their tax burden. Reviewing your state’s tax policies, adjusting your retirement income strategy, and considering relocation can help ensure that you keep more of your hard-earned benefits.

While taxes on Social Security benefits may be unavoidable in some states, proper planning can significantly reduce their impact. Speak with a financial advisor or tax professional to create a strategy tailored to your situation. By taking action now, you can safeguard your retirement income and enjoy a more secure financial future.