Let's talk retirement money. You worked decades for that Social Security check, right? The last thing you want is states nibbling away at it. I remember helping my parents navigate this maze when they retired. Dad kept grumbling about "tax vampires" - turns out he wasn't wrong. When we researched what states do not tax social security, we found surprises. Like how Missouri taxes it if you're under 62 but not after? Bizarre.
Here's the deal: Currently, 38 states plus Washington D.C. won't touch your Social Security benefits. Sounds great, but wait. Some play sneaky games with income thresholds or age requirements. Others compensate with killer property taxes. I learned this the hard way when my aunt moved to a "tax-friendly" state only to get slammed with $12,000/year in property taxes. Ouch.
The Full List: States That Don't Tax Social Security At All
These states are the holy grail for Social Security recipients. No ifs, no buts. They won't tax a penny of your benefits regardless of age or income. When exploring what states do not tax social security, this group is your safest bet:
- Alabama
- Alaska
- Florida
- Georgia
- Hawaii
- Illinois
- Indiana
- Iowa
- Kentucky
- Louisiana
- Maine
- Massachusetts
- Michigan
- Mississippi
- Nevada
- New Hampshire
- New Jersey
- New York
- North Carolina
- North Dakota
- Ohio
- Oklahoma
- Oregon
- Pennsylvania
- South Carolina
- South Dakota
- Tennessee
- Texas
- Virginia
- Washington
- Washington D.C.
- Wisconsin
- Wyoming
Funny story - my buddy retired to Tennessee thinking he'd escape taxes. He forgot about the 7% sales tax on everything. His first grocery bill gave him palpitations. Moral? Always look at the whole tax picture.
The "Almost" States: Exemptions with Conditions
Now it gets tricky. These states say they don't tax Social Security... but with asterisks. Big ones. Miss their rules and boom - surprise tax bill. When researching what states do not tax social security benefits conditionally, pay attention to these:
| State | Exemption Rules | Income Thresholds |
|---|---|---|
| Arizona | Full exemption for military pensions, partial for others | None for Social Security |
| Arkansas | Full exemption starting 2023 | None |
| Colorado | Exempt for seniors 65+ | All seniors qualify regardless of income |
| Delaware | Exempt for residents 60+ | None for qualifying age group |
| Idaho | Exemption varies by retirement income | $37,500 single / $50,000 joint (2024) |
| Missouri | Full exemption starting 2024 | None |
| Montana | Exemption based on total income | $25,000 single / $32,000 joint |
| New Mexico | Exemption for retirees with income below threshold | $100,000 all filing statuses |
| Rhode Island | Exempt for recipients at full retirement age | $95,800 single / $119,750 joint |
| West Virginia | Phased exemption since 2020 | No income limits |
See West Virginia? They phased out Social Security taxes completely in 2022. Good move. But Montana? Their $25K income threshold feels criminally low. My neighbor's part-time job at Home Depot pushed him over. Brutal.
Watch These States in 2024
Nebraska's implementing full exemption starting January 2024. Kansas is debating similar legislation. I'd avoid Kansas until they make it official though - their current thresholds are messy. Utah's "tax credit" system feels like a shell game to me. You still report the income then claw back credits. Why not just exempt it?
The Taxing States: Where Social Security Gets Hit
Brace yourself. These 12 states will tax your benefits under certain conditions. Some are surprisingly brutal:
- Connecticut: Single filers over $75K / couples over $100K pay tax
- Kansas: AGI over $75K regardless of filing status
- Minnesota: Tiered system based on income level
- Nebraska: Phasing out completely in 2024 (currently partial)
- Vermont: Single filers over $50K / couples over $65K
Minnesota's system makes my head hurt. They use "provisional income" calculations. Last tax season, I helped a couple there untangle it. Took three hours and two coffees. Their CPA had charged $400 for the same work. Highway robbery.
How Different States Calculate the Tax Bite
| State | Taxation Method | Effective Rate Range |
|---|---|---|
| Colorado | Flat 4.4% on taxable portion | 0-4.4% depending on income |
| New Mexico | Graduated rates 1.7-5.9% | 1.7-5.9% |
| Vermont | Graduated rates 3.35-8.75% | 3.35-8.75% |
| West Virginia | Graduated rates 3-6.5% | 0% since 2022 |
Beyond Social Security: The Hidden Tax Traps
Okay, real talk. Focusing solely on what states do not tax social security is like checking a car's paint job but ignoring the engine. Big mistake. Here's what retirees often overlook:
My parents almost moved to Texas for the no-income-tax thing. Then they saw property tax rates in Austin - 2.3% on their $500k dream home. That's $11,500/year! Meanwhile, Alabama has low property taxes AND no Social Security tax. Sometimes the obvious choices aren't best.
The Tax Trifecta Checklist
- Property Taxes: Illinois has no Social Security tax but some counties hit 2.5% property tax. Ouch.
