Retirees in a shrinking number of states still owe state income tax on their Social Security benefits, but a wave of legislative action in 2024 pulled three more states off that list. Nebraska, Kansas, and Missouri each moved to exempt or fully deduct Social Security income for tax years beginning on or after January 1, 2024, leaving only a small group of holdout states where benefits remain at least partially taxable. For the millions of Americans who depend on Social Security checks, the state where they file now matters more than ever.
Federal COLA raises the stakes for states that still tax benefits
The annual cost-of-living adjustment from the Social Security Administration increases monthly benefit amounts each year to keep pace with inflation. That bump, however, also pushes more retirees above the federal income thresholds at which Social Security becomes taxable. In states that peg their own tax treatment to the federal calculation, each COLA cycle can quietly expand the number of filers who owe state tax on benefits they assumed were protected.
States that enacted full exemptions in 2024 effectively severed that link. Their residents no longer face growing state tax bills simply because federal benefits rose. But in states that still mirror the federal formula, such as Montana, the opposite is true: taxable Social Security income is included in Montana taxable income to the extent it is included in federal taxable income. That means every future COLA increase can translate directly into higher state tax liability for Montana filers whose benefits cross the federal threshold.
The practical result is a widening gap. Retirees in newly exempt states keep the full benefit of federal adjustments, while retirees in holdout states see a portion of each raise claimed by their state tax authority. Over time, this divergence compounds, making the choice of residence an increasingly significant financial variable for people living on fixed incomes.
Three states left the taxing column in a single year
Nebraska’s change was the product of LB754, which, according to the state revenue department, reduces Nebraska taxable income by the amount of Social Security benefits included in federal adjusted gross income for taxable years beginning on or after January 1, 2024. In practice, that means Social Security recipients who once saw a portion of their benefits pulled back into the state tax base will now see those amounts fully excluded, aligning Nebraska with the growing list of states that no longer tax these payments.
Kansas took a different procedural route but reached a similar policy outcome. Lawmakers advanced SB 1, and the measure, as reflected in the legislative record, exempts all Social Security benefits from Kansas income tax once in effect for tax years beginning on or after January 1, 2024. The shift is especially notable because Kansas had previously taxed benefits for higher-income retirees, creating a sharp cliff where modest additional income could suddenly trigger tax on Social Security. Eliminating that tax removes the cliff and simplifies planning for retirees whose incomes fluctuate from year to year.
Missouri’s policy had long been more nuanced, offering a deduction for Social Security benefits but phasing it out above certain income thresholds. Guidance from the Missouri Department of Revenue explains that, for tax years beginning on or after January 1, 2024, the state removed the income limitation that had capped its Social Security deduction. As a result, all qualifying filers can now deduct their benefits in full, regardless of income level. For higher-income retirees who previously lost some or all of the deduction, this represents a substantial tax cut and eliminates the need to track complex phaseout rules.
Patchwork rules remain in the states that still tax benefits
Among the states that continue to tax at least some Social Security income, the rules vary widely. Some states follow the federal inclusion formula closely, taxing up to 85% of benefits once income passes federal thresholds. Others apply state-specific income limits, age requirements, or partial deductions that phase in or out over narrow income bands. The result is a patchwork in which two retirees with identical federal returns can face very different state tax bills depending solely on their ZIP code.
For middle-income retirees, these differences can translate into hundreds of dollars a year in additional tax, especially in states that combine Social Security taxation with relatively high marginal rates on other income. Over a decade or more of retirement, the cumulative effect may rival or exceed the value of other common planning strategies, such as moving assets between taxable and tax-deferred accounts.
Retirement planners increasingly factor state taxation of Social Security into relocation decisions, alongside property taxes, sales taxes, and the cost of housing and health care. A retiree considering a move from a state that still taxes benefits to one that does not may find that the ongoing savings help offset moving expenses within just a few years. Conversely, retirees drawn to lower housing costs in a state that taxes Social Security need to weigh those savings against potentially higher annual tax bills.
What retirees should watch next
The rapid changes in 2024 suggest that Social Security taxation will remain an active issue in state capitols. As more states step away from taxing benefits, political pressure may build on the remaining holdouts, particularly in regions where neighboring states have already adopted exemptions. At the same time, states that rely heavily on income tax revenue may be cautious about giving up a growing base of taxable retirement income.
For current and future retirees, the key is to stay alert to both federal and state-level changes. Federal COLA increases will continue to raise nominal benefit amounts, but whether those raises are fully realized or partially reclaimed through state taxes will depend on where retirees live and how quickly their state’s laws evolve. In a landscape where three states can change course in a single year, assumptions about the tax treatment of Social Security are no longer something retirees can safely set and forget.
