Hey there, folks! Are you aware that your retirement plans could be impacted by state taxes on Social Security? It's a tricky situation, and one that many people might not even consider. But here's the deal: if you live in one of these eight states, your retirement income in 2026 might not be what you expect, and it could affect your financial comfort. Let's dive in and explore the states that still tax Social Security and their unique rules for 2026.
Colorado: A Partial Exemption
Colorado has implemented a new rule that largely exempts Social Security from state taxes. If you're 65 or older, you can subtract 100% of your federally taxable Social Security from your state tax calculation. Even if you're between 55 and 64, you can still benefit from this exemption if your federal AGI is below a certain threshold. But here's where it gets interesting: higher-income earners in this age group can still subtract up to $20,000 of their benefits.
Connecticut: Tax-Free for Most Retirees
Connecticut still taxes Social Security on paper, but in practice, most retirees don't owe anything. In 2026, if your federal AGI stays under $75,000 (single) or $100,000 (married filing jointly), you won't pay any state tax on your federally taxable Social Security. However, if your income exceeds these thresholds, Connecticut taxes up to 25% of your benefits, treating them as ordinary income and applying regular state tax rates, which can go up to about 6.99%.
Montana: A Small Break for Older Retirees
Montana taxes Social Security as ordinary income, but offers a small exemption for retirees aged 65 and older. For 2026, taxpayers in this age group can subtract $5,660 from their income, which can offset their federally taxable Social Security. If you're under 65, there's no special subtraction, and all taxable benefits are subject to state tax. Montana's income tax rates are relatively low, ranging from 4.7% to 5.65%, which means many retirees over 65 will only owe a few hundred dollars in state tax on their Social Security.
New Mexico: One of the Most Generous Exemptions
New Mexico has one of the most retiree-friendly Social Security exemption policies in the country. In 2026, you won't owe any state tax on your Social Security benefits if your income stays under $100,000 (single) or $150,000 (married filing jointly). If your income exceeds these limits, only the taxable portion of your benefits will be subject to New Mexico's regular income tax rates, which range from 1.7% to 5.9%.
Rhode Island: Age and Income Tests
Rhode Island exempts Social Security for retirees who meet both an age and an income test. You must be at full retirement age, usually 66 or 67, to qualify. If you meet this age requirement, you can exclude 100% of your federally taxable Social Security only if your federal AGI is below the state's limits. For tax year 2025, these cutoffs were around $107,000 for single or head of household filers and $133,750 for married couples filing jointly. These thresholds adjust each year.
Vermont: Exemptions for Lower Earners
Vermont taxes Social Security for higher-income retirees, but offers exemptions for those with lower incomes. In 2026, all Social Security benefits will be exempt for incomes under $65,000 (single) or $75,000 (joint). Above these levels, the exemption phases out, and higher earners may have all their federally taxable benefits subject to Vermont tax at rates up to 8.75%.
Utah: A Refundable Credit for Retirees
Utah taxes Social Security at a flat rate of 4.65%, but most retirees avoid this tax through a refundable credit. You pay Utah tax on the same portion of Social Security that's taxed federally, and then you can apply the Social Security Benefits Credit. If your income is up to $45,000 (single) or $75,000 (married filing jointly), you'll receive a full credit. The credit phases out above these levels, but at lower income levels, it fully offsets the tax, meaning no Utah tax on your Social Security benefits.
Minnesota: Generous Exemptions for Many Retirees
Minnesota taxes Social Security only if it's taxed federally, and their exemptions are quite generous, meaning many retirees pay no state tax on their benefits. For 2026 filings, all federally taxable Social Security is exempt if your AGI is $108,320 or less (married filing jointly) or $84,490 or less (single or head of household). Above these thresholds, the exemption phases out gradually, and any portion that becomes taxable is subject to Minnesota's regular income tax rates, which can reach up to 9.85% at the top end.
West Virginia: A Full Exemption in 2026
West Virginia will fully exempt Social Security starting with the 2026 tax year. The state has been gradually phasing out its tax on federally taxable benefits, and in 2026, this exemption will reach 100%. This means all retirees, regardless of income, will pay no West Virginia state tax on their Social Security benefits.
So, there you have it! While most states don't tax Social Security at all, these eight states have their own unique rules and exemptions. It's important to stay informed about your state's current laws to avoid any financial surprises when it comes to your retirement income. A little planning can go a long way towards ensuring a comfortable retirement.
What do you think about these state tax policies? Do you think they're fair, or do they need to be revised? Let's discuss in the comments and share our thoughts on this controversial topic!
