Where you live could influence how much of your Social Security you keep

The shrinking list of Social Security taxes

Retirement income can go a lot further in some states than others. While most states no longer tax Social Security benefits, a small group still does. That difference can affect how much money retirees keep each year and even influence where people choose to live after leaving the workforce.

In 2026, only eight states will continue to tax Social Security income. The list has become much shorter over the years as lawmakers in several states have reduced or eliminated these taxes. For retirees keeping a close eye on their budgets, these state rules can make a noticeable difference.

Which states still tax benefits?

The number of states taxing Social Security has dropped steadily, but eight remain on the list in 2026. Those states are Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, and Vermont.

That means residents in the other 42 states do not pay state income tax on their Social Security benefits. Even among the remaining eight states, the rules differ. Some offer income-based exemptions or tax breaks that reduce the burden for many retirees.

Why these taxes matter to retirees

For many older Americans, Social Security is a key source of monthly income. Any tax applied to those benefits can reduce the amount available for housing, healthcare, groceries, and other everyday expenses.

The impact depends on income levels and where a retiree lives. In some cases, state taxes on benefits may cost hundreds or even thousands of dollars each year. That is why changes to Social Security tax policies often attract close attention from seniors and financial planners alike.

Not everyone pays the full tax

A state may tax Social Security benefits, but that does not automatically mean every retiree pays. Several of the eight states offer exemptions, deductions, or credits designed to help lower-income and middle-income households.

These protections can significantly reduce or even eliminate the tax for qualifying residents. As a result, two retirees living in the same state may face very different tax bills depending on their income, filing status, and eligibility for state tax relief programs.

Vermont’s income-based exemption

Vermont continues to tax Social Security benefits in 2026, but many retirees may qualify for a full exemption. The state uses income thresholds to determine who receives relief from the tax.

Single filers with adjusted gross income up to $55,000 can receive a full exemption. Married couples filing jointly qualify with an adjusted gross income up to $70,000. These limits help lower-income retirees keep more of their Social Security income throughout the year.

Federal changes add another layer

State tax rules are only part of the story. Federal tax policy can also affect how much of a retiree’s Social Security income is taxed. The One Big Beautiful Bill Act of 2025 introduced a temporary federal senior deduction.

Eligible individuals can claim a $6,000 deduction, while qualifying couples can receive up to $12,000. The measure is designed to reduce federal tax exposure for many older Americans through the 2028 tax year.

Who benefits from the deduction?

The temporary federal deduction is aimed at seniors with moderate incomes. Many retirees could see lower taxable income because of this additional deduction during the years it remains available.

The benefit is especially valuable for people living on fixed incomes. By lowering taxable income, the deduction may reduce overall federal tax obligations and allow retirees to keep more money available for daily expenses, travel, savings, or unexpected costs.

Higher earners face a phase-out

Not every taxpayer will receive the full value of the temporary senior deduction. Federal rules gradually reduce benefits for people whose incomes exceed certain levels.

The phase-out begins for single filers with modified adjusted gross income above $75,000 and for married couples filing jointly with modified adjusted gross income above $150,000. As income increases, the deduction becomes smaller and may eventually disappear altogether.

This approach directs the largest benefits toward retirees with lower and moderate incomes.

Most retirees may avoid federal tax

Federal rules can make a big difference in how much retirees keep from Social Security income. During the years when the temporary senior deduction is in effect, many older Americans are expected to see lower federal taxable income.

The Council of Economic Advisers has estimated that a large share of retirees may end up owing no federal tax on their Social Security benefits during this period.

State and federal rules are separate

One point often confuses taxpayers. Federal tax changes do not automatically change how states treat Social Security income. A retiree may receive federal tax relief but still owe state taxes on benefits, depending on where they live.

Each state sets its own tax rules and exemption policies. Understanding both systems is important for anyone estimating retirement income or planning long-term financial decisions.

Why the list keeps getting shorter

The number of states taxing Social Security benefits has fallen over time because many lawmakers have argued that retirees should keep more of their earned benefits.

Several states have repealed these taxes in recent years, often citing affordability concerns and efforts to attract or retain retirees. As populations age, retirement-related tax policies continue to play a bigger role in state budget discussions and economic planning.

Could more changes be coming?

Tax policies can change quickly as legislatures meet and consider new proposals. Some states that still tax Social Security benefits may revisit their rules in future sessions.

Supporters of repeal often argue that removing taxes can help retirees manage rising living costs. Opponents sometimes point to budget impacts and revenue needs. For now, the list remains at eight states in 2026, but many observers will be watching closely for possible changes in the years ahead.

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What retirees should keep in mind

For retirees and those approaching retirement, understanding Social Security tax rules can be just as important as tracking benefit amounts. State and federal policies work differently, and both can influence annual income.

While most states no longer tax Social Security benefits, residents of eight states still need to pay attention to local tax rules and available exemptions. Keeping up with policy changes may help households make informed financial decisions.

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What do you think about the shrinking number of states taxing Social Security benefits? Share your thoughts in the comments.

This slideshow was made with AI assistance and human editing.

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