How do state taxes and withholding interact with federal taxation of Social Security benefits?
Executive summary
Federal law determines whether and how much of Social Security benefits are included in federal taxable income—up to 85% of benefits depending on “combined income” thresholds—and the Social Security Administration can withhold federal taxes from benefit payments on request [1] [2]. States then decide whether to tax Social Security and typically start from the federal definition of taxable benefits or federal AGI as a baseline, applying their own exemptions, subtractions or rates; only a handful of states still tax benefits and several are phasing those levies out amid policy pressure [3] [4] [5].
1. Federal taxability sets the starting line
The central pivot is federal taxation: the Social Security Administration and the IRS use “combined income” (AGI + nontaxable interest + half of Social Security) to decide whether up to 85% of benefits are federally taxable, and beneficiaries can arrange voluntary federal tax withholding directly from their checks [1] [6]. That federally taxable portion becomes the primary input for most state tax systems because many states use federal AGI or federal taxable income as the starting point for their own calculations, so the federal determination materially affects what states can tax [3].
2. States pick up, conform, or carve out—variation matters
States take three basic approaches: conform to the federal taxable amount, allow a subtraction or credit, or tax Social Security differently with their own thresholds and rules; as of early 2026 only a small group of states tax some Social Security income (examples cited include Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont and Colorado’s special rules), and thresholds, phase-outs and exemptions vary widely by state [7] [4] [8]. The practical result is that a retiree who is not federally taxed on benefits may still face state tax in a state that decouples or applies different income thresholds, and vice versa [2] [8].
3. Withholding: federal is straightforward, state is fragmented
An individual can ask the SSA to withhold federal income tax from benefit checks to cover projected federal liability, which reduces the risk of underpayment penalties [1] [6]. By contrast, routine state withholding from Social Security benefits is not standardized across states; whether a state offers withholding or requires estimated payments depends on that state’s tax administration and whether it treats the benefits as taxable income under state law [3]. Where states do tax benefits, taxpayers may need to request state withholding, make estimated payments, or reconcile liability when filing.
4. Policy shifts and the political overlay
Recent federal changes—a temporary senior deduction of up to $6,000 enacted in major 2025–26 legislation—alter who pays federal tax on benefits and therefore shift the base many states start from, prompting renewed advocacy to eliminate state taxes on Social Security to amplify savings for retirees [5] [9]. Proponents frame state repeal as targeted relief for older Americans; opponents and budget hawks note the revenue consequences and point out that many state levies already apply mostly to higher-income retirees, creating an implicit distributional choice [5] [3].
5. Practical implications for retirees and tax planning
Because the federal formula is fixed and many states use federal measures as inputs, rising wages, investment income, or nonindexed thresholds can push more benefits into federal taxable status—and that in turn can increase state exposure where states tax benefits or compute liability from federal AGI—so retirees must consider both federal withholding options and their state’s rules when planning distributions, conversions, or location decisions [2] [10]. Professional advice matters because state rules differ in who is exempt, what subtractions exist, and whether tax credits or deductions offset state liability [11] [8].
6. What reporting leaves unresolved and where to look next
Available reporting shows the mechanics—federal thresholds, SSA withholding, and state variance—but does not uniformly map every state’s current withholding options or the precise population affected by recent federal tweaks; state tax codes and administrative practices change year to year, and readers should consult state tax authorities or a tax professional for precise withholding procedures and up-to-date exemptions in their state [3] [1].