For most retirees, crossing a state line does not change how Social Security is taxed. For a shrinking group of residents in eight states, though, part of the monthly benefit remains fair game for the state tax collector, on top of whatever the federal government already claims. That difference can quietly move a fixed-income budget by hundreds of dollars a year, and it is one of the few retirement variables a household can control simply by deciding where to live.
The federal bite comes first, and it tracks total income
Before any state enters the picture, the IRS may tax a share of Social Security depending on a retiree’s overall income. Under the rules the Social Security Administration spells out for beneficiaries, up to 50% of benefits becomes taxable once “combined income” — adjusted gross income, plus any nontaxable interest, plus half of the year’s benefits — passes $25,000 for a single filer or $32,000 for a married couple filing jointly. Above $34,000 and $44,000 respectively, as much as 85% of the benefit can be taxed. No one owes tax on the entire check, but higher-income retirees routinely see most of it exposed.
Those dollar thresholds were written into law in the 1980s and 1990s and have never been adjusted for inflation. As incomes and benefit amounts drift upward each year, more households cross into the taxable range without any change in the rules — a slow expansion that reaches deeper into the middle class over time.
The percentages describe how much of the benefit is exposed, not the tax rate applied. At most, 85% of a year’s Social Security is added to taxable income and then taxed at the retiree’s ordinary rate; the other 15% is always tax-free. What pushes a household across the thresholds is the rest of its income — pension checks, wages, and withdrawals from traditional retirement accounts all count toward combined income, while qualified withdrawals from a Roth account generally do not. That single quirk is why the order in which a retiree draws down different accounts can change how much of the benefit the IRS ends up taxing.
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Eight states still reach for a share
The larger question for many retirees is what the home state does next. As of 2026, eight states still tax at least some Social Security income: Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, and Vermont, according to a current state-by-state tally. West Virginia completed a multi-year phase-out in 2026, joining the 41 other states and the District of Columbia that leave benefits alone entirely.
Even in the states that do tax, the reach is usually narrow. Most set income cutoffs or age-based exemptions that shield lower- and middle-income beneficiaries, so a large share of residents in those states owe nothing on their benefits. The rules also vary widely from one taxing state to the next: some mirror the federal formula, others exempt benefits below a set income line, and a few tie relief to a retiree’s age. The label “taxes Social Security” therefore covers a wide range, from a state that taxes almost every beneficiary to one that touches only the wealthiest.
A few examples show how uneven the treatment is. Colorado lets residents 65 and older deduct all of their federally taxed Social Security, so most older beneficiaries there owe nothing despite the state’s appearance on the list. New Mexico exempts benefits entirely for individuals with income below $100,000 and couples below $150,000, sparing the large majority of its retirees. Minnesota, Montana, and the rest each draw their own income lines and age tests. The practical lesson is that landing on the taxing-state list says little on its own; the exemptions underneath it decide whether a given retiree actually writes a check.
Why the map can be worth hundreds of dollars a year
The practical stakes rise with income. A retiree drawing a modest benefit and little else may fall under every exemption and pay no state tax even while living in a taxing state. A couple with a pension, required retirement-account withdrawals, and two sizable benefits can sit well above the cutoffs, handing over a few hundred dollars or more each year that an identical household one state away would keep.
A concrete case sharpens the point. A single retiree with $22,000 in Social Security and $40,000 from a pension sits above the federal thresholds and could see up to 85% of the benefit taxed by the IRS; whether the state adds to that bill depends entirely on which state issues the tax return. Living in one of the 41 states that exempt benefits removes the state layer completely, while a taxing state without a generous exemption could pile a few hundred dollars a year on top of the same income. Over a multi-decade retirement, that recurring difference compounds into real money.
For anyone weighing a move in retirement — to be closer to family, to cut housing costs, or to escape the winters — the Social Security tax treatment is a small but real line item, one that compounds year after year on a fixed income. It rarely drives the decision on its own, and property taxes, home insurance, and the overall cost of living usually matter more. But it belongs on the same ledger, because a state with no income tax at all can look very different from one that taxes benefits once the full retirement picture is added up.
The direction of travel favors retirees. Over the past decade, states have steadily moved toward exempting Social Security, with several phasing out their taxes entirely, so a state that taxes benefits today may not a few years from now. The federal thresholds, by contrast, remain frozen — meaning the one tax layer a retiree cannot escape by moving is the one most likely to grow.
This article was produced with the assistance of artificial intelligence and reviewed by The Financial Wire editorial team.
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