The United States Code, Title 4 Chapter 1, Section 8, says:
The flag, when it is in such condition that it is no longer a fitting emblem for display, should be destroyed in a dignified way, preferably by burning.
You can leave old and worn flags at the Veterans Office, or at the Flag Retirement Box at the Hartwell Transfer Station located at:
60 Hartwell Avenue
Lexington, MA 02421