Connecticut shields most retirees under income caps
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Connecticut fully exempts Social Security benefits from state income tax for single filers with federal adjusted gross income below $75,000 and for joint filers below $100,000. Retirees under those limits still report the benefits on a federal return, but Connecticut collects nothing on them.
Crossing a threshold does not expose the whole benefit. A partial exemption applies above the caps, so only a portion of the federally taxable amount reaches the state return. That design softens the edge for a household that clears the limit by a few thousand dollars.
The exemption covers most retirees in practice. A household whose monthly checks make up the bulk of its income rarely approaches $75,000 in adjusted gross income, since the caps sit well above typical benefit levels. The filers who end up owing tend to be those layering a pension, required minimum distributions, rental income or investment gains on top of Social Security.
Because the test runs on federal adjusted gross income, choices made during the year decide the outcome. The timing of an IRA withdrawal, a Roth conversion or the sale of appreciated stock can lift a return over the line, and the same transaction split across two tax years may not. Retirees sitting close to the cutoff have more control here than the flat numbers suggest.
The exemption also sits inside a heavy overall tax climate. Connecticut runs a graduated income tax and high property taxes, with the sharpest costs concentrated in Fairfield County and the commuter towns within reach of New York City. A retiree comparing states on total cost may find those bills outweigh the value of untaxed benefits.
Connecticut has revisited its treatment of retirement income across recent legislative sessions, adjusting exemptions for pension and annuity income alongside the Social Security rules. The state Department of Revenue Services publishes the governing thresholds and worksheets for each tax year, and those are the figures to check before filing rather than the prior year's.
Montana applies a modified federal formula to benefits
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Montana starts from the federal calculation and then adjusts it. The state uses its own worksheet, which takes the federally taxable share of a retiree's Social Security and applies Montana-specific modifications, so the amount subject to state tax can land above or below the federal figure.
Combined income drives the result, not the size of the monthly check. A retiree living on Social Security alone generally sees little or none of it taxed, because the federal calculation feeding the state worksheet produces a small taxable share at low income levels. Add a pension, required minimum distributions from a 401(k) or IRA, part-time wages or dividends, and a larger portion of the benefit becomes taxable on both returns.
That structure makes Montana harder to plan around than states using a flat dollar cutoff. No single income figure separates taxable benefits from exempt ones. The answer depends on the full return, and because the state calculation builds on the federal one, a change in federal taxability flows through to what Montana collects.
Montana charges no general statewide sales tax, which changes the math for anyone comparing total cost rather than one line item. A retiree who spends heavily on goods and services avoids a charge that other states collect at the register, and that savings can outweigh what the state takes from a partially taxable benefit.
Property taxes vary sharply by county, and valuations in resort areas such as the Flathead and Gallatin valleys have risen faster than in the eastern part of the state. Montana offers an elderly homeowner and renter credit, which can return part of what a qualifying low-income household pays in property tax or rent.
Montana also taxes most other retirement income, including private pensions and traditional retirement-account withdrawals. Social Security sits inside a broader state income tax picture rather than standing as an isolated charge. Two households collecting identical benefits can owe different amounts in Montana depending on everything else reported on the return.
New Mexico exempts benefits for nearly all retirees
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New Mexico exempts Social Security benefits from state income tax for single filers with adjusted gross income below $100,000 and joint filers below $150,000. Those cutoffs sit high enough that most retired households in the state owe nothing on their benefits.
The exemption dates to a tax package the Legislature passed in 2022 and Gov. Michelle Lujan Grisham signed. New Mexico had taxed benefits for most recipients before that. The change arrived in a single session instead of the multi-year phase-outs other states have used to retire the tax.
Retirees above the cap lose the exemption and report their benefits as ordinary income under New Mexico's graduated rate schedule. That group skews toward households drawing a sizable pension, large required minimum distributions, or investment income stacked on top of their benefits. A couple living on Social Security plus modest savings rarely reaches the threshold.
