Social Security benefits are an important source of income for millions of retired Americans. However, receiving monthly retirement payments does not always mean keeping the full amount. Depending on income and location, retirees may have to pay both federal and state income taxes on a portion of their benefits in 2026.
The federal government can tax up to 85% of Social Security benefits, while eight states continue to impose state-level taxes under certain conditions. The rules differ across states, with some offering exemptions based on age, income, or filing status. Meanwhile, several states have recently eliminated their Social Security taxes, giving retirees additional flexibility when planning their finances.
Knowing these differences can help retirees estimate their tax obligations, evaluate retirement destinations, and manage withdrawals from their savings accounts more effectively.
Federal
The federal government uses a calculation called combined income to determine whether Social Security benefits are taxable. This calculation includes adjusted gross income (AGI), tax-exempt interest, and half of a person’s annual Social Security benefits.
Adjusted gross income can include wages, pension payments, investment income, and taxable withdrawals from traditional retirement accounts. As these income sources increase, retirees may become subject to federal taxes on a larger portion of their Social Security payments.
For most taxpayers, the federal government applies the following income thresholds:
| Filing status | Combined income | Potential taxable benefits |
|---|---|---|
| Single | $25,000-$34,000 | Up to 50% |
| Single | Above $34,000 | Up to 85% |
| Married filing jointly | $32,000-$44,000 | Up to 50% |
| Married filing jointly | Above $44,000 | Up to 85% |
These thresholds have remained unchanged since 1994. As wages, pensions, and retirement account balances have increased, more beneficiaries have become subject to federal taxation.
It is important to understand that an 85% taxable benefit does not mean retirees lose 85% of their Social Security payments. It means that up to 85% of their benefits may be included in their taxable income and subject to the applicable federal income tax rate.
Married couples filing separately face different rules. Those who lived together at any point during the tax year may have up to 85% of their benefits included in taxable income, regardless of their income. Couples who lived apart throughout the year generally follow the single-filer thresholds.
Retirees can review the IRS guidance on Social Security and equivalent railroad retirement benefits to understand how these calculations work.
States
Eight states continue to tax Social Security benefits in 2026. However, the rules do not apply equally to every retiree. Income limits, age requirements, and available deductions can reduce or eliminate the state tax liability.
The eight states are:
| State | General tax treatment |
|---|---|
| Colorado | Offers income-based exemptions |
| Connecticut | Provides exemptions based on income |
| Minnesota | Offers deductions for eligible retirees |
| Montana | Applies state income tax rules to benefits |
| New Mexico | Provides income-based exemptions |
| Rhode Island | Offers age and income-based relief |
| Utah | Provides income-based tax credits |
| Vermont | Offers income-based exemptions |
New Mexico provides an example of how state exemptions can affect retirement income. Social Security benefits are exempt for taxpayers with adjusted gross income of $100,000 or less for single filers. The threshold is $150,000 for married couples filing jointly.
This means that retirees living in a state that taxes Social Security may not necessarily owe additional state income tax on their benefits.
The remaining 42 states and Washington, D.C., do not impose state income taxes on Social Security benefits. This can simplify retirement tax planning, although other state and local taxes may still affect overall living expenses.
Retirees can check the New Mexico Taxation and Revenue Department for information about applicable retirement income exemptions and filing requirements.
Changes
The number of states taxing Social Security has declined over the past several years as lawmakers have introduced exemptions and phased out existing taxes.
West Virginia completed its Social Security tax phaseout in 2026. Consequently, Social Security benefits are now exempt from state income tax in the state, regardless of a retiree’s income.
Kansas and Missouri also changed their rules in 2024 by removing income restrictions that previously limited exemptions for certain higher-income retirees.
Nebraska ended its Social Security tax in 2024, three years earlier than originally scheduled.
These changes are part of a broader shift in state retirement tax policies. Lawmakers in several states have considered ways to reduce the tax burden on older residents, particularly those who depend heavily on fixed retirement income.
For retirees evaluating where to live, these developments make it important to review current state tax laws rather than relying on older retirement planning information.
RhodeIsland
Rhode Island is also preparing changes to its Social Security tax rules. Beginning in 2027, the state plans to stop taxing Social Security benefits for eligible retirees.
Under the existing rules, taxpayers must satisfy age and income requirements to qualify for relief. The planned change is expected to benefit approximately 9,200 Rhode Island residents.
Connecticut and Vermont also considered broader exemptions in 2026. However, neither proposal became law, so their existing tax rules remain applicable.
Retirees considering a move should distinguish between changes that have already taken effect and proposals that are still under consideration. A proposed exemption does not automatically change the tax obligations for the current filing year.
The Social Security Administration’s retirement tax information provides additional information about federal taxation and the treatment of retirement benefits.
Withdrawals
Retirees cannot change the federal income thresholds, but they can make decisions about how and when they withdraw money from retirement accounts.
Traditional IRAs and 401(k) accounts generally generate taxable income when funds are withdrawn. A larger withdrawal in one year can increase adjusted gross income, potentially pushing combined income above the federal thresholds.
For example, a retiree who takes an additional $30,000 from a traditional IRA may face a higher tax liability than someone who spreads withdrawals across several years. The additional income could also increase the taxable portion of Social Security benefits.
Roth IRAs offer a different approach. Qualified Roth IRA withdrawals generally do not count toward the combined-income calculation used to determine whether Social Security benefits are taxable.
This can give retirees more flexibility when covering unexpected expenses without increasing the income used in that calculation.
However, converting traditional IRA savings into a Roth IRA has separate tax consequences. The converted amount generally counts as taxable income in the year of conversion, potentially increasing the taxable portion of Social Security benefits.
Planning
State and federal taxes are important considerations when planning retirement income. However, choosing a retirement destination based solely on Social Security taxation may not provide a complete picture.
Housing costs, property taxes, healthcare expenses, insurance premiums, and other living expenses can influence how much retirees actually save. A state that exempts Social Security benefits may still have higher costs in other areas.
Retirees should review their total income, understand the exemptions available in their state, and consider how withdrawals affect their annual tax liability. Consulting a qualified tax professional can also help identify opportunities to manage taxable income.
With eight states continuing to tax Social Security benefits in 2026 and federal taxation affecting many beneficiaries, understanding the rules can help retirees make informed decisions and retain more of their retirement income.
