Strategic Advantage: 42 States and D.C. Don't Tax Your Social Security Payments

Retirement planning involves countless decisions—from where to relocate to how to structure your income streams. One factor that deserves serious consideration is where Social Security will be taxed. The good news is that residents of 42 states plus Washington, D.C. benefit from a significant advantage: their state governments don’t impose taxes on Social Security income. This represents a meaningful opportunity for retirees looking to stretch their benefits further.

Arizona and 41 Other States Offer Tax-Free Social Security Benefits

If you’re considering retirement in Arizona, you’re in an enviable position. Arizona is among the majority of states that have chosen to exempt Social Security from state taxation. This decision reflects a broader trend across the country, where 43 jurisdictions recognize the value of attracting and retaining retirees.

The complete list of states with no Social Security taxation includes Alabama, Alaska, Arizona, Arkansas, California, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, Missouri, Nebraska, Nevada, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Virginia, Washington, West Virginia, Wisconsin, and Wyoming, along with Washington, D.C.

This tax-friendly environment is particularly appealing when you consider the newcomers to the list. West Virginia eliminated its Social Security tax in 2026, while Kansas, Missouri, Nebraska, and North Dakota all made the move between 2021 and 2024. States are actively incentivizing retirees to settle within their borders—a strategy that benefits local economies through increased consumer spending and tax revenue from other sources.

Why States Are Ditching Social Security Taxes

States that exempt Social Security payments from taxation view this as an investment in population growth and economic vitality. By making retirement more financially attractive, these jurisdictions draw affluent retirees who continue to spend money on goods, services, and real estate. The trade-off is straightforward: sacrificing Social Security tax revenue in exchange for broader economic activity and tax collection through other channels.

This policy shift explains why the list has grown in recent years. Policymakers recognize that a retiree-friendly tax environment can be a competitive advantage in an increasingly mobile population.

Don’t Forget About Federal Taxation

While state-level protection is valuable, retirees face a more complex reality at the federal level. Even if your state doesn’t tax Social Security, the IRS absolutely will—under certain income thresholds. The federal government applies its own rules regardless of state policy, and understanding these rules is critical.

The IRS determines federal taxation on Social Security using a measure called “combined income.” This figure includes half of your annual Social Security benefit, your adjusted gross income (AGI), and any nontaxable interest you earn. For example, a retiree with $24,000 in annual Social Security, $20,000 in AGI, and $1,000 in nontaxable interest would have a combined income of $33,000 ($12,000 + $20,000 + $1,000).

Calculating Your Potential Tax Liability

Once the IRS calculates your combined income, federal tax treatment depends on your filing status:

For single filers:

• Combined income under $25,000: No federal tax on Social Security
• Combined income between $25,000 and $34,000: Up to 50% of benefits may be taxable
• Combined income above $34,000: Up to 85% of benefits may be taxable

For married couples filing jointly:

• Combined income under $32,000: No federal tax on Social Security
• Combined income between $32,000 and $44,000: Up to 50% of benefits may be taxable
• Combined income above $44,000: Up to 85% of benefits may be taxable

Using the previous example, if the person filing as single had a $33,000 combined income, up to 50% of their Social Security ($12,000) could be added to their other income and taxed at their regular income tax rate.

Strategic Planning for Retirees

The takeaway is clear: living in Arizona or any of the other 42 states without Social Security taxation provides meaningful tax relief at the state level. However, this advantage doesn’t eliminate federal tax considerations. Savvy retirees—whether in Arizona or elsewhere—should strategically manage their combined income to minimize federal tax exposure.

This might involve timing withdrawals from retirement accounts, managing investment income, or carefully planning the recognition of taxable events. Understanding both state and federal rules transforms Social Security taxation from an unpleasant surprise into a manageable component of comprehensive retirement planning. For those deliberating where to retire, the tax-friendly states offer a genuine financial benefit worth factoring into your decision.