- Sales Taxes: Tennessee's 7% base sales tax on groceries? Painful for fixed incomes.
- Inheritance/Estate Taxes: Twelve states still have these. Maryland and New Jersey are worst offenders.
Ever compare Nevada vs. Florida? Both tax-friendly for Social Security. But Florida has no estate tax while Nevada... well, let's just say their probate process makes Dante's Inferno look pleasant. Learned that from an estate attorney friend.
Residency Rules: Don't Get Caught
Thinking about establishing residency in a no-tax state? Smart. But states aren't dumb. They'll audit you if you keep vacation homes elsewhere. Common triggers:
- Spending over 183 days per year in another state
- Keeping professional licenses active in old state
- Your "primary" doctor being out-of-state
A golf buddy tried the South Dakota residency trick. Mail forwarding address, the works. Then Colorado taxed him because his ski condo lease showed 190 days there. Cost him $8,200 in back taxes. The system works.
Military & Government Retirees: Special Considerations
This matters: Some states give extra breaks to military retirees. Texas offers full exemption on all military pensions. Virginia gives $15,000 deduction. But here's the kicker - military retirement counts toward income thresholds in states like New Mexico. Never assume.
State Tax Guide for Federal Employees
CSRS and FERS pensions get different treatments. Pennsylvania doesn't tax federal pensions at all. Alabama taxes them partially. My VA nurse friend retired to Alabama thinking it was tax-free. Surprise $900 tax bill arrived in April. She wasn't pleased.
Pro Tip: The 6-Month Rule Hack
Establish residency before claiming Social Security if possible. Many states require 6-12 months residency for full exemptions. A client moved to Florida in December, started benefits in January. Florida still honored it but other states might not. Don't cut it close.
Crucial Questions Retirees Actually Ask
Does moving to a no-tax state affect my federal taxes?
Nope. Uncle Sam doesn't care where you live. Your federal tax rate on Social Security remains the same regardless. But your overall tax burden drops significantly in no-tax states.
What if I live half the year in different states?
Danger zone. States will fight over you. Generally, taxes go to your state of "domicile" - where you vote, bank, and have your permanent address. But if you spend significant time elsewhere, they might claim you. Document everything.
Are there states phasing out Social Security taxes soon?
Missouri finished eliminating theirs in 2024. Nebraska's phaseout completes in 2024. Keep an eye on Kansas - their legislature keeps debating it but nothing concrete yet. Iowa's reduction plan stalled last session. Politics, right?
How do I prove residency when moving?
Get these immediately: Driver's license, voter registration, updated will with new address, local bank account, utility bills in your name. Bonus points: join a local church or civic group. Auditors love seeing community ties.
Will my SSDI benefits be taxed differently?
Same rules apply to SSDI as regular Social Security in most states. But double-check with a local CPA. Some states like California have weird disability provisions.
Last month at the senior center, someone asked about reverse snowbirding - summer in Michigan, winter in Florida. Tax nightmare. Florida might not tax you, but Michigan will want their pound of flesh for those summer months. States share audit lists now. Seriously.
My Take: The Good, Bad and Ugly
Let's get real. Pennsylvania's tax treatment is phenomenal - no Social Security tax, pensions exempt too. But their winters? My arthritis says no. Arizona's dry heat helps my joints but their property taxes creep up in desirable areas.
Delaware shocked me. No sales tax, low property taxes, and no Social Security tax for those 60+. Why isn't everyone moving there? Oh right - beach traffic. Miles of backup on Route 1 every summer.
The winner though? Alabama. Hear me out. Gulf Coast beaches, low property taxes, no Social Security tax. And you can buy a mansion for Florida condo prices. Their DMV is stuck in 1987 though. Bring a book.
States I'd Avoid Despite Tax Benefits
- Illinois: Pension crisis might force future taxes
- Hawaii: Everything costs triple there
- New Hampshire: No income tax but crazy high property taxes
My aunt's Florida retirement community has entire neighborhoods of Illinois refugees. They call themselves the "Tax Exodus Club." Meet Tuesdays for margaritas.
Final thought? Choosing where to retire shouldn't be just about what states do not tax social security benefits. Visit first. In July and January. Talk to locals at diners, not realtors. That nice couple we met in Arkansas warned us about tornado alley. Realtor "forgot" to mention that.
Remember Missouri's phase-out? It saved my fishing buddy $1,200 last year. He bought a new bass boat with the savings. States that do not tax social security income let you keep more of what you earned. But do your homework - tax laws change faster than weather. When unsure, spring for a $300 consult with a local CPA. Better than funding state auditors.
Still puzzling over what states do not tax social security for your situation? Hit your state's .gov website. Search "retirement income exclusion." The legalese will make your eyes cross but it's gold. Or just ask the Tax Exodus Club. Margaritas included.
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