Social Security plays a vital role in the retirement security of many Americans, with 40% of individuals aged 65 and older relying on it for at least half of their income, according to the AARP. Your location can significantly impact the portion of your Social Security check that you get to retain.
Below are 8 common mistakes retirees make with their Social Security checks to watch out for, along with 4 low-risk ways to build your retirement savings in 2025. It is important to note that up to 85% of your Social Security benefits may be subject to federal taxation, and depending on your income, you could also face state income taxes on these benefits. However, the number of states taxing Social Security is decreasing, with only nine set to do so in 2025.
Expert Brian Kuhn from Wealth Enhancement Group highlights that the list of states not taxing Social Security is longer than those that do. Recent changes in Missouri, Nebraska, and Kansas demonstrate this trend. Missouri and Nebraska decided to stop taxing Social Security benefits in 2024, with Kansas following suit midway through the year. In 2026, West Virginia will no longer tax Social Security.
In 2025, only nine states will tax Social Security benefits, including Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, and West Virginia. On the other hand, most states, 41 plus Washington, D.C., will not tax Social Security benefits in 2025.
Residents in states that do not tax Social Security benefits can calculate their tax savings by determining the effective tax rate paid to the state for all taxed income sources and applying it to their total Social Security benefits. This calculation may vary, as some states offer deductions or exemptions based on age and income levels. For example, Colorado allows residents aged 65 and older to fully deduct federally taxed Social Security benefits on their state tax returns, with an expanded exemption for those ages 55 to 64 with specific income criteria.
Understanding the tax implications of Social Security benefits in your state can help you maximize savings and plan for a secure retirement.
It is important to consider the specific tax rules of your state and your individual tax situation. However, when looking at the bigger picture, the amount saved by retirees whose benefits are not taxed is quite significant. According to Jeff Rose, CFP, founder of Good Financial Cents, retirees in Missouri could collectively save around $309 million annually, while those in Nebraska could save about $17 million. This means retirees can keep more money in their pockets instead of losing it to state taxes. This information was contributed by Jake Safane.
