For many retirees, Social Security benefits provide crucial support during their golden years. While Social Security income is not taxed at the federal level for all retirees, some states impose their own taxes on these benefits.
With new tax reforms coming into play, it’s important to understand how these changes may impact your retirement plans. As of 2025, five states have confirmed that they will tax Social Security benefits, and this could significantly affect your take-home income.
In this article, we’ll explore which states are making these changes, why they’re doing so, and what it means for Social Security recipients in these areas.
1. Connecticut
Connecticut has long taxed Social Security benefits, but it’s making a change for 2025. The state is gradually increasing the income threshold at which taxes on Social Security benefits begin to apply. As of 2025, taxpayers with an income above a certain threshold will be subject to state taxes on their benefits.
While Connecticut residents may still benefit from exemptions for lower income brackets, higher-income retirees will see an increase in the taxes applied to their Social Security checks. Retirees earning more than $75,000 (single) or $100,000 (married) will likely pay a higher rate of tax on their benefits.
What it means for you: Retirees living in Connecticut with higher annual earnings should plan for an increase in their tax burden, particularly if they depend heavily on Social Security as a primary source of income.
2. Minnesota
Minnesota has been taxing Social Security benefits for years, but the state has confirmed that it will continue to do so through 2025. However, there are some changes to note. The state is reducing the amount of Social Security income that is taxed, which can provide relief for many retirees. For 2025, the tax rate on Social Security benefits in Minnesota will depend on total household income.
Retirees who fall into the higher-income brackets will see a larger portion of their benefits taxed, while those with lower income will face reduced or no taxation of their Social Security benefits.
What it means for you: If you live in Minnesota and your income exceeds the state’s threshold for Social Security taxation, you should be prepared to have some of your benefits taxed. On the other hand, if your income is modest, you may see a reduced tax burden on your Social Security payments.
3. Nebraska
Nebraska is another state that will continue taxing Social Security benefits in 2025. However, the state is adjusting its tax structure to provide more exemptions for retirees. While this may seem like good news, it’s important to note that higher-income retirees will still be subject to these taxes, which could result in a noticeable reduction in their Social Security benefits.
Nebraska is also adjusting its tax brackets to account for inflation, so Social Security benefits will continue to be taxed for those with higher overall incomes.
What it means for you: If you’re a retiree in Nebraska, be prepared to pay taxes on your Social Security benefits if you have other sources of income. However, if your total income is within a certain range, you may benefit from reduced taxes or exemptions.
4. New Mexico
New Mexico has confirmed that it will continue to tax Social Security benefits for 2025. The state has a more complex tax structure for Social Security, as the amount of taxation depends on your income level. For higher-income earners, more of their Social Security benefits will be taxed, whereas those with lower incomes will see a reduced tax burden.
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New Mexico recently made some changes to its tax code, including a phased exemption for Social Security benefits for low and middle-income retirees. However, for high earners, Social Security benefits will still be taxed in full.
What it means for you: Retirees in New Mexico with additional sources of income should plan on taxes being applied to their Social Security benefits. If you have a modest income, you may qualify for exemptions or reduced tax rates on your benefits.
5. Vermont
Vermont, like several other states, has long taxed Social Security benefits, and this will continue into 2025. However, the state will implement a phased reduction in the tax burden for some retirees. For those with higher incomes, Social Security benefits will remain taxable, but the tax rate may vary depending on total household income.
Vermont offers a deduction for certain Social Security benefits, but it’s limited to taxpayers who earn under a specified income threshold. Retirees with significant earnings from pensions, investments, or other sources will still see their benefits taxed at a higher rate.
What it means for you: If you live in Vermont and rely heavily on Social Security as your main income source, expect some portion of your benefits to be taxed. However, low to middle-income retirees may benefit from reduced taxes under the new rules.
How to Prepare for These Changes
If you reside in one of these states, here are a few steps to prepare for the changes to Social Security taxation in 2025:
- Review Your Income Sources: Make sure you know how much income you’re earning from all sources, including Social Security, pensions, investments, and other retirement savings. This will help you understand whether you will be taxed on your benefits.
- Consider Tax Planning Strategies: Speak with a tax professional about strategies to minimize your tax liability. For example, some retirees may choose to withdraw from other retirement accounts before they are taxed on Social Security benefits.
- Adjust Your Budget: Since these states will tax your Social Security benefits, you may want to adjust your retirement budget to account for the reduced income. Planning ahead will help you avoid financial surprises in the future.
- Stay Informed: Tax laws can change, and the rules regarding Social Security taxes may be adjusted even after 2025. Keep up-to-date with state and federal legislation to ensure you’re fully prepared for any future tax changes.
Conclusion
The confirmation that these five states will continue taxing Social Security benefits in 2025 is a reminder that taxes are an important consideration in retirement planning.
If you live in Connecticut, Minnesota, Nebraska, New Mexico, or Vermont, it’s essential to understand how these changes will affect your retirement income and take proactive steps to plan accordingly.
By reviewing your income, working with a tax professional, and adjusting your budget, you can better manage your retirement finances and ensure that your Social Security benefits provide the support you need.