Planning for retirement involves more than just finding a warm, walkable town to settle down in. For retirees on a fixed budget, choosing a state with favorable tax laws is a crucial consideration to ensure that your golden years are financially secure. Some states still tax Social Security benefits, which can significantly impact your after-tax retirement income. Let’s dive into which states are still collecting income taxes on Social Security, and just how much you could stand to lose by calling these places home.
While many states have moved away from taxing Social Security benefits, there are still eight states that require retirees to pay a portion of their Social Security and retirement earnings back to the government in 2026. According to Money magazine, these states include Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, and Vermont. Each state has varying income thresholds to determine the amount retirees must pay, so it’s essential to understand your potential tax liability based on your personal earnings.
Let’s take a closer look at how some of these states approach taxing Social Security benefits. In Colorado, taxpayers under 65 can deduct up to $20,000 of their taxable annuity or pension income, while those over 65 can deduct up to $24,000. Connecticut allows individuals to deduct 100% of their Social Security benefits if their household income falls below certain thresholds. Minnesota and Montana also have specific income levels that determine how much retirees must pay in taxes on their Social Security benefits.
In states like New Mexico, retirees can keep 100% of their Social Security earnings if their income is below certain thresholds. Rhode Island allows retirees to exempt a portion of their retirement income once they reach full retirement age, while Utah exempts those earning up to $90,000 from paying taxes on Social Security. Vermont has smaller income thresholds for tax exemptions, requiring individuals to make less than $32,000 a year for couples or $25,000 a year for singles to keep 100% of their Social Security benefits.
Despite the potential tax implications, Social Security benefits are on the rise in 2026 due to a cost-of-living adjustment announced by the Social Security Administration. While it’s never ideal to see a portion of your retirement income deducted for taxes, understanding the tax laws in your state can help you make informed decisions about where to spend your golden years.
In the ever-evolving landscape of retirement planning and tax laws, staying informed is key to ensuring financial stability during your retirement years. Be sure to explore your options and consider all factors when deciding where to settle down for retirement.
Peace Nero is a writer and blogger who loves to explore different topics of self-development. She shares her personal experiences in order to help people discover their true purpose in life.