Social Security forms a critical part of the financial foundation for millions of Americans, offering monthly benefits that help 74 million beneficiaries cover day-to-day necessities. The program is financed through payroll taxes paid during individuals’ working lives and supplemented by federal government funds.
When it comes to taxation, the treatment of Social Security income involves both federal regulations and varying state policies, which collectively determine a recipient's final tax obligations. These obligations depend largely on factors such as an individual’s or household’s annual income, filing status, and their state of residence.
Federal Taxation of Social Security Benefits
At the federal level, Social Security benefits are commonly subject to taxation based on income thresholds. Individuals with household earnings above certain limits may have to pay taxes on as much as 85% of their Social Security payments. Specifically, if annual income exceeds $25,000 for an individual or $32,000 for a married couple filing jointly, some portion of benefits becomes taxable.
Conversely, those whose income remains below these thresholds are exempt from federal taxation on their benefits. Additionally, need-based Supplemental Security Income (SSI), a distinct program from Social Security, is not considered taxable income under federal guidelines.
Enhanced Tax Relief for Senior Taxpayers Starting in 2026
Beyond existing rules, upcoming legislation titled the One Big Beautiful Bill Act, enacted under former President Donald Trump, is set to offer expanded tax deductions for seniors beginning next year, 2026. Taxpayers aged 65 and older will be eligible to claim an additional deduction of up to $6,000 on top of the standard deduction they typically receive.
This new provision supplements an already established tax benefit for older adults and is planned to remain in effect through 2028. Practically, this means individuals over 65 filing tax returns for the year 2025 can claim total deductions of up to $23,750. For married couples filing jointly where both spouses are seniors, the deduction can rise to $46,700, substantially reducing taxable income and potentially lowering overall tax bills.
State-Level Variation in Social Security Benefit Taxation
While federal law sets baseline rules, states retain the authority to impose their own tax policies regarding Social Security income, resulting in significant variability across the country. In the current year, just eight states withheld taxes on Social Security benefits, with the majority of states—41 altogether—not taxing these payments.
An important shift will take place in 2026 when West Virginia plans to discontinue imposing taxes on Social Security benefits. This change follows a trend aimed at reducing financial burdens on retirees within the state.
Among the states that continue to tax some or all Social Security income are Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, and Vermont. However, many of these states incorporate income-based exemptions or deductions that can shield lower-income seniors from paying state taxes on these benefits.
Notably, Colorado allows some seniors to deduct amounts paid in federal taxes on Social Security benefits from their expected state tax liability, providing an additional layer of tax relief.
Implications for Beneficiaries
The degree of taxation Social Security beneficiaries can expect varies markedly depending on their state of residence and income levels. Those planning their finances for 2026 should be aware of these tax nuances to accurately estimate after-tax benefits.
Beneficiaries with questions or stories relating to Social Security taxation are encouraged to reach out to informed reporters or local tax advisers to better understand how these changing laws and provisions might impact their individual circumstances.