3 States Cut Taxes on Social Security Benefits in 2023

Andy Markowitz,

AARP

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En español

Published February 10, 2023

/ Updated July 24, 2023

During 2023 legislative sessions, big budget surpluses in many states had governors and lawmakers eyeing targeted tax relief — including for older adults in at least some of the dozen states that still tax Social Security benefits.

Social Security beneficiaries may be subject to federal income tax on their monthly benefits, depending on their total income. Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont and West Virginia also levy their own taxes on benefits.

Unlike federal taxes on benefits, which go into the Social Security and Medicare trust funds to fund ongoing payments and benefits for retirees, workers with disabilities and members of their families, the state levies flow into those states’ general funds.

“Social Security isn’t meant to fill state coffers,” says Danny Harris, director of advocacy for the Utah office of AARP. “It was meant to carry people throughout their retirement years.”

With a push from AARP, North Dakota stopped taxing Social Security benefits in 2021, and Nebraska is phasing its tax out over the next two years. Other states, including Colorado, New Mexico, Utah, Vermont and West Virginia, have reduced the tax burden on older residents by expanding exemptions and deductions for Social Security income.

AARP ramped up advocacy efforts in several capitals to further shrink Social Security recipients’ state tax bills. Here’s how proposals played out in four states that weighed changes this year.

Kansas

Kansas law shields Social Security income from state taxes for beneficiaries with an adjusted gross income (AGI) of $75,000 or less, regardless of their filing status. Lawmakers considered two bills this session that would give older adults some tax relief by raising the income threshold, beginning with the 2023 tax year.

One measure, HB 2107, would have expanded the full exemption to beneficiaries with AGIs up to $100,000 and introduce a partial deduction for incomes up to $120,000. The other, HB 2109, maintained the $75,000 ceiling for full exemption but proposed allowing beneficiaries with incomes up to $100,000 to subtract some of their benefits from the tax equation.

AARP Kansas testified before the state Legislature in support of both measures, particularly HB 2107, which “will help ensure that even more middle-class retirees and their families can keep more of their hard-earned benefits,” state office Director Glenda DuBoise told the House Committee on Taxation in written testimony on Jan. 24.

“Older Kansans on fixed incomes clearly feel the effects of inflation more than the rest of us,” DuBoise wrote. “Social Security tax relief is one way the state can help retirees stretch their hard-earned dollars.”

What happened: A wide-ranging tax bill that, among other provisions, would have established a partial tax break on Social Security income for Kansans with incomes between $75,000 and $100,000 was vetoed April 24 by Gov. Laura Kelly. Kelly had favored a Social Security tax cut but said she objected to the bill’s central element, a statewide flat income tax. The state Senate failed to override the veto, meaning there will be no change this year in how Kansas taxes Social Security benefits.

Minnesota

Taxation of Social Security was a contentious issue in St. Paul this session after the collapse last year of a bipartisan budget compromise that would have ended the practice. This year, Gov. Tim Walz proposed cutting taxes on benefits, while several legislators filed bills to eliminate them.

AARP Minnesota listed ending taxation of benefits as one of its top legislative priorities for 2023. “With a historic $17.6 billion [budget] surplus, it’s time to stop taxing these hard-earned benefits,” AARP State Director Cathy McLeer wrote in a Jan. 10 letter to lawmakers.

For the 2022 tax year, Minnesotans could deduct some of their Social Security benefits from their state taxes if their income did not exceed $85,970 for a single taxpayer or $110,020 for a married couple filing jointly. Walz proposed raising the income cutoffs and increasing the amount of benefit income residents could deduct from state taxes.

What happened: Legislators gave final approval May 21 to a major tax package that exempts about three-quarters of Minnesota's Social Security recipients from paying state taxes on their benefits. Walz signed the bill May 24.

The measure eliminates state taxation of benefits for individuals with incomes of up to $78,000 and married couples jointly making up to $100,000, starting with the 2023 tax year. It also raises the income threshold for people to qualify for a partial tax break on their Social Security income, to $118,000 for single filers and $140,000 for couples.

While AARP is “disappointed” that Minnesota lawmakers did not eliminate all state taxation of benefits, McLeer says, the adopted changes “will provide much-needed tax relief to retirees feeling pressure from rising health and long-term care costs and other expenses.”

Missouri

Missourians can deduct 100 percent of Social Security income on their state tax returns if they are 62 or older and have an AGI of less than $85,000 for a single filer and $100,000 for a couple filing jointly. Bills to extend the full deduction to all beneficiaries have fallen short in recent years, but the idea is “getting some traction” this year, says Jay Hardenbrook, advocacy director for AARP Missouri.

That progress came after legislators met in special session in September 2022 to enact tax cuts backed by Gov. Mike Parson, including lower income tax rates and new tax credits for farmers and ranchers.

AARP lobbied to add provisions targeting tax relief for older Missourians, including the Social Security exemption and broader eligibility for the “Circuit Breaker,” a state property-tax credit for people who are 65-plus or have disabilities, but those were not included in the package Parson signed last fall.

What happened: A bill to extend the full deduction to all Missouri beneficiaries starting in the 2024 tax year was overwhelmingly approved by the state House May 8, three weeks after Senate passage. Parson signed the measure July 6. “The General Assembly responded to our calls for tax relief for older Missourians,” Hardenbrook says.

Utah

For the 2022 tax year, Utah did not tax Social Security benefits for residents with incomes of less than $37,000 for an individual filer and $62,000 for a couple filing jointly, and the state offered partial tax credits on a sliding scale to beneficiaries with higher incomes. A bill before the state legislature proposed raising exemption thresholds to $44,000 and $74,000, respectively.

Another bill under consideration would have eliminated income as a factor in determining taxation on benefits. Instead, Utahans who receive Social Security would get tax credits of up to $30,000 in benefit income for a single filer, $50,000 for a couple.

AARP Utah called for full removal of the state tax on benefits and for that reason did not come out in support of either of the bills, says Harris, the state advocacy director. A survey commissioned by the state office last year found that two-thirds of Utah voters back eliminating the tax on benefits, with support consistent across age groups and party affiliations.

AARP Utah collected more than 4,500 signatures for an online petition calling on lawmakers to end the tax and held tele-town halls on the subject.

What happened: Utah lawmakers approved a tax-cut package March 2 that expands the exemption for Social Security benefits to individuals with incomes up to $45,000 and joint filers with incomes up to $75,000, effective for the 2023 tax year. Gov. Spencer Cox signed the measure March 22. “We hoped to remove the tax entirely but are happy with this win,” Harris says.

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