Social Security benefits are a crucial part of retirement income for millions of Americans. By 2025, the average monthly benefit is expected to be around $1,976, totaling nearly $24,000 annually.
However, most retirees won’t see all of that money. Withholdings like Medicare Part B premiums and federal taxes can chip away at these benefits, and in some states, Social Security benefits are subject to state income taxes as well.
Fortunately, the tax landscape is changing. Some states are reducing or phasing out Social Security taxes, offering retirees more financial relief. Let’s look into the details of how this affects retirees in 2025, particularly in Colorado and West Virginia.
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Colorado
Colorado has long provided some tax relief for retirees aged 65 and older. Residents could subtract their Social Security benefits from state taxable income if those benefits were federally taxable, provided their adjusted gross income (AGI) stayed below $75,000 for individual filers or $95,000 for married couples filing jointly.
Starting in 2025, Colorado will expand this tax break to residents aged 55 and older. The same AGI limits still apply, but this change will benefit younger retirees and those receiving other types of Social Security benefits, like disability or survivors’ benefits.
It’s important to note that if Social Security benefits aren’t taxable at the federal level, they won’t be excludable from state income taxes either. This means some Coloradans could still owe state taxes on their Social Security benefits.
West Virginia
West Virginia began offering Social Security tax exemptions in 2022 for individuals with AGIs of $50,000 or less and couples with AGIs of $100,000 or less. Since then, the state has been gradually expanding these exemptions.
By 2025, residents with AGIs above these thresholds will be able to exclude 65% of their Social Security benefits from state income taxes. By 2026, West Virginia plans to eliminate state taxes on Social Security benefits entirely, offering significant relief to all retirees.
States
In 2025, these additional states will continue taxing Social Security benefits for at least some retirees:
- Connecticut
- Minnesota
- Montana
- New Mexico
- Rhode Island
- Utah
- Vermont
Each state has its own rules and income thresholds for taxing Social Security benefits. For example, some states only tax benefits for retirees with higher AGIs, while others offer partial exemptions. If you live in one of these states, it’s wise to consult with a tax professional or your state’s tax department to know the specifics.
Tips
If you’re concerned about state taxes on Social Security, take these steps:
- Review State Laws: Check the tax rules for your state to determine if your benefits are taxable.
- Plan Ahead: Set aside funds for potential taxes to avoid surprises.
- Seek Professional Advice: A tax accountant can help you optimize your strategy and minimize your tax burden.
With careful planning, you can make the most of your Social Security benefits while navigating tax obligations effectively.
FAQs
How much is the average Social Security benefit in 2025?
The average benefit is expected to be $1,976 per month.
Do all states tax Social Security benefits?
No, only a few states tax Social Security benefits, and rules vary.
Which states are reducing Social Security taxes in 2025?
Colorado and West Virginia are reducing or phasing out taxes on benefits.
How can I check if my state taxes Social Security?
Contact your state tax department or consult a tax professional.
What percentage of Social Security benefits will West Virginia tax in 2025?
West Virginia will tax 35% less of Social Security benefits in 2025.
