Mar 31, 2025
Tax season is probably everyone’s least favorite time of year. But the experience can be a little more daunting for millions of Americans who receive Social Security benefits and live in a state that applies an additional tax on these payments.
To be clear, most states don’t tax Social Security payments — the federal government will already tax them, beyond a certain gross adjustment income threshold. So the vast majority of retirees don’t need to worry about this. However, Colorado, Connecticut, Vermont, Montana, Minnesota, New Mexico, Rhode Island, West Virginia and Utah will collect some portion of your benefit payments.
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If you live in any of these states, here are three ways you can prepare for this and potentially reduce your liabilities.
Check income thresholds
Most states that charge an additional tax on Social Security benefits do so only above certain income thresholds.
In Connecticut, for instance, married couples filing together would pay state tax on these benefits if their joint threshold exceeds $100,000. Those filing under any other status would owe taxes only if the adjusted gross income (AGI) is above $75,000. New Mexico and Rhode Island also have thresholds at varying levels, depending on your status.
At the federal level, if you’re single and your total income is above $25,000 or if you’re married and your combined income is above $32,000, a portion of your Social Security benefits could be taxable, according to the Internal Revenue Service.
With this in mind, it’s important to keep track of all your various income sources and try to forecast future earnings as well to see if you hit any of these thresholds and so you can plan ahead.
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Look for tax credits or exemption rules
Some states do offer exemptions, credits and offsets to lower the burden of taxes on lower- or middle-income retirees.
In Colorado, for example, residents over the age of 65 are allowed to deduct the full amount of Social Security benefits included in their federal taxable income from their state taxable income.
For instance, if $7,000 of your Social Security benefits were taxed at the federal level, you can subtract that same $7,000 when filing your Colorado state tax return.
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Meanwhile, Vermont offers exemptions to state taxes on Social Security and partial credits depending on your income.
You should check your state rules during tax season to ensure you’re taking advantage of all these deductions and credits. However, the best way to minimize your liability and maximize your credits is to simply hire a professional.
Speak to an expert
Most Americans expect to file their taxes themselves in 2025, according to a recent survey by Invoice Home.
Only 24% of respondents said they would hire a tax professional to assist them, while 39% said they would use third-party tools like TurboTax or H&R Block and 43% said they would trust AI more than an accountant.
However, given how complex the tax system is, even for retirees on a fixed income, hiring a professional to assist you could be worth the investment. Someone with the right experience could help you navigate this tax season with confidence.
If you’re worried about missing out on some credits or paying state taxes on your Social Security this year, consider reaching out to a tax planner or Certified Public Accountant (CPA).
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Vishesh Raisinghani is a financial journalist covering personal finance, investing and the global economy. He's also the founder of Sharpe Ascension Inc., a content marketing agency focused on investment firms. His work has appeared in Moneywise, Yahoo Finance!, Motley Fool, Seeking Alpha, Mergers & Acquisitions Magazine and Piggybank.
