US States That WILL NOt Tax Social Security Benefits in 2025

Political and Economic Philosophy: States without income taxes may adopt a broader tax policy that avoids taxing retirement income, including Social Security benefits, to attract retirees and promote economic growth.
Revenue Sources: States without income taxes typically rely on alternative revenue sources such as sales taxes, property taxes, or natural resource revenues. For example, states like Texas and Alaska have significant revenue from oil and gas.
Economic Attractiveness: By not taxing Social Security benefits, states can be more attractive to retirees who might otherwise choose states with more favorable tax environments for their retirement income.
Political Considerations: There may be political motivations for not taxing Social Security benefits, as such policies can be popular among voters, particularly retirees and older residents who rely on Social Security.
Retiree Incentives: States that aim to create a favorable environment for retirees may choose not to tax Social Security benefits to enhance their appeal and support an aging population.

These factors contribute to the decision of some states to forego taxing Social Security benefits, helping to make them attractive places for retirees to live

Tax Social Security Benefits in 2025

Taxation of Social Security benefits in 2025 will follow the framework established by current laws, though there could be changes based on future legislation. Here’s a detailed look at how Social Security benefits are taxed and what to expect:

1. Federal Income Tax on Social Security Benefits

How It Works:

Taxable Portion: Depending on your total income, part of your Social Security benefits may be taxable. The taxable amount is determined based on your combined income, which includes your adjusted gross income (AGI), nontaxable interest, and half of your Social Security benefits.
Income Thresholds: The taxation of Social Security benefits is based on the following income thresholds (as of the most recent updates):
- Single Filers:
  - If your combined income is less than $25,000, your benefits are not taxable.
  - If your combined income is between $25,000 and $34,000, up to 50% of your benefits may be taxable.
  - If your combined income is more than $34,000, up to 85% of your benefits may be taxable.
- Married Couples Filing Jointly:
  - If your combined income is less than $32,000, your benefits are not taxable.
  - If your combined income is between $32,000 and $44,000, up to 50% of your benefits may be taxable.
  - If your combined income is more than $44,000, up to 85% of your benefits may be taxable.

Combined Income Calculation:

Formula: Combined Income = AGI + Nontaxable Interest + 50% of Social Security Benefits.

2. State Income Taxes

Varies by State:

Some states tax Social Security benefits, while others do not. As of 2024, the following states tax Social Security benefits:
- Colorado
- Connecticut
- Minnesota
- Missouri
- Montana
- Nebraska
- New Mexico
- Rhode Island
States like Illinois, Florida, and Texas do not tax Social Security benefits.

State Tax Laws:

State tax laws can change, so it’s essential to check with your state’s tax authority or a tax professional for the most current information.

3. Potential Changes for 2025

Legislation Updates:

Future legislation could alter the income thresholds or tax rates for Social Security benefits. Keep an eye on proposed tax reform bills and updates from the IRS for any changes.

Inflation Adjustments:

The income thresholds for taxable Social Security benefits are adjusted for inflation periodically. Check for any adjustments that may occur in 2025.

4. Planning for Taxes on Social Security Benefits

Strategies:

Manage Income: Consider strategies to manage your income to stay within lower tax brackets if possible.
Tax-Efficient Withdrawals: Coordinate withdrawals from retirement accounts to minimize the impact on your taxable income.
Consult a Tax Professional: Work with a tax advisor to plan for and optimize your tax situation, especially as it relates to Social Security benefits and other sources of income.

5. How to Report Social Security Benefits

Form SSA-1099:

Each year, you will receive Form SSA-1099 from the Social Security Administration, which shows the total amount of Social Security benefits you received. This form is used to report your benefits on your tax return.

Filing:

Report your Social Security benefits on your federal income tax return using the information from Form SSA-1099. If you need assistance, consult the IRS guidelines or a tax professional.

Summary

In 2025, Social Security benefits will be taxed based on your combined income and the income thresholds set by current law. Up to 85% of your benefits may be taxable depending on your overall income. State tax treatment can vary, so it’s crucial to stay informed about both federal and state tax laws. For accurate and personalized advice, consulting with a tax professional is recommended.