Social Security benefits are not completely tax-free for every retiree in the US. Whether retirees have to pay taxes on their benefits depends on their total yearly income and the state where they live.
While most states do not tax Social Security payments, the federal government can still tax a part of these benefits if a person's income crosses certain limits.Social Security taxes in 2026: Eight US states tax retirement benefits, while federal taxes may apply based on income. (AFP)Federal taxes can apply to up to 85% of Social Security benefits. However, this does not mean retirees pay an 85% tax rate.
It means that up to 85% of their Social Security income can be included in their taxable income. The actual tax depends on their federal income tax bracket, deductions and tax credits, according to Yahoo Finance.Just over half of Social Security beneficiaries are expected to pay federal taxes on their benefits in 2026, according to the Congressional Budget Office (CBO).
The amount they owe depends on their total income, including money received from pensions, retirement accounts, jobs and other sources.The Internal Revenue Service (IRS) uses a calculation called 'combined income' to decide how much of a person's Social Security benefits can be taxed. This calculation includes three things:Half of the person's yearly Social Security benefits.Adjusted gross income (AGI), which includes wages, pensions and taxable withdrawals from retirement accounts.Any tax-exempt interest earned during the year.Federal tax rules depend on whether a person files taxes individually or jointly with their spouse.
According to the IRS, single filers with a combined income of $25,000 or less do not have to pay federal taxes on their Social Security benefits. If their income is between $25,001 and $34,000, up to 50% of their benefits can be taxable.
If their income is above $34,000, up to 85% can be taxable, according to Yahoo Finance.For married couples filing jointly, benefits are not taxable if their combined income is $32,000 or less. If their income is between $32,001 and $44,000, up to 50% of their benefits can be taxable.
If their combined income is above $44,000, up to 85% can be taxable.For single retirees, combined income of $25,000 or less means their Social Security benefits are not subject to federal income tax. If their combined income is between $25,001 and $34,000, up to 50% of their benefits can be taxable.
If it crosses $34,000, up to 85% of their benefits can be taxable.For married couples filing jointly, the limits are higher. Their Social Security benefits are not taxable if their combined income is $32,000 or less.
If their income falls between $32,001 and $44,000, up to 50% of their benefits can be taxable. Above $44,000, up to 85% can be taxable.Also read: Trump’s wealth rises to $6 billion as disclosures show $1 billion in crypto income and millions from foreign dealsMarried people filing separately have different tax rules.
If they lived with their spouse at any point during the year, up to 85% of their Social Security benefits could be taxable, regardless of their income. However, if they lived apart from their spouse for the entire year, the $25,000 income limit applies, according to Yahoo Finance.What does 'no tax on Social Security' mean in 2026?The 2025 One Big Beautiful Bill Act did not completely remove federal taxes on Social Security benefits.
The law, signed by President Donald Trump, also did not change the combined income limits used by the IRS. These income limits have remained unchanged since 1994.Instead, the law introduced an additional tax deduction of up to $6,000 for people aged 65 and older.
Married couples filing jointly can receive a deduction of up to $12,000 if both spouses qualify. This deduction is available for tax years 2025 through 2028.The additional deduction is not available at the same level to everyone.
It starts reducing when modified adjusted gross income (MAGI) crosses:$75,000 for individual tax filers.$150,000 for married couples filing jointly.The White House estimates that the deduction will increase the share of seniors who effectively pay no federal taxes on their Social Security benefits from around 64% to 88%, according to Yahoo Finance.Which 8 states tax Social Security benefits in 2026?Only eight US states still tax Social Security benefits in 2026. These are Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah and Vermont.
However, retirees living in these states may still qualify for exemptions, deductions or tax credits depending on their age and income.Colorado offers a full exemption for retirees aged 65 and older. People aged 55 to 64 can also receive a full exemption if their adjusted gross income is $75,000 or less for single filers or $95,000 or less for married couples filing jointly.
Those earning above these limits can deduct up to $20,000.Connecticut provides a full exemption for people whose adjusted gross income is below $75,000 for single filers or $100,000 for married couples filing jointly. Retirees earning above these limits may still have some protection, as no more than 25% of their Social Security benefits can be taxed, according to Yahoo Finance.Minnesota offers a full exemption for retirees earning up to $86,410 if they file individually.
For married couples filing jointly, the income limit is $110,780. The exemption gradually reduces as income rises above these limits.Montana taxes Social Security benefits that are taxable under federal rules.
Unlike several other states, its rules make federally taxable Social Security benefits subject to state income tax.New Mexico provides a full exemption for retirees with adjusted gross income of $100,000 or less for single filers. Married couples filing jointly can qualify if their income is $150,000 or less.
People earning above these limits do not receive the Social Security tax exemption.Rhode Island offers a full exemption to retirees who have reached their full retirement age and whose federal adjusted gross income is below the state's income limits. These limits are adjusted every year for inflation.
The state is also planning to expand the exemption in 2027, according to Yahoo Finance.Utah offers a tax credit that can reduce or offset the state income tax on Social Security benefits. However, the credit gradually reduces when income crosses:$54,000 for single filers.$90,000 for married couples filing jointly or people filing as head of household.$45,000 for married people filing separately.Vermont offers a full exemption for retirees earning $55,000 or less as single filers and $70,000 or less for married couples filing jointly.
It also provides a partial exemption for single filers earning up to $65,000 and married couples earning up to $80,000.Also read: Social Security payments on November 10: Who qualifies, maximum 2026 benefit and 3.6% increase in 2027 explainedRecent changes to Social Security taxes retirees should knowRhode Island is planning another tax change in 2027. Eligible retirees who have not yet reached their full retirement age will also qualify for a full Social Security tax exemption from 2027.
Earlier, retirees had to meet both age and income requirements to qualify.The upcoming Rhode Island change is expected to benefit around 9,200 residents. It will expand the number of retirees who can receive a full exemption from state taxes on their Social Security benefits.Check which tax deductions and exemptions are available.
Retirees aged 65 and older may qualify for the additional federal senior deduction of up to $6,000. Several states also offer tax exemptions and credits based on age and income, according to Yahoo Finance.Most US states do not tax Social Security benefits in 2026, but federal income taxes can still apply.
Only eight states continue to tax these payments, and most of them offer exemptions or tax breaks based on income and age. Retirees should check both federal and state tax rules before calculating how much of their monthly Social Security income they can keep.