The 2025 tax season was challenging this year. There were many changes due to the new tax laws enacted by Congress. Car loan interest and the overtime premium pay were deductible for certain taxpayers. The ability of some taxpayers to deduct state and local taxes increased as well.
There was talk about making Social Security income tax-free. But certain members of Congress thought that was a bad idea. They said, "Why should affluent retirees get a tax break?" So, they compromised and created an additional $6,000 deduction for seniors (65 and older), subject to limitations based on income.
The new deduction is just one moving part in a complex formula to determine your overall taxable income and tax liability. How much of your Social Security income is taxable? That is probably one of the most complex parts of the overall equation, because the amount of your taxable Social Security income ranges from a minimum of 0% to a maximum of 85%. Simple math:
$100 Social Security income x 0% taxable = $0 taxable income
vs.
$100 Social Security income x 85% taxable = $85 taxable income
What determines how much of your Social Security income is taxable?
Your combined income. Specifically, your modified adjusted gross income, which is basically your adjusted gross income plus tax-exempt interest, which for most people is your gross income. Let the tax pros get it down to brass tacks.
Why does it matter?
Taxpayers usually have similar income from year to year unless some unexpected event occurs. For example, they have a windfall of gambling or lottery winnings, or their brokerage account realizes a significant increase in income. Next thing they know, their tax liability surges. "Why are my taxes so high? My income did not increase that much. You must have done something wrong!"
Yes, the increase in your tax liability is not linear. No, I did not do anything wrong. You just got hit by the Left Hook, and it hurts.
What happened?
We have to understand the formula used to calculate the taxability of Social Security income.
Combined Income Formula
Combined income = Other taxable income + Tax-exempt interest + 0.5 x Social Security benefits
IRS Thresholds (2026)
| Filing Status | 0% Taxable | Up to 50% Taxable | Up to 85% Taxable |
|---|---|---|---|
| Single / HOH | < $25,000 | $25,000–$34,000 | > $34,000 |
| Married Filing Jointly | < $32,000 | $32,000–$44,000 | > $44,000 |
Fun stuff, right? Let's do an example for a single taxpayer
| Income | Gross | Combined | Taxable |
|---|---|---|---|
| Bank Interest | $1,000 | $1,000 | $1,000 |
| Dividends | 2,000 | 2,000 | 2,000 |
| 1099-R | 22,000 | 22,000 | 22,000 |
| Social Security | 18,000 | 9,000 | 9,000 (taxable amount 50%) |
| Total | $43,000 | $34,000 | $34,000 |
Here is what happens when other income increases but Social Security remains the same
| Income | Gross | Combined | Taxable |
|---|---|---|---|
| Bank Interest | $1,000 | $1,000 | $1,000 |
| Dividends | 2,000 | 2,000 | 2,000 |
| 1099-R | 22,000 | 22,000 | 22,000 |
| Capital Gains | 30,000 | 30,000 | 30,000 |
| Social Security | 18,000 | 9,000 | 15,300 (taxable amount 85%) |
| Total | $73,000 | $64,000 | $70,300 |
As you can see, the overall income changed but the amount of Social Security benefits did not. The Left Hook: the taxable amount of Social Security increased significantly, by $6,300. How much does our taxpayer's liability increase? At a 12% marginal tax rate, $756. That's a large tax increase just on Social Security income, even though the benefits received were the same in both examples.
This material is presented solely for information purposes and has been gathered from sources believed to be reliable, however, Landing Point cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Landing Point does not provide tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such. Nothing in this presentation is intended to serve as personalized investment, tax, or insurance advice, as such advice depends on your individual facts and circumstances. Advisory services are only offered to clients or prospective clients where Landing Point and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Landing Point unless a client service agreement is in place.