A growing number of states are eliminating or sharply reducing taxes on Social Security benefits, and the trend is accelerating fast enough to pressure holdout states into action. West Virginia, Colorado, Nebraska, and Kansas have all moved in the past two years to lighten the tax burden on retirees, while Utah is weighing its own changes for 2025. At the federal level, a bill introduced in January 2025 would wipe out Social Security taxation entirely, raising the stakes for every state still collecting revenue from retiree benefits.
West Virginia Phases Out Its Social Security Tax
West Virginia is on track to fully exempt Social Security benefits from state income tax by 2026, following a structured three-year phase-out. Under House Bill 4880, enacted during the 2024 Regular Session, taxpayers could subtract 35% of their Social Security benefits from state taxable income for tax year 2024. That figure rises to 65% for tax year 2025 and reaches 100% for tax year 2026, at which point the state will no longer tax those benefits at all.
The West Virginia State Tax Department has published administrative guidance explaining how the decreasing modification interacts with existing senior citizen provisions under state code, including adjusted gross income thresholds that previously determined eligibility. The phase-out structure gives the state time to absorb the revenue loss gradually rather than taking a single-year hit. For retirees filing West Virginia returns, the practical effect is straightforward: each year through 2026, a larger share of their Social Security income drops off the state tax rolls. The House of Delegates advanced the bill with bipartisan support, reflecting broad political agreement that taxing these benefits put the state at a competitive disadvantage.
Colorado and Nebraska Join the Shift
Colorado took a different approach, targeting a specific age group rather than phasing out the tax for everyone at once. HB24-1142, signed by the governor, expanded the state income tax subtraction for Social Security benefits to taxpayers aged 55 to 64 who fall under specified AGI thresholds. Previously, Colorado’s subtraction was limited to older filers. The expansion means a wider pool of near-retirement residents can now reduce their state tax bill, a change reflected in updated guidance from the Colorado Department of Revenue, which details how benefits, pensions, and annuities are treated for income tax purposes.
Nebraska went further. LB754, signed by Governor Jim Pillen, created a full Social Security Benefit Exclusion operative for taxable years beginning on or after January 1, 2024. Under the law, federal AGI is reduced by the full amount of Social Security benefits to the extent those benefits were included in federal AGI, effectively erasing them from the state tax base. Governor Pillen framed the broader tax package containing LB754 as a major step in delivering income tax relief, and Nebraska’s move is notable because it skipped the gradual phase-in approach that West Virginia adopted, instead eliminating the tax in a single legislative stroke.
Kansas Already Exempts Benefits
Kansas stands out as a state that has already completed the transition. The Kansas Department of Revenue instructs filers to subtract Social Security benefits from Kansas income on Line A10 of the K-40 form. That means Kansas residents receiving Social Security do not owe state income tax on those payments, period. The subtraction is built directly into the standard filing process, requiring no special application or separate schedule, and it applies automatically when taxpayers compute their Kansas adjusted gross income.
For retirees comparing states, Kansas offers a useful benchmark. The state absorbed the revenue trade-off years ago and now uses its tax-free treatment of Social Security as a selling point for retaining and attracting older residents. Financial planners who work with mobile retirees often highlight that a move across a state line can change not only the tax treatment of Social Security but also the combined burden on pensions, withdrawals from retirement accounts, and property taxes. States still taxing these benefits face a simple competitive question: if a retiree can keep more of their income by living across a border, what incentive do they have to stay, especially when neighboring states advertise their exemptions as part of broader “age-friendly” tax regimes?
Utah Considers Its Own Revisions
Utah is the latest state to enter the debate. Senate Bill 71, introduced during the 2025 General Session, proposes Social Security tax revisions structured as credit and threshold adjustments rather than a blanket repeal. The measure would modify the nonrefundable credit currently available to certain Social Security recipients, adjusting income limits and formulas so that more middle-income retirees qualify for partial or full relief. This design contrasts with states that rely on direct subtractions from taxable income, instead using the credit mechanism to deliver targeted benefits.
No official fiscal impact analysis for S.B. 71 has been published beyond the bill text itself, based on available sources. That gap matters because the budget cost of these exemptions is the central tension in every state considering the change. Lawmakers must weigh the political appeal of cutting taxes on retirees against the revenue those taxes generate for schools, roads, and other state services that also benefit older residents. Utah’s incremental, credit-based model may represent a middle path for states that want to offer relief without absorbing the full fiscal cost at once, allowing legislators to adjust credit amounts or income thresholds over time if revenue pressures intensify.
Federal Legislation Could Change the Entire Equation
While states act individually, a federal bill could make the entire state-level debate moot. H.R. 904, introduced in the House on January 31, 2025, would amend the Internal Revenue Code of 1986 to repeal the inclusion of Social Security benefits in gross income. The bill, titled the “No Tax on Social Security Act,” would also exclude Tier I railroad retirement benefits from federal taxation. If enacted, no Social Security recipient in any state would owe federal income tax on those payments, dramatically simplifying retirement tax planning and potentially altering how states define their own taxable income starting points.
The bill sits in the 119th Congress for the 2025–2026 session and has not advanced beyond introduction. Under current federal rules, up to 85% of Social Security benefits are subject to federal taxes for individuals with combined income above a fixed threshold, according to the Social Security Administration. That threshold has not been adjusted for inflation since it was set in 1993, meaning it captures a growing share of retirees each year as nominal incomes rise. Even if H.R. 904 ultimately stalls, its presence keeps the issue visible and underscores the possibility that Congress could upend current assumptions. States that have tied their own taxation rules closely to federal definitions may need contingency plans if Washington suddenly removes Social Security from the federal tax base altogether.
What This Means for Retirees Watching From Other States
The pattern is clear: states that still tax Social Security benefits are increasingly outliers. West Virginia, Colorado, Nebraska, and Kansas have each taken distinct legislative paths to reduce or eliminate the burden, and Utah is actively debating its own version. For retirees living in states that have not yet acted, the practical question is whether their state will follow suit or risk losing residents to neighbors that have already made the change. In regions where state borders are easy to cross—such as the Midwest and Mountain West—the decision to move a few miles can translate into hundreds or even thousands of dollars in annual tax savings.
The competitive dynamic is real. Retirees on fixed incomes are sensitive to tax differences, and Social Security represents the primary income source for a large share of Americans over 65. A state that taxes those benefits while a neighboring state does not is effectively asking retirees to pay a premium for staying put. That calculus becomes harder to defend as more states drop the tax, especially when legislative records and staff analyses from early-mover states show bipartisan support for the change and emphasize competitiveness with nearby jurisdictions. Advisors often urge retirees to look beyond headline rates and examine how each state treats Social Security, pensions, and retirement account withdrawals together, but the clear direction of travel is toward lighter taxation of federal benefits.
The Revenue Trade-Off States Cannot Ignore
The dominant assumption in coverage of these tax cuts is that they are unambiguous wins for retirees. That framing deserves scrutiny. Every dollar of Social Security income that drops off a state’s tax base is a dollar that must be replaced by other revenue or absorbed as a spending cut. States with younger populations and diversified economies can absorb that shift more easily than states where retirees make up a larger share of residents and where income taxes already carry much of the budget load. Policymakers have to decide whether to raise other taxes, lean more on fees and charges, or trim services that older residents also rely on, such as public health programs and transportation support.
Experiences in states like West Virginia and Nebraska illustrate both sides of the trade-off. On one hand, supporters argue that removing the tax on Social Security helps keep long-time residents from relocating in retirement and may even attract new households with stable benefit income, broadening the consumer base for local businesses. On the other hand, revenue foregone today is not easily recaptured later, especially once retirees and advocacy groups come to view tax-free benefits as an entitlement. As more legislatures consider following Colorado’s targeted relief or Utah’s credit-based approach, the central question will be not only how much to cut but how to design policies that remain sustainable if economic conditions weaken, federal rules change, or the political appetite for other tax increases fades.
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*This article was researched with the help of AI, with human editors creating the final content.
Nathaniel Cross focuses on retirement planning, employer benefits, and long-term income security. His writing covers pensions, social programs, investment vehicles, and strategies designed to protect financial independence later in life. At The Daily Overview, Nathaniel provides practical insight to help readers plan with confidence and foresight.
