Are you missing out? Discover the “game-changing” Social Security update that could save seniors $500 annually

Michigan seniors just got some welcome news that will make their monthly budgets a little easier to manage. Governor Gretchen Whitmer signed new legislation into law this week that eliminates state taxes on Social Security benefits, along with taxes on tips and overtime pay. The change will save Social Security recipients an average of $500 per year.

But Michigan isn't going it alone. The Wolverine State is part of a remarkable nationwide trend that's putting more money back in retirees' pockets across the country.

A national movement gaining momentum

Most states, 41 in total plus Washington, DC, won't tax your Social Security benefits in 2025, making life more affordable for millions of American seniors. That's a significant shift from just a few years ago, when more states were taking a bite out of retirees' monthly checks.

Only nine states still tax Social Security benefits as of 2025, and even that number keeps shrinking. Missouri and Nebraska decided to stop taxing Social Security benefits in 2024, while Kansas joined the tax-friendly list with legislation signed midway through 2024.

The financial impact is substantial. In Missouri, retirees are looking at a collective annual saving of around $309 million, while over in Nebraska, it's about $17 million. That's real money staying in retirees' bank accounts instead of going to state treasuries.

Michigan doubles down on senior savings

What makes Michigan's move particularly noteworthy is that it builds on previous tax relief efforts. The Whitmer administration had previously worked to roll back the retirement tax, which saved seniors an average of $1,000 annually. Combined with the new Social Security tax elimination, Michigan seniors are looking at significant ongoing relief.

The timing couldn't be better for many retirees who've been feeling the pinch of inflation on everything from groceries to healthcare costs. For someone receiving the average Social Security benefit, that extra $500 per year could cover several months of Medicare Part B premiums or help with prescription drug costs.

Which states still tax your benefits

If you're considering where to spend your retirement years, it pays to know which states might take a chunk of your Social Security check. The remaining nine states that tax Social Security benefits include Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, and West Virginia.

However, it's worth noting that many of these states offer partial exemptions or have generous income thresholds. For example, New Mexico provides higher income limits than most states, with single filers earning up to $100,000 per year, avoiding Social Security taxes at the state level.

Federal changes on the horizon

The state-level momentum might soon be matched at the federal level. President Trump campaigned on a promise to eliminate all income taxes on Social Security benefits, which could provide even more substantial savings for retirees nationwide.

Currently, up to 85% of Social Security benefits can be subject to federal taxation, depending on your total income. Eliminating this tax would represent a significant boost to retirement income for millions of Americans.

Also read: Can you really live on Social Security alone? These 10 states say yes

Planning implications for retirees

These tax policy changes have real implications for retirement planning. If you're approaching retirement or already retired, consider how state tax policies might affect your overall financial picture. The difference between living in a state that taxes Social Security versus one that doesn't could amount to thousands of dollars annually.

For Michigan residents specifically, the combined effect of previous retirement tax rollbacks plus the new Social Security tax elimination represents substantial ongoing savings. That's money that can go toward healthcare costs, home maintenance, helping grandchildren with college expenses, or simply providing more financial security.

Also read: Social Security after retirement: 6 Smart moves to make

The bigger retirement picture

While eliminating Social Security taxes is great news, it's just one piece of the retirement planning puzzle. Seniors should still consider other factors when planning their finances, including:

• State income tax rates on other retirement income, like 401(k) withdrawals or pension payments
• Property taxes, which can vary significantly by state and locality
• Sales taxes on everyday purchases
• Overall cost of living, including housing and healthcare costs

For current Michigan residents, this news is purely positive—more money in your pocket without any action required on your part. For retirees in other states, it might be worth reviewing whether your state's tax policies align with your retirement goals.

Read next:

• Five free or low-cost retirement perks you may be overlooking
• New state tax program lets you settle back taxes with no penalties or interest

Key Takeaways

• Michiganders will save up to $500 a year thanks to a new law eliminating tax on tips, overtime and Social Security benefits.
• The end of taxes on tips and overtime is expected to help hourly workers and those with extra shifts, easing pressure on household budgets.
• Social Security recipients in Michigan will particularly benefit, with the measures seen as a “game-changer” for seniors living on fixed incomes amid rising inflation.
• The new budget also expands credits for working families, while experts encourage workers to supplement their retirement income with savings in accounts like 401(k)s and IRAs.

]What do you think about this trend of states eliminating Social Security taxes? Are you benefiting from similar tax relief in your state, or considering a move to a more tax-friendly location? Share your thoughts and experiences in the comments below.