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As of November 2012, there were seven states that did not charge any type of state income tax, including taxes on Social Security benefits. These states include Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. Two more states, Tennessee and New Hampshire, do not tax income or Social Security benefits, but do tax interest and dividends.
Interest and Dividends. Interest and dividends are forms of passive income that are not subject to Social Security tax. Interest and dividends you receive during the year -- unless earned in a special tax-deferred account such as an IRA -- are subject to federal income taxes. portion of Social Security benefits may be subject to income taxes, depending on your annual income. If Social Security benefits are your only income source, however, you don't pay any taxes on your benefits.