The tradeoff sits elsewhere in the tax code. New Mexico levies a gross receipts tax rather than a conventional sales tax, and it reaches further — covering many services, including professional fees and repair work, that go untaxed in other states. Rates vary by city and county. The cost lands on routine spending rather than on retirement income.
Property taxes run low by national standards, which matters for retirees who own their homes outright and live on a fixed monthly income. The state also lets qualifying homeowners age 65 and older whose income falls under a set limit freeze the assessed value of a primary residence. That protects long-term owners from rising valuations in markets like Santa Fe and Albuquerque.
The result is a system that collects little from retirement income and more from consumption. Retirees who own a home and spend modestly pay less in total state and local tax than New Mexico's place on this list suggests.
Rhode Island ties its exemption to retirement age and income
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Rhode Island exempts Social Security benefits only for residents who pass two separate tests. They must have reached full retirement age under federal rules, and their federal adjusted gross income must fall below a state limit indexed to inflation. Fail either test and part of the benefit stays taxable.
The age test is what separates Rhode Island from the other seven states on this list. Full retirement age is 66 for people born between 1943 and 1954 and 67 for anyone born in 1960 or later, with a sliding scale in between. Someone who filed early at 62 collects benefits for several years before the exemption becomes available. Disability and survivor beneficiaries who have not reached full retirement age fall outside it on the same grounds.
The income cutoffs are modest next to the ones New Mexico and Connecticut use, so a wider band of middle-income Rhode Island retirees ends up owing something. A household combining a public pension or regular retirement-account withdrawals with monthly benefits can clear the limit on a fairly ordinary income.
Past the threshold, the taxable share carries over from the federal return. Rhode Island begins with federal adjusted gross income, which already contains whatever portion of benefits the IRS counts, and then applies its own modifications. The state runs three income tax brackets, and its top rate sits below the top rates in Vermont and Connecticut.
A separate modification covers a limited amount of pension and annuity income under a comparable age and income test. Retirees who clear the bar for one usually clear it for the other.
Cost of living carries more weight than the tax rule for many retirees. Property taxes run above the national median, and housing in the Providence metro area, Newport and the South County shoreline costs more than in much of the country. Because the exemption threshold moves with inflation, anyone sitting near the cutoff should check the figure published for the filing year rather than relying on last year's number.
Vermont has the lowest exemption thresholds of the 8 states
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Vermont sets the tightest income limits of any state still taxing Social Security in 2026. Single filers with adjusted gross income below $50,000 and joint filers below $65,000 owe no state tax on their benefits. Above those cutoffs, the exemption narrows instead of vanishing all at once.
The exemption itself is relatively new. Vermont created it in 2018; before that, benefits taxed at the federal level flowed into state taxable income with no carve-out for retirees. The phase-out was written to avoid a cliff. A couple reporting $70,000 in adjusted gross income does not suddenly owe tax on the full benefit the way they would under a hard cutoff. The exempt share shrinks as income rises through the phase-out range, and only retirees well past it see the entire benefit folded into taxable income.
Connecticut's full exemption starts $25,000 higher for single filers, and New Mexico's sits $50,000 higher. A middle-income Vermont household — two modest pensions, a 401(k) drawdown and two monthly checks — is more likely to owe something than a household with identical finances in most of the other seven states.
Vermont's income tax runs on graduated brackets, and its top rate is among the higher ones in the country. Retirement income beyond Social Security is generally taxable, though the state carves out partial exemptions for some government pension income, including certain military retirement pay and benefits paid under the Civil Service Retirement System.
Property taxes add to the picture. Vermont's rank near the top nationally, and the statewide education property tax applies whether or not a household has children in school. Homestead property tax credits are available to income-qualified residents and can soften that cost for retirees living on fixed income.
Housing costs diverge sharply inside the state. Chittenden County and the Burlington area carry the highest prices, while the Northeast Kingdom and other rural counties stay substantially cheaper. Where a retiree settles in Vermont can move the annual budget more than the tax treatment of benefits does.