The recent decision by 41 states to stop taxing Social Security benefits by 2025 is a significant development for retirees across the United States. This change means that only nine states will continue to tax these benefits in 2025. Connecticut, Minnesota, New Mexico, Rhode Island, and West Virginia are among the states offering full Social Security tax exemptions by 2025.
Each state has its own income thresholds for these exemptions. For example, Connecticut will not tax Social Security benefits for single filers with an Adjusted Gross Income (AGI) below $75,000 or couples filing jointly with an AGI under $100,000. These changes can have a substantial impact on retirees’ financial planning.
The tax savings can increase disposable income and enhance the quality of life during retirement. Retirees must stay informed about state policies and potential political shifts affecting their benefits. Some states have introduced tax exemption policies similar to others.
For instance, Connecticut’s and Rhode Island’s policies provide significant tax relief comparable to those in other tax-friendly states. With most states set to eliminate Social Security taxes by 2025, retirees nationwide can look forward to a more financially secure retirement. Staying informed and understanding these changes can help retirees make the best choices for their financial futures.
Retirement is a time to enjoy the fruits of one’s labor, but taxes can quickly diminish those hard-earned dollars, especially regarding pensions. While federal taxes on pension income are unavoidable, state policies vary widely.
States ending Social Security taxes
This patchwork of tax laws means that where retirees live matters as much as how they save. Choosing a state that leaves pensions untaxed can preserve more income for the things that truly matter, from travel plans to healthcare. Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming are nine states where retirees can enjoy a tax-free pension income.
Each state offers unique benefits and challenges for retirees. Alaska combines no retirement income taxes with an annual dividend payment from the Alaska Permanent Fund, but living costs can be higher due to the remote nature of many areas. Florida, a popular destination for retirees, doesn’t tax retirement income and offers homestead property tax exemptions and senior-friendly communities.
Nevada’s tax-friendly policies extend to retirement income, while New Hampshire doesn’t tax wages, pensions, or Social Security benefits. South Dakota offers significant tax benefits for retirees, affordable living costs, and moderate property taxes. Tennessee repealed its tax on interest and dividends in 2021, leaving pensions and other retirement income untaxed.
Texas has no state-level retirement taxes, but property taxes are higher than the national average. Washington doesn’t tax pensions or retirement account withdrawals but levies a state capital gains tax on gains above $262,000. Wyoming doesn’t tax pensions or other retirement income and boasts some of the lowest property taxes in the country.
The state’s slower pace and stunning landscapes appeal to retirees seeking tranquility. Choosing the right state to retire in can make a significant difference in a retiree’s financial well-being, allowing them to maximize their retirement income and enjoy their golden years to the fullest